Tribunal Grants TDS Credit for Interest on Machinery Costs, Annuls Interest u/ss 234B & 234C of IT Act.

Supreme Renewable Energy Limited. Versus INCOME TAX OFFICER.

Supreme Renewable Energy Limited. Versus INCOME TAX OFFICER. - [2010] 3 ITR 339, ITD 124, 394, TTJ 128, 352 Issues:
1. Denial of credit for TDS on interest income deducted from machinery installation expenditure.
2. Confirmation of interest levy under sections 234B and 234C of IT Act.

Analysis:
1. The appeal concerned the denial of TDS credit on interest income deducted from machinery installation expenditure. The assessee, a domestic power co-generation company, filed a return claiming a refund, including TDS on interest income. The AO did not credit the TDS, leading to a demand. The CIT(A) upheld this decision, prompting the appeal. The assessee argued that the interest income was linked to machinery installation and should be treated as taxable income, citing relevant case law. The Departmental Representative contended that since the income wasn't offered for tax, TDS credit was unjustified.

2. After considering arguments, the Tribunal noted that the interest earned was mandatory due to a statutory deposit for machinery installation. Citing the Supreme Court's decision, it concluded that such interest is a capital receipt, reducing the asset's cost. Therefore, even if not directly taxable, the interest was indirectly disclosed for assessment through cost reduction. Relying on precedents, the Tribunal held that TDS credit is due when income subject to TDS isn't directly taxable. Consequently, the Tribunal allowed the TDS credit and annulled the interest levied under sections 234B and 234C due to the TDS credit allowance.

3. The judgment emphasizes that when TDS is deducted on income not directly liable for tax but deposited with the Government, the assessee is entitled to TDS credit. By reducing interest income from machinery cost, the assessee indirectly disclosed the income for assessment, justifying TDS credit. The Tribunal's decision highlights the entitlement to TDS credit on income not directly taxable, aligning with legal principles and prior judgments.