In the ITAT Chandigarh Bench ‘B’ (Third Member)

Pardeep Kumar Dhir v. Assistant Commissioner of Income-tax, C.C.-IV, Ludhiana

Section 199 of the Income-tax Act, 1961 – Deduction of tax at source – Credit for tax deducted – Assessment year 2003-04 – Whether Assessee will not be entitled to have benefit or credit for amount of tax deducted though mentioned in certificate for an assessment year, if income relatable to that amount is not shown and is not assessable in that assessment year – Held, yes – Whether therefore, if instead of entire income referable to amount of tax deducted, only a portion of income is found assessable, benefit has to be allowed only on portion shown and credit for balance TDS can be allowed only in future when balance of such income is assessable – Held, yes

Circulars & clarifications – Circular No. 5/2001, dated 2-3-2007

Facts

The Assessee, engaged in the business of commission agent, was following the cash accounting system. He claimed in its return, credit for TDS deducted and paid by various parties as per certificate of such deduction issued to him. However, since the entire amount of commission mentioned in TDS certificate was not actually paid, the Assessee only showed the commission, which was actually received by him in the relevant period. The Assessing Officer held that credit of tax deducted could be allowed only to the extent, the income was shown as assessable in the light of the provision of section 199. As entire income referred to in the TDS certificate was not disclosed, the Assessing Officer allowed credit of TDS on a pro rata basis. The Assessing Officer held that the balance credit would be allowable in the year in which the balance income would be shown as assessable. On appeal, the Commissioner (Appeals) upheld the impugned order. On second appeal, the Accountant Member held that TDS is akin to advance tax and credit for the same is required to be given in the same manner as is given for advance tax under section 219. The Judicial Member, however, concurred with the view of the Commissioner (Appeals). Since there was a difference of opinion between the two Members, the matter was referred to the Third Member.

Held [Per Third Member]

The Accountant Member was not right in holding that the tax deducted at source is advance tax and credit for the same is to be given to the Assessee in terms of section 219. The said section, as rightly pointed out by the Judicial Member, had no application in the instant case. There is a specific section, i.e., section 199 under which credit has to be allowed to the Assessee of tax deducted at source when certificate is furnished under section 203. [Para 10]

As per the provision of section 199, credit is to be given to the Assessee for the amount so deducted in the assessment made under the Act for the assessment year for which such income is assessable. So, the important conditions for getting benefit of TDS as per section 199 are : (a) the Assessee should produce the certificate for the amount of tax deducted at source; (b) show that income subjected to TDS is disclosed in the return of the assessment year as ‘assessable’. [Para 11]

Thus, both the conditions mentioned are to be satisfied. It is, therefore, clear that the Assessee will not be entitled to have benefit or credit for the amount though mentioned in the certificate for the assessment year if income relatable to the amount is not shown and is not assessable in that assessment year. If instead of entire income referable to amount of tax deducted, only a portion of income is found assessable, the benefit has to be allowed only on the portion shown. If balance income, on account of system of accounting followed by the Assessee or for some other reason is found to be assessable in future, then the credit for the balance TDS can be allowed only in future when income is assessable. Credit allowed on pro rata basis in the year in which the certificate is issued and also in future where balance of such income is found to be assessable is as per the mandate of provision of section 199. Any amount, which has not been assessed in any year but referred in the TDS certificate, cannot be claimed under section 199. The Assessing Officer and the Judicial Member were right in holding that credit on pro rata basis had to be allowed. [Para 11.1]

The CBDT Circular No. 5/2001, dated 2-3-2001 also supports the view that where tax is deducted from the amount which is liable to be assessed and spread over more than one financial year, credit shall be allowed for TDS on pro rata basis and in the same proportion in which such income is offered for taxation in different assessment years. [Para 13]

There is no quarrel with the proposition that the income must be computed as per system of accounting regularly followed by the Assessee, but it cannot be agreed with that the credit for the tax deducted at source is to be allowed as per any system of accounting followed by the Assessee. In the instant case, there was no dispute regarding cash system of accounting followed by the Assessee and his income had been computed as per said system. No addition had been made for income, which the Assessee was ‘entitled’ to receive, but did not actually receive. No credit for TDS on such non-assessable income could be claimed. Benefit for the tax deducted at source is to be allowed as per statutory provisions contained in section 199. It has nothing to do with the system of accounting followed by the Assessee. Further, there is no dispute that the revenue should have a consistent approach, but the said principle of law has no application where interpretation of statutory provisions is involved. If in a particular year a statutory provision is wrongly interpreted and applied, the revenue can correct the error as income is required to be computed by correctly applying and enforcing law. Error cannot be perpetuated. Therefore, on correct interpretation of section 199, the Assessing Officer was right in allowing credit for tax deducted at source on pro rata basis. The credit for the balance amount mentioned in the certificate was to be allowed in the year in which such income was disclosed or was otherwise found to be assessable by the revenue. [Para 14]

Consequently, the order proposed by the Judicial Member had to be agreed with. [Para 15]