Tax deducted is income received U/s 198 of the IT Act

Sri Y. Rathiesh V. CIT (Andhra Pradesh High Court)

Assessee for the income under the head of “Business or Profession “ or “Income from Other sources” has got option either to follow cash or mercantile system of accounting. Once he chooses the option, he has to follow on regular basis.

As per Rule 37BA , (i) credit for tax deducted at source and paid to the Central Govt. , shall be given for the assessment year for which such income is assessable. (ii) where tax has been deducted at source and paid to the Central Govt., and income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax. This implies that if the interest income is accumulative in nature, and to be paid on the maturity, assessee has option either to show on the accrual basis or in the year of maturity under the cash method of accounting. If the assessee, follows cash method of accounting then TDS deducted under accrual method, to be claimed in the year of maturity. Each year, assessee has to differ the TDS credit and to be claimed in the year of maturity. This is compliant to the Rule 37BA of the income Tax Rule ,1962.

Whenever an amount deducted as tax at source becomes incapable of being being adjusted or counted towards tax payable, it acquired the character of an income. In such an event, it partake the character of any other income and is liable to be dealt with accordingly. In this case, TDS amount will be treated as an income and no credit of TDS to be allowed. For example, Mr. PQR follows cash method of accounting on the Director commission to be received from M/s ABC Corporation on regular basis. M/s ABC Corporation follows mercantile method of accounting and deduct TDS on the Director commission accrual basis. In this case, assesee Mr. PQR, U/s 198 of the IT Act, may treat TDS as an income and pay the tax thereon. The stand of the assessee is supported in the Andhra Pradesh High Court judgment Y. Rathiesh V. CIT.

FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:

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