Million Traders Bhopal Pvt. Ltd Vs ADIT (ITAT Indore)
ITAT Indore held that the credit of the tax collected at source should be given to the person in whose hands the income is rightfully and finally assessed to tax in accordance with law, irrespective of the person in whose hands the TDS/TCS certificate has been issued at first place.
Facts- The solitary grievance of the assessee is regarding non allowance of the credit of TCS collected by the Excise Department of State of M.P. in respect of the purchase of liquor due to nonappearance in the PAN account of the assessee company but reflected in the accounts of the individual license holders who are directors and associates of the assessee company.
Conclusion- Held that the credit of the tax deducted at source or collected at source should be given to the person in whose hands the income is rightfully and finally assessed to tax in accordance with law, irrespective of the person in whose hands the TDS/TCS certificate has been issued at first place. The only safeguard to be considered is that no double credit of the said amount of TCS is claimed.
Held that the credit of the tax deducted at source/tax collected at source be given to the de-facto prayer/recipient of the amount which is subjected to the collection/deduction of tax as in whose hands the corresponding income is going to be assessed. The only rider to this principle is that there should not be any double claim of credit. Accordingly if the assessee produces the record as well as undertaking/indemnity bond from the license holders that they have not claimed or not going to claim the credit of the said amount of TCS then the credit of the TCS on the transactions of purchase of liquor actually carried out by the assessee by using the license issued in name of the individuals shall be allowed to the assessee. Since the relevant facts regarding the purchase, sales of liquor by the assessee and consequential income offered to tax by the assessee as well as the undertaking/indemnity from the individual license holders are required to be produced and verified/examined therefore, the matter is set aside to the record of the AO.
FULL TEXT OF THE ORDER OF ITAT INDORE
These two appeals by the assessee are directed against two separate orders dated Commissioner of Income Tax(Appeal), National Faceless Appeal Centre, Delhi both dated 13.02.2023 for A.Y.2017-18 & 2018-19 respectively. The assesse has raised common grounds in these appeals the grounds raised for A.Y.2017-18 are as under:
“1.That on the facts and in the circumstances of the case and in law, the denial of credit of TCS of Rs. 8226254 in intimation u/s 143(1) is unjustified and unlawful and therefore the credit of TCS of Rs. 8226254 be kindly allowed.
2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred and not justified in his findings that the denial of credit of TCS of Rs. 8226254 is lawful, such findings be held as unlawful and injudicious and therefore be quashed and the credit of TCS of Rs. 8226254 be kindly allowed.
3. That on the facts and in the circumstances of the case and in law the assessee submits that having regard to the nature of business and the explanation furnished before the lower authorities it be held that the assessee is lawfully eligible and entitled to claim the credit of TCS of Rs. 8226254 and the denial of such credit is injudicious and unlawful and hence the credit of TCS of Rs. 8226254 be kindly allowed.
4. That on the facts and in the circumstances of the case and in law, the levy of interest under section 234B and 234C is unlawful and without jurisdiction therefore, the same be kindly deleted.”
2. The solitary grievance of the assessee for both the assessment year 2017-18 & 2018-19 is regarding non allowance of the credit of TCS collected by the Excise Department of State of M.P. in respect of the purchase of liquor due to nonappearance in the PAN account of the assessee company but reflected in the accounts of the individual license holders who are directors and associates of the assessee company. Ld. Sr. Counsel for the assessee submitted that the assessee company is engaged in the business retail sale of liquor. The directors/associates of assessee company are license holders and they have formed the company to carry on the business of liquor. Due to typical nature of assessee’s line of business, the entire business of shops though allotted in the names of Directors/Associates is accounted for in the books of assessee. The shops are obtained in the name of the directors/associates as per the regulations of State Excise Department. However the purchases and sales are accounted as the transactions of the assesse company and income of all the shops are offered as income of the assessee company and same is also assessed to tax. Thus, Ld. Sr. counsel has submitted that the individual license holders in whose name the TCS was collected by the Excise department and deposited to the Government account have not claimed the credit of the said TCS as the income from the transactions of purchase and sale is offered to tax by the assessee. The directors/associates of the assesse company who are holders of the license of the Excise department and has no objection for the claim of credit of the said advance the (TCS) by the assessee. He has further submitted that the income has been assessed in the hands of the assessee company but the credit of corresponding TCS has not been allowed against the income derived from the transactions of purchase and sale of liquor. In support of his contention he has relied upon the following decisions:
i. M/s Avinash Chalana & Co. v. ACIT, in ITA No. 13/IND/2015 (Hon’ble ITAT Indore) Order dated 18/04/2016
ii. Asstt. Commissioner of Income tax CPC-Bangalore v. M/s Avinash Chalana & Co. dated 28/06/2017 passed in MA No.129/2016 arising out of ITA No. 13/IND/2015
iii. Smt. Vijay Luxmi Gupta v. Income Tax Officer ward-1 (4), Allahabad
(Hon’ble ITAT Allahabad) in ITA No. 262/ALLD/2018 Order dated 22/03/2021
iv. Commissioner of Income Tax -1 v. Bhooratnam & Co. [2013] 29 taxmann.com 275 (Andhra Pradesh)
v. M/s Jai Ambey Wines, Ajmer v. The ACIT, Circle -2. Ajmer (Order dated 11/01/2017 passed in ITA No. 676/JP/2015 by Coordinate bench at Jaipur).
vi. Hotel Ashok Garden, Dharwad v. ITO, Hubli (Order dated 06/02/2023 passed in ITA No. 12 to 15/Bang/2023
vii. Commissioner of Income Tax-15, v. Relcom [2015] 62 Taxmann.com 190 (Delhi)
viii. Naresh Bhavani Shah (HUF) v. Commissioner of Income Tax [2017] 84 taxmann.com 53 (Gujarat)
3. Ld. Sr. counsel has fairly submitted that though in the judgment relied by him the Tribunal has considered Rule 37BA which is relevant for the credit of TDS whereas the Rule 37-I of the Income Tax Rules is relevant for credit for Tax Collected at Source(TCS) however the under line principles for both the provisions is same as credit of TDS or TCS to be allowed against the corresponding income offered to tax. Further the Ld. Sr. counsel submitted that the licensees/associates have not claimed credit of TCS in their individual case and have not obtained the refund of the same as it is evident from Form 26AS of the individual license holders. Therefore, the credit of the TCS ought to have been allowed to the assessee company who is actually doing the business of purchase and sale of liquor and accounted all the transactions as well as the income derived from the activities of purchase and sale of liquor. Ld. Sr. counsel has referred to the form 26AS of the individual license holders showing the amount of TCS in their accounts however, none of the individual license holders have claimed the credit of the TCS reflected in form 26AS and therefore, non-allowing the credit of the said TCS to the assesse would amount to under enrichment of revenue department and depriving the assessee of its due credit of TCS. Ld. Sr. counsel has referred to the provisions of section 199 and submitted that the credit of TCS be given to the person on whose behalf it was collected. The assesse is showing the purchase and sale and consequential income therefore, the credit of TCS on purchase shall be given to the assessee. He has also referred to section 206C(4) and submitted that the term “behalf of whom the amount is collected and paid to the Government” means that the credit be allowed to the person who has actually carried out transaction the on which tax was collected at source. Further Ld. Sr. counsel has pointed out that since the disallowance is made by the CPC while processing the return u/s 143(1) therefore, the assessee had no occasion to produce the supporting evidence to show that the TCS was collected by the Excise Department in respect of the purchase made and accounted by the assessee.
4. On the other hand, Ld. DR has submitted that the ld. CIT(A) has analyzed the provision of Rule 37BA as well as the provision of Rule 37-I and held that the relevant rule is Rule 37-I and therefore, the credit of TCS is not available to a person other than deductee. The decisions relied by the Ld. Counsel for the assesse are rendered in the context of Rule 37BA and therefore, the relevant Rule 37-I is not considered or discussed in those decisions. He has relied upon the impugned order of the Ld. CIT(A) and submitted that section 206C(4) uses the term “shall” which means strict interpretation of the said provisions. Further risk management is also required while granting credit to avoid misuse and double credit of the amount.
5. We have considered the rival submissions as well as relevant material on record. It is a case of pooling of resources and use of excise license by individual license holders for doing the business of purchase and sale of liquor in the State of M.P. by forming and associating with the assesse company. Thus, in other words the individual license holders who are having interest in the assessee company in the capacity of the shareholders or directors have allowed the assesse company to do the business by use of the license given to them. Prima facie it is manifest from the record that actual transactions of purchases and sales of liquor have been carried out by the assessee company on the basis of the license granted in the name of the individual who have associated with the assesse company. This practice is otherwise prevailing and accepted by the concerned authorities of the State Government that after obtaining the license by the individuals they are usually forming association or partnership firm or a company to pool their resources as well as to avoid competition among themselves. Though the licenses are given by the Excise Department to the individuals as per the policy of the Government however, if the actual business of purchase and sale of liquor is conducted by a Corporate entity formed by the individual license holders and corresponding income from the said business is also offered to tax by the said business entity and not by the individual license holders then the credit of advance tax collected from the transactions of purchase has to be allowed in the hands of the company which is the actual purchaser/buyer and also offering the income from the said business activity to tax. It is very pertinent and relevant for allowing the credit of TCS as who is actually subjected to the TCS on purchase of liquor from Excise Department and also accounting the transactions and consequential income offered to tax.
5.1 The another relevant aspect is whether the individual in whose name license is issued has claimed any credit of the said amount of TCS or not ? In case those license holders have not claimed the credit of the said amount of TCS then the claim of the assessee who is doing the business and carrying out the transactions on which the tax is collected can be considered subject to the risk management of revenue that no other person has claimed the credit of the said amount. The Ld. CIT(A) has denied the claim of credit by distinguishing the Rule 37BA and Rule 37-I. However, it is pertinent to note that the underline principles and logic for allowing the credit of TCS as per Rule 37BA as well as allowing the credit of TCS u/s 37-I is not materially different. The Coordinate Bench of this Tribunal in case of M/s Avinash Chalana & Co. vs. ACIT, CPC Bangalore (supra) while dealing with an issue of claim of credit of TCS by the partnership firm whereas the credit was reflected in the accounts of individual license holders has held in para 7 to 9 as under:
“7.We have heard the rival contentions of both the parties. Looking to the facts and circumstances of the case, we find that as per Section 199, which reads as under :-
“Section 199(1) of the Income-tax Act, 1961, provides that any deduction of tax made in accordance with the provisions of Chapter XVII of the Act and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made. Under sub Section (3) of Section 199, the CBDT may, for the purpose of giving credit in respect of tax deducted at source or paid in terms of the provisions of Chapter XVII of the Act, make such rules as may be necessary, including the rules for the purpose of giving credit to a person other than those referred to in sub Section (1) and sub Section (2) and also the assessment year for which such credit may be given.”
Rule 37BA of the Rules framed u/s 199(3) of the Act (introduced w.e.f. 01.04.2009 by Income Tax (Sixth Amendment) Rule, 2009, by the CBDT) is as follows:-
“Credit for tax deducted at source for the purpose of Section 199.
37BA. (1) Credit for tax deducted at source and paid to the Central Government in accordance with the provisions of Chapter XVII, shall be given to the person to whom payment has been made or credit has been given (hereinafter referred to as deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorised by such authority.
(2) (i) If the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit for tax deducted at source shall be given to the ‘other person in cases where-
(a) the income of the deductee is included in the total income of another person under the provisions of section 60, Section 61, section 64, section 93 or section 94;
(b) the income of a deductee being an association of persons or a trust is assessable in the hands of members of the association of persons, or in the hands of trustees, as the case may
(c) the income from an asset held in the name of a deductee, being a partner of a firm or a karta of a Hindu undivided family, is assessable as the income of the firm, or Hindu undivided family, as the case may be;
(d) the income from a property, deposit, security, unit or share held in the name of a deductee is owned jointly by the deductee and other persons and the income is assessable in their hands in the same proportion as their ownership of the asset:
Provided that the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax referred to in sub-rule (1).
(ii) The declaration filed by the deductee under clause (i) shall contain the name, address, permanent account number of the person to whom credit is to be given, payment or credit in relation to which credit is to be given and reasons for giving credit to such person.
(iii) The deductor shall issue the certificate for deduction of tax at source in the name of the person in whose name credit is shown in the information relating to deduction of tax referred to in sub-rule (1) and shall keep the declaration in his safe custody.
(3) (i) Credit for tax deducted at source and paid to the Central Government, 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 Government and the 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.
(4) Credit for tax deducted at source and paid to the account of the Central Government shall be granted on the basis of –
(i) the information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorized by such authority: and
(ii) the information in the return of income in respect of the claim for the credit,
“Subject to verification in accordance with the risk management strategy formulated by the Board from time to time.”
By the Income Tax (8th amendment) Rules 2011, the CBDT amended Rule 37 BA and in sub rule (2), for clause (i), the following clause was substituted:
“(i) Where under any provisions of the Act, the whole or any part of the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit for the whole or any part of the tax deducted at source, as the case may be, shall be given to the other person and not to the deductee.”
This amendment has done away with the specified four clauses in the pre-amended Rule 37BA which restricted the benefit of the rule only in four specified situations. It has thus widened the scope of the rule 37BA thereby enabling the credit of taxes to the actual payee in whose hands the income is assessable and not restricting this benefit only to the specified four situations.”
8. As per above rules and interpretation of the Act, we are of the view that if the assessee is a partnership firm to carry on the business in liquor and TCS is claimed in the name of partner of the firm, the TCS collected by the party in the name of different persons, which reads as under :-
