HIGH COURT OF ANDHRA PRADESH
Commissioner of Income-tax-1
Bhooratnam & Co.
I.T.T. APPEAL NOS. 117 & 222 OF 2012†
NOVEMBER 23, 2012
M.S. Ramachandra Rao, J.
The respondent/assessee in I.T.T.A.No.117 of 2012 is M/s. Bhooratnam and Co., a partnership firm engaged in the manufacture of PSCC/RCC and MS pipes, cement slabs and also executes civil contracts. With effect from 16-07-2003, the said firm was converted into a company by name M/s. Bhooratnam Construction Company (P) Limited. By virtue of the conversion, all the assets and liabilities of the erstwhile partnership firm had become assets and liabilities of this Company. In I.T.T.A.No.222 of 2012, this company is the respondent.
2. The assessee along with three others i.e. M/s. Koya and Company Construction Limited, the Indian Hume Pipe Company Limited and M/s. Taherali Industries and Projects Private Limited entered into a joint venture agreement called “Agreement for Collaboration and Cooperation” on 12-03-2003 for the purposes of preparing and submitting prequalification/post qualification tender to the Hyderabad Metropolitan Water Works and Sewerage Board. According to the terms of the said agreement dated 12-03-2003 between these entities, each party i.e. co-venturer in the joint venture is responsible for his respective profit or loss earned by him in the execution of each one’s respective share in works. Each of the parties to the joint venture is concerned with its share of work/contract and the profit or loss arising therefrom and the agreement was not to be treated as an agreement to earn profits only.
3. Contract receipts up to 15-07-2003 were offered for taxation in the hands of the firm and after 15-07-2003 from all existing works/contracts on hand have been declared in the hands of the company.
4. On 01-11-2004, for the assessment year 2004-05, for the period up to 15-07-2003, the firm filed its return of income declaring an income of Rs. 1,23,47,000/-.
5. On 29-11-2004, for the assessment year 2004-05, for the period after 15-07-2003 up to 31-03-2004, the company filed a return admitting a taxable income of Rs. 4,32,08,820.
6. With respect to the contract work receipts, TDS was done but the assessee claimed credit of the tax mentioned in the said TDS certificates, the assessing officer, in the assessment orders of both the firm and the company, refused to give credit on the ground that some of the TDS certificates belong to the joint venture and some other TDS certificates are in the name of Directors and do not relate to the assessee firm/company.
7. Appeals were filed to the CIT (Appeals) by the firm and the company and by orders dated 04-12-2007 and 25-01-2007, the said appeals were allowed on the ground that as per the agreement dated 12-03-2003 mentioned above, each co-venturer has got its own share of work; that each co-venturer has to execute the work and get TDS certificate for having done work for its share of work; that even though the TDS certificate are in the name of the joint venture, the formation of the joint venture is only for a limited purpose of bidding tender; that each co-venturer in the joint venture has got its own separate responsibility of executing work and to receive contract receipts and also with tax liabilities; that the return of income filed by the assessee admitting contract receipts and TDS with regard to contract work of co-venturer is in order ; and that the assessing officer having entertained to assess the income/receipts part mentioned in the TDS certificate cannot disown the TDS certificates and refuse to give credit to TDS made out of the gross contract receipts. The appellate authority held that having assessed the gross receipts of the contract from TDS certificates, the assessing authority cannot ignore the tax deduction part; that the TDS certificates were not doubted; that they were not issued for a second time; and where the joint venture had not filed the return of income and claimed credit for TDS certificates, then the said credit has to entertained in the assessee’s hands. The appellate authority directed the assessing officer to verify and allow credit of TDS certificate.
8. Aggrieved thereby the Revenue filed further appeals to the Income Tax Appellate Tribunal.
9. By order dated 03-06-2011, the Tribunal dismissed the appeal filed by the Revenue (I.T.A.No.1671/Hyd/2010) in respect of the firm and held that there has been a tax deduction at source either in the name of the company or in the name of the Director and it covers all the tax payable by the assessee. It relied upon Rule 37-B A of the Income Tax Rules, 1962 and held that the assessing officer is required to give credit for the TDS certificate filed by the assessee company either in the name of the assessee or in the name of the Director. It accepted the contention of the assessee that the income included in the TDS certificates has been considered for the purpose of determining the total income of the assessee and that on the same logic, due credit should also be given to the TDS involved in that certificate.
10. The Tribunal by order dated 28-07-2011 rejected the appeal of the Revenue in regard to the company (I.T.A.No.218/Hyd/11) by following its above order dated 03-06-2011 in I.T.A.No.1671/Hyd/2010 in the case of the firm.
11. Aggrieved thereby, the present appeals under Section 260-A of the Income Tax Act, 1961 have been filed contending:
(a) that the credit for TDS given on the TDS certificates produced in the names of the Joint Venture is not in accordance with Rule 37-B A of the Rules framed under the I.T. Act.
(b) The assessee is not eligible for TDS credit on the certificates produced in the names of the Directors when the same is not in accordance with Rule 37-B A of the above Rules.
12. Heard Sri J.V.Prasad, learned Senior Standing Counsel for the Income Tax Department and Sri C.P.Ramaswamy, learned counsel for the assessees.
13. S.199 (1) of the Act 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.
14. Rule 37BA of the Rules framed under Section 199(3) of the Act (introduced with effect from 01-04-2009 by Income Tax (Sixth Amendment) Rules, 2009 by the CBDT) is as follows:
“Credit for tax deducted at source for the purposes 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 be;
(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 decuction 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.”
15. 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”
16. 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 37 BA 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.
17. In our view, the CIT (Appeals) and the Tribunal have rightly held that the assessee is entitled to the credit of the TDS mentioned in the TDS certificates issued by the contractor, whether the said certificate is issued in the name of the Joint Venture or in the name of a Director of the assessee company. They have considered the terms of the agreement dated 12-03-2003 among the parties to the joint venture and held that credit for TDS certificates cannot be denied to the assessee while assessing the contract receipts mentioned in the said certificates as income of the assessee. The income shown in the TDS certificates has either to be taxed in the hands of the joint venture or in the hands of the individual co-joint venturer. As the joint venture has not filed return of income and claimed credit for TDS certificates and the TDS certificates have not been doubted, credit has to be granted to the TDS mentioned therein for the assessee.
18. Rule 37BA is a procedural provision dealing with the manner of giving credit for tax deducted at source for the purposes of section 199. It therefore applies to pending proceedings. As observed in State of Madras v. Lateef Hamid & Co. AIR 1972 SC 1781, where a new procedure is prescribed by law, it governs all pending cases.
19. In Tikaram & Sons v. Commissioner of Sales Tax AIR 1968 SC 1286 it was held that alterations in the form of procedure are always retrospective, unless there is some good reason or other why they should not be. The amendment to Rule 37 BA mentioned above which has been introduced by the Income Tax (8th amendment) Rules, 2011 notified vide Notification No. 57/2011 dated 24-10-2011, being procedural in nature, would have retrospective effect and has to be given effect to.
20. The Revenue cannot be allowed to retain tax deducted at source without credit being available to anybody. If credit of tax is not allowed to the assessee, and the joint venture has not filed a return of income, then credit of the TDS cannot be taken by anybody. This is not the spirit and intention of law.
21. Therefore, in our view, the Assessing Officer erred in denying the benefit of the TDS mentioned in the TDS certificates filed by the assessees on the ground that the TDS certificate is issued in the name of the joint venture or a Director and not the assessee.
22. In this view of the matter both the appeals are dismissed as they are without any merit. There is no question of law much less any substantial question of law to be considered in these appeals. No costs.