Case Law Details

Case Name : ITO Vs. Limak-Soma J.V. (ITAT Mumbai)
Appeal Number : ITA No. 99/Hyd/2010
Date of Judgement/Order : 24/09/2010
Related Assessment Year :
Courts : All ITAT (4271) ITAT Hyderabad (240)

ITAT, HYDERABAD BENCH `A’, HYDERABAD

ITO Vs. Limak-Soma J.V.

ITA No. 99/Hyd/2010

September 24, 2010

ORDER

PER NRS GANESAN, JM:

All the appeals of the Department relate to three independent assessees. Since common issues arise in all the three appeals, we have heard all these appeals together and dispose of the same by this common order.

2. Shri K.V.N. Charya, the learned DR submitted that the only issue arises for consideration is giving credit for the tax deducted at source (TDS) while receiving the mobilisation advance by the assessee. According to the learned DR the assessee claimed TDS without offering the corresponding income for taxation. The Assessing Officer found that since the income was not offered for taxation credit shall not be given for the tax deducted at source u/s. 199 of the Income-tax Act, 1961. However, the CIT(A) by following the order of this Tribunal in Progressive Construction Ltd. vs. JCIT in I.T.A. No. 482/Hyd/2001 dated 23.11.2006 found that the nexus between the TDS and the corresponding income would remain notional/ conceptual. The learned DR further pointed out that the Chandigarh Bench of this Tribunal in Pradeep Kumar Dhir (2008) 303 ITR (AT) 45 (Chd) had an occasion to consider an identical situation. By majority opinion, the Tribunal found that the assessee cannot claim any credit for the TDS on the income which is not offered for taxation. The Tribunal further found that the benefit for the TDS is to be allowed as per the provisions of the Income-tax Act u/s. 199. In view of this majority decision according to the learned DR the decision of this Tribunal in the case of Progressive Construction Ltd.(supra) may not be applicable to the facts of this case. Referring to the Special Bench decision of the Mumbai Bench of this Tribunal in DCIT vs. Oman International Bank (2006) 100 ITD 285 (SB) (Mum) the learned DR submitted that the Third Member case would have the sanctity as that of the decision of the Special Bench. Therefore, according to the learned DR this Bench of the Tribunal is bound by the decision of the Third Member in the case of Chandigarh Bench in Pradeep Kumar Dhir (supra) rather than the Division Bench decision of this Tribunal in Progressive Construction Ltd. (supra).

3. On the contrary, Shri Raghavendra Rao, the learned counsel for the assessee submitted that this Tribunal in the case of Progressive Construction Ltd. (supra) considered this issue elaborately and found that credit shall be given to the TDS on production of the certificate for the assessment year for which such income is assessable. The Tribunal further observed that the nexus between the TDS and corresponding income element would remain rather notional/conceptual. This Tribunal followed the decision of the Mumbai Bench of this Tribunal in Toyo Engineering (I) Ltd. (5 SOT 616). The decision of the Hyderabad Bench of this Tribunal was distinguished by the Bench by following the decision Mumbai Bench of this Tribunal. The decision in the case of Progressive Construction Ltd. (supra) was subsequently followed in a number of other cases. Therefore, according to the learned counsel for the assessee this Bench of the Tribunal is bound by the decision of the co-ordinate Bench of this Tribunal on identical circumstances of the case. …

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4. Shri Raghavendra Rao further submitted that in the case before the Chandigarh Bench of this Tribunal in Pradeep Kumar Dhir (supra), the assessee was following cash system of accounting. In the case before us, according to the learned counsel for the assessee, the assessee was following mercantile system of accounting. Therefore, the decision of the Chandigarh Bench of this Tribunal may not be applicable to the facts of this case.

5. We have considered the rival submissions on either side and also perused the material on record. Admittedly tax was deducted from the mobilisation advance. The question arises for consideration is whether the TDS shall be given credit when the corresponding income was not offered for taxation. We have carefully gone through the provisions of section 199 of the Act which read as follows:

“199. (1) Any deduction made in accordance with the foregoing provisions of this Chapter 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, or of the owner of the security, or of the depositor or of the owner of property or of the unit-holder, or of the shareholder, as the case may be.

(2) Any sum referred to in sub-section (IA) of section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made.

(3) The Board may, for the pur0poses of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary, including the rules for the purposes 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.”

6. From the Third Member decision of the Chandigarh Bench of this Tribunal it appears that section 199 was amended by Finance Act, 1987. Till June 1, 1987 the language employed by the Parliament in section 199 was different insofar as it provided giving credit to the assessee in respect of TDS for the assessments immediately following the assessment year. However, by Finance Act, 1987 the language of section 199 was substantially modified to give credit to the TDS in respect of the income which is assessable. While taking note of the amendment made by Finance Act, 1987, the learned Judicial Member has observed as follows:

“It may be pertinent to mention that section 199 quoted above is the section as amended from time to time and as applicable for the assessment year 2002-03. Till June 1, 1987, the language of section 199 was different in so far as it provided for giving credit to the assessee in respect of TDS in the assessment for the immediately following assessment year. By the Finance Act, 1987, the language of section 199 was modified to the extent that the credit for the tax deducted at source was provided to be given in the assessment year in which TDS is assessable. As against the words “credits shall be given … for such assessment year for which such income is assessable”, the section provided “the credit shall be given … for the immediately following year under this Act”. Thus, the Legislature having modified the language of section 199 with effect from June 1, 1987, in my considered view, there is no escape from the view that the credit for TDS is to be given in the year in which the income in respect of which tax has been deducted at source is assessable to tax.

It is not disputed that the assessee has not offered the income credited by the three parties in respect of which tax has been deducted at source on the ground that income is offered to tax on receipt basis and the amounts have not in fact been received. The Assessing Officer has, in my view, been reasonable to give credit for the tax deducted at source to the extent the income has been offered for taxation by the assessee in the year under appeal. As pointed out earlier, the assessee has disclosed the amount of TDS as income in the year under appeal as provided under the statute and credit to the extent TDS relates to such income has been allowed by the Assessing Officer.”

7. The Third Member while resolving the disputed question found that giving credit to TDS has nothing to with the system of accounting followed by the assessee. It is observed that section 199 of the Act provides for giving credit to the TDS in respect of the income which is offered for taxation. The Third Member has observed as follows:

” …. I have no quarrel with the above proposition but I am unable to agree 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 present case, there is no dispute regarding cash system of accounting followed by the assessee and his income has been computed as per the above system. No addition has been made for income which the assessee was “entitled” to receive but did not actually receive. No credit for TDS on such nonassessable income could be claimed. Benefit for the tax deducted at source is to be allowed as per statutory provisions contained in section 199 of the Act. 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 above principle of law has no application where interpretation of the statutory provisions is involved. If in a particular year a statutory provision was 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 and for the reasons given above, I am of the view that 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 is to be allowed in the year in which such income is disclosed or is otherwise found to be assessable by the Revenue.”

8. In view of the majority opinion of this Tribunal it is very clear that unless the assessee offers the income for taxation, the TDS cannot be given credit. A similar view was taken by majority opinion by the Mumbai Bench of this Tribunal in Smt. Varsha G. Salunke vs. DCIT (2006) 98 ITD 141 (TM).

9. We have also carefully gone through the decision of this Tribunal in Progressive Construction Ltd. This Tribunal after considering the language of section 199 found that nexus between TDS and the corresponding income element would remain notional. However, the amendment made by the Parliament by Finance Act, 1987 was not taken into consideration by the Bench while deciding the case in Progressive Construction Ltd. (supra). This Bench of the Tribunal in Progressive Construction Ltd. apparently followed the decision of the Mumbai Bench of this Tribunal in Toyo Engineering (I) Ltd.. However, the Chandigarh Bench of this Tribunal after considering the decision of the Mumbai Bench of this Tribunal in Toyo Engineering (I) Ltd. found that unless income is offered for taxation credit cannot be given for the TDS. As rightly submitted by the learned DR, the decision of the Third Member of this Tribunal would have more weightage than the Division Bench of this Tribunal. In other words, the majority opinion expressed by the Chandigarh Bench of the Tribunal in Pradeep Kumar Dhir (supra) would have a binding nature rather than this Tribunal’s decision in Progressive Construction Ltd. (supra). Even otherwise, as found by the Tribunal in Progressive Construction Ltd. (supra) the majority opinion expressed by the Chandigarh Bench would prevail.

10. The learned counsel for the assessee made an attempt to distinguish the decision of the Chandigarh Bench of this Tribunal on the ground that the assessee before the Chandigarh Bench was following cash system of accounting. However, in the case before us the assessee was following mercantile system of accounting. This issue was also considered by the Third Member in Chandigarh Bench of this Tribunal and found that method of accounting has nothing to do in giving credit to the TDS. In view of the above observation of the Third Member and the majority decision of the Chandigarh Bench of this Tribunal, we find no substance in the arguments of the learned counsel for the assessee. Moreover, admittedly, the assessee has not offered the corresponding income for taxation and the Assessing Officer has not made any addition also. In view of the above decision, we are unable to uphold the order of the CIT(A) and the same is set aside and the order of the Assessing Officer is restored.

11. In the result, all the three appeals of the Revenue are allowed.

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Category : Income Tax (25158)
Type : Judiciary (9981)
Tags : ITAT Judgments (4451) TDS (899)

0 responses to “Income-tax – Assessee cannot claim any credit for TDS on income which is not offered for taxation”

  1. Annapurna says:

    Sir, My friend is a salaried employee and by mistake his TDS is deducted for 5 years, so my question is will he be able to avail the credit of the whole cumulative amount of 5 years in 1st year
    itself???

  2. Sri says:

    Hi
    I have worked in UK on deputation for 4 months in the financial year 2009-2010 and I have paid tax for the income that I have earned in UK to UK Income tax as per UK Income tax rules and also filed returns in UK. But, while filing my India income tax returns in India, the company that preparing my tax returns, added my UK salary also to India salary. When I have asked for clarification, they replied that as u stayed more than 182 days in India in this fiscal year, you may need to pay the tax for global income. Do I really need to pay tax in India and UK as well for the same salary? Please clarify me
    Thank you
    Sri

  3. Suresh Kumar says:

    Is this is appropriate answer of above query?
    DTAA with UAE-:

    Article 15 – Dependent personal services – 1. Subject to the provisions of Articles 16, 17, 18, 19, 20 and 21, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State . If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

    2. Notwithstanding the provisions of paragraph (1), remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

    (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the relevant “previous year” or “year of income”, as the case may be ; and

    (b) the remuneration is paid by, or on behalf on, an employer who is not a resident of the other State ; and

    (c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.

    3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State shall be taxable only in that State.

    Case :-

    Taxability of services rendered abroad

    An employee who goes on deputation abroad would do well to look at the DTAA between India and the foreign country to gauge the tax impact.

    T. C. A. Ramanujam

    Information technology (IT) companies invariably send their employees from India to other countries for short-duration service. Questions arise about the taxability of salary earned for services rendered abroad. Apparently, it appears that if the services are rendered abroad and the person concerned has not been in India for more than 182 days in a fiscal year, he will become a non-resident and salary attributable to foreign service will not attract Indian income-tax. This issue came up in the British Gas India (P) Ltd (287 ITR 462) case.

    The Authority for Advance Ruling (AAR) held that the salary will not be taxable in India if the same has been offered for tax in the UK and tax need not be deducted at source in India by the Indian company. It was also held that if a person leaves India for employment, he will become a non-resident.

    The Mohan case

    As per the facts of this case (294 ITR 177 AAR), Mohan was employed with HCL, New Delhi , from April 1, 2005 to May 10, 2005. He then shifted to Infosys Technologies, Bangalore , and worked with the company from May 16, 2005 to March 31, 2006. Infosys sent him on deputation to Norway . He worked there for more than 182 days and became a non-resident for the financial year ending March 31, 2006. In the return for the assessment year 2006-07, he disclosed the income by way of salary from the employers in India . Tax was duly deducted at source and paid in India .

    In the return he filed, Mohan did not claim exemption. Familiar with the decision in the British Gas India (P) Ltd case, Mohan filed an application before the AAR contending that the salary paid by Infosys to a non-resident employee for rendering services outside India was not taxable in India in view of the Double Taxation Avoidance Agreement (DTAA) between India and Norway .

    It was argued that he was not legally liable to pay Indian income-tax, even though he received the salary income in India and in rupees for the services rendered by him in Norway for a period exceeding 182 days during the financial year.

    The AAR looked into the Indo-Norwegian DTAA. According to Article 25(2) of the treaty, where an Indian resident derives income, which may be taxed in Norway , India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in Norway .

    The question before the AAR was whether the salary paid by the employer in India is taxable in India , though the assessee is a non-resident in India during the relevant financial year. It was admitted that the assessee did not pay any tax in Norway . The AAR looked into Articles 16(1) and 16(2) of the DTAA.

    As per Article 16(1), if the employment is exercised outside India , the remuneration derived therefrom “may be taxed” in Norway . It was open to Norway to subject remuneration received by Mohan to tax. Norway could have taxed the assessee. But he was not so taxed. Under Article 16(2), such remuneration “shall be taxed” in Norway if the duration of stay in Norway did not exceed 182 days.

    ‘May be’, ‘shall be’

    The AAR observed that there is a distinction between “may be taxed” and “shall be taxed”. Article 16 was excluded for the reason that stay in Norway was for a period exceeding 182 days in the financial year 2005-06.

    The AAR referred to the commentary on the OECD Model Convention and pointed out that the right of taxation is available under Article 16(1) to both Norway and India in regard to the employment income of Mohan in accordance with the Indian tax laws. He did not produce any proof to show that Norway had subjected him to tax or that he made any payment to the State of Norway on account of income-tax.

    In this situation, the AAR decided the case against the assessee and held that the salary paid by Infosys in India for services rendered in Norway was taxable in India though the assessee was a non-resident of India during the relevant financial year.

    DTAA important

    The importance of this Ruling arises from the fact that every employee who goes on deputation abroad should look at the DTAA between India and the foreign country.

    In the instant case, if the assessee had voluntarily paid the income-tax on the salary attributable to services in Norway to the Norwegian Government, he would have escaped the Indian income-tax.

    Obviously, in this case, it was favourable for him not to pay tax to Norway . There may be countries where the tax rate is lower and, therefore, more favourable to the employee. In such cases, the salaried employee sent out on deputation should look into the DTAA and pay the tax abroad if he wants to avoid Indian income-tax.

    (The author is a former Chief Commissioner of Income-Tax.)

  4. Suresh Kumar says:

    A person was posted in Dubai and working with a PSU whose HQ is in Delhi. He was posted in Dubai since 1997 and retired in October 2007. No tax was leviable in Dubai on the salary paid or accrued in Dubai as per Dubai local laws. No salary & allowances were paid to him in India during his posting to Dubai. Now the payment towards wage revision arrears becomes due to him for the period 01.01.07 to 24.10.07 which will be paid in India in INR.
    Kindly advice the wage arrear paid to him in India in INR are taxable in India for the services rendered outside India.

  5. lucky says:

    short term capital gains 3,00,000 arising from sale of shares for current year 2009-2010 how much money i save my income tax . i have no home loan . my source of income is only share market
    can i save my income tax thru ELSS schemes or any other sources

    from lucky
    chandigarh

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