PCIT Vs EMC Limited (Calcutta High Court)
The Calcutta High Court dismissed the Revenue’s appeal filed under Section 260A of the Income-tax Act, 1961, affirming the order of the Income Tax Appellate Tribunal for Assessment Year 2014–15. The central issue was whether retention money amounting to ₹142.53 crore constituted taxable income in the relevant year merely because it was credited by principal contractors and tax was deducted at source under Section 194C.
Read SC Judgment: Retention Money Not Income Until Contract Conditions Are Met: SC
The Assessing Officer had treated the retention money as income for AY 2014–15, relying on the fact that the contractors credited the amount and deducted TDS, which the assessee had also claimed. On appeal, the assessee contended that retention money was withheld under contractual terms and did not accrue as income until completion of contractual obligations. It was argued that TDS deduction under Section 194C did not determine accrual of income, particularly where payment was contingent on fulfilment of conditions.
Before the Commissioner of Income Tax (Appeals), the assessee produced sample contracts, including one with Power Grid Corporation, which stipulated that 10% of the contract value would be retained and paid only after successful commissioning and issuance of a taking-over certificate. The assessee also demonstrated that portions of retention money were offered to tax in subsequent assessment years (AYs 2015–16 to 2017–18) upon completion of projects, with the balance to be offered when corresponding projects were completed. Relying on binding precedent, including Simplex Concrete (Piles) India Pvt. Ltd., the CIT(A) held that retention money did not accrue in AY 2014–15 and must be excluded from income. However, the CIT(A) disallowed the TDS credit claimed on such retention money for AY 2014–15, permitting it to be claimed in the year when the retention money is declared as income.
