TDS – deduction to be treated as tax payment from the person from whose income tax was deducted; IDBI bonds – TDS to be deducted from holder of bond at maturity – credit should be given to him : Punjab and Haryana High Court
CHANDIGARH, JAN 23, 2008 : TWO substantial questions of law were brought to the High Court by revenue. Whether on the facts and in the circumstances of the case,
1. ITAT was right in law in upholding the order of the CIT (Appeals), directing the Assessing Officer to allow full credit of T.D.S to the assessee, in contravention of the provisions of section 199 of the Income Tax Act ?
2. the findings recorded by ITAT in allowing full credit of TDS to assessee are perverse and sustainable in view of statutory provisions of Section 199 of Income Tax Act, 1961 ?”
One Vivek Bansal, Liberty House, Karnal had originally purchased deep discount bonds 1997 of Industrial Development Bank of India (I.D.B.I) @ of Rs. 5500/- each (the original purchaser). From him the assessee-respondent purchased those bonds @ Rs.9700/- each on 01.01.2001 for total value of Rs.19,40,000/ – (the assessee secondary purchaser). The original purchaser filed his return for the assessment year 2001-02 and reflected the difference in amount of purchase and the sale. Thus, a sum of Rs. 9,40,000/- became long term capital gain in respect of the original assessee. It is undisputed that the bonds were subject to accruing of interest year to year although, no income was received annually by the bond holder. The condition was modified by issuance of a press note later. The assessee-secondary purchaser received a draft of Rs. 19,08,200/-. This amount has been accounted for by the assessee-secondary purchaser.
The tax deduction certificate filed for gross interest of Rs.9,00,000/ – was also duly accounted for. The assessee secondary purchaser had duly filed her return on 26.06.2002 declaring her income of Rs.1,07,140/ -. The Assessing Officer discovered at the time of processing of return on 31.03.2003 that the assessee had claimed credit of T.D.S of Rs.91,800/- in the return of income that was deducted by IDBI on the interest income of Rs.9,00,000/ – which was paid by the bank to the assessee-secondary purchaser. In her return, the assessee-secondary purchaser had declared interest income at Rs. 60,000/- only. The Assessing Officer allowed her credit for T.D.S of Rs. 6120/-. Accordingly the credit as claimed by the assessee-secondary purchaser to the tune of Rs.91,800/- at the interest income of Rs.9,00.000/ – was not allowed by relying upon Section 199 of the Act. The assessee filed an application under Section 154 of the Act on 06.10.2003 with a request to the Assessing Officer to allow her full credit of T.D.S deducted by I.D.B.I which was rejected on 17.11.2003 placing reliance on Section 199 of the Act. The Assessing Officer followed the reasoning that the provision of Section 199 of the Act stipulates that credit of T.D.S was to be given to the assessee-secondary purchaser for the amount so deducted on furnishing of a Certificate under Section 203 of Act for the assessment year for which such income was assessable.
On further appeal filed by the assessee, the CIT (A), Karnal accepted the contention of the assessee by placing reliance on circular No. 2 of 2002 issued by the Central Board of Direct Tax. The CIT (A) concluded that the effect of circular No. 2 of 2002 issued by C.B.D.T was that the entire T.D.S benefit was to be given to the holder of the bond at the time of maturity and the assessee-secondary purchaser was entitled to the same. The CIT (A) disagreed with the approach adopted by the Assessing Officer that the T.D.S benefit was to be given whenever the income is declared because it was not a workable proposition as there can be a number of persons to whom the said credit may belong and that there can be different Assessing Officer of such persons. The CIT (A) held that the credit was not to be available to other persons because the T.D.S certificate could not be issued in anyone else’s name and that this was the intention and the meaning of the circular. It was further found that the assessee-secondary purchaser was required to declare interest income in respect of the period for which she had held the bond which has been correctly offered and there was no dispute on that question. The T.D.S certificate has also been correctly issued in the name of assessee-secondary purchaser as per the circular No. 2 of 2002 issued by C.B.D.T because she was the holder of the bond at the time of maturity. The only option was to give credit of T.D.S to the assessee-secondary purchaser. The CIT (A) holding that there was no other person to whom the credit should be given of any one portion of the T.D.S amount , the entire T.D.S credit was required to be given to the assessee-secondary purchaser only as per circular no. 2 of 2002. Accordingly, direction was issued by the CIT (A) to the Assessing Officer to allow credit to the assessee-secondary purchaser for the entire amount of T.D.S amounting to Rs. 91,800/-.
On further appeal filed by the revenue, the Tribunal upheld the order of the CIT (A).
And revenue is before the High Court.
The High Court observed,
1. any deduction made of tax at source and paid to the Central Government is required to be treated as payment of tax on behalf of the person from whose income the deduction was made.
2. However, with effect from 01.04.1997 amendments were introduced by Finance Act, 1996 which resulted into addition of words ‘depositor’ or ‘owner of property’ or ‘owner of security’ or ‘unit holder’ as the case may be. Therefore, it has to be accepted that any deduction made of tax at source and paid to the Central Government is required to be treated as payment of tax on behalf of ‘owner of security’ or ‘unit holder’.
3. In the present case, it is obviously the assessee-secondary purchaser who is owner of security and therefore, tax deducted at source has to be regarded as payment made on her behalf. Moreover, certificate under Section 203 of the Act has also been issued to assessee-secondary purchaser.
4. the Tribunal has rightly interpreted the words ‘owner of the property’ or ‘of the unit-holder’ to mean that the assessee-secondary purchaser was entitled to the benefit.
5. The situation has been made further clear by CBDT circular no. 2 of 2002 by issuing guidelines. One of the guidelines in the CBDT circular is that the TDS is to be made at the time of maturity of the bond and it was to be issued to the holder of the bond at the time of maturity.
6. It is undisputed that the TDS certificate was issued in the name of the assessee being holder or owner of the bond at the time of maturity. Therefore, the case of the petitioner is covered by the virtue of expression or owner of the property or the unit holder which were added in Section 199 with effect from 01.04.1997.
Therefore, the High Court accepted the view taken by the CIT (A) as well as the Tribunal as the correct view and accordingly answered both the questions against the revenue