TDS Credit if the amount is getting reflected in the 26AS of the next year

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TDS Credit if the amount is getting reflected in the 26AS of the next year

The issue of TDS is highly tedious and there are number of issues that are still unresolved. Entire system of giving credit to the deductee is now based on the basis of its appearance in Form No. 26AS.

The system of giving credit is contained in section 199 of the Income Tax Act- 1961 which provides that the TDS credit is to be linked with the income which is offered for taxation.

There may be three probable situation which could arise as far as TDS credit vis a vis Its reflections in 26AS is concerned.

Person may be offering income for taxation in a particular year and the 26AS may be containing it either

  1. In the same year or
  2. In the earlier year or
  3. In subsequent year.

This situation would more commonly arise if there is a difference in the system of accounting followed by the deductor vis a vis deductee i.e., one may be following cash system of accounting and the other may be following mercantile system of accounting.

Further, this situation could also arise even if both the party to the transactions are following same system of accounting if the person / payer is booking the expenses it in some other financial year due to some disputes, litigation or for any other reasons.

It may be noted that Rule 37BA contains rules for giving TDS credit to the deductee. The same reads as under:

Rule 37BA: “Credit for tax deducted at source for the purposes of section 199.

(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) 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:

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.

One may carefully note that the rules 37BA are not strictly in accordance with the provisions contained in section 199 of the Income Tax Act – 1961 which reads as under:

“The Board may, for the purposes 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”.

 

It has been already held in numerous pronouncements that in case of difference between the Act & Rules, the provisions contained in Act will prevail as Rules are to ensure the smoother implementation of the provisions contained in the Act. The Rules are supportive to the Act & cannot override the Act.

Under this background, one can conclude that the Credit for TDS needs to be given in accordance in the year in which income is offered for taxation whether or not 26AS for the relevant year is incorporating it? In short, even if 26AS is showing the amount of TDS in earlier or subsequent years, the credit for TDS need to be made available to the assessees in the year in which they are offering it for taxation.

Obviously, the ITR forms and Rules are not fully synchronized to take care of this feature. It’s only the judiciary which can instruct the authorities to grant the TDS in such cases. However, it will be case specific instructions and not generalized. CBDT needs to come out with the general procedural amendment to take care of this situation. It may be noted that the provisions of carry forward of TDS is already there in ITR forms (i.e., the payer has booked the expenses in one year but the deductee is offering it in subsequent years) but the mode of shifting the TDS in earlier year is not there as of now.  If this is done, the issue could stand resolved.

Here is one important ruling by Pune ITAT in the case of Mahesh Software Systems Pvt. Ltd. Vs. Assistant Commissioner Of Income Tax (ITA No.1288/PUN/2017) whrein TDS credit was given to the assessee in one yaar even if it was not reflected in the 26AS of that assessment year but was there in the 26AS of subsequent years.

www.TheTAXtalk.comHere is the copy of the complete order:

 

M/S. MAHESH SOFTWARE SYSTEMS PVT. LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX

ITAT, PUNE TRIBUNAL (B)

R.S. SYAL, VP. & S.S. VISWANETHRA RAVI, JM.

ITA No.1288/PUN/2017

20th September, 2019

(2019) 57 CCH 0167 PuneTrib

(2019) 75 ITR (Trib) 0100 (Pune)

Legislation Referred to

Section 37BA, 199(3), 199

Case pertains to

Asst. Year 2011-12

Counsel appeared:

Nikhil Pathak for the Petitioner.: Brindha for the Respondent.

ORDER

 

R.S. SYAL, VP.: :

This appeal by the assessee arises out of the order passed by the Commissioner of Income-tax (Appeals)-7, Pune on 12.01.2017 in relation to the assessment year 2011-12.

  1. The only issue raised in this appeal is against the denial of credit for tax deducted at source amounting to Rs.8,41,050/-.
  2. Briefly stated, the facts of the case are that the assessee is engaged in the business of providing software services. It claimed credit for TDS amounting to Rs.8,41,050/- which was not appearing in Form No.26AS. On being called upon to explain as to how the benefit of this TDS was claimed, the assessee submitted that it raised invoice on Ashoka Leyland, Chennai, for Rs.84,10,500/- in March, 2011. Since tax of Rs.8,41,010/- on the invoice amount was deposited by Ashoka Leyland in April, 2011, they showed it in the succeeding year. The Assessing Officer (AO) did not accept the contention of the assessee by relying on Rule 37BA(1) of the Income-tax Rules, 1962. The ld. CIT(A) also affirmed the assessment order on this point.
  3. We have heard both the sides and gone through the relevant material on record. A copy of the Sale register of the assessee has been placed at pages 46 and 47 of the paper book depicting total sales for the year under consideration at Rs.3,69,53,687.33. This amount of turnover of Rs.3.69 crore includes the invoice dated 28-03-2011 amounting to Rs.80,10,000/- raised on Ashoka Leyland. www.TheTAXtalk.comIt is in respect of this amount of invoice Rs.80,10,000 plus other taxes etc. totalling to Rs.84,10,000/-, that Ashoka Leyland deducted tax at source amounting to Rs.8,41,050/-. Thus, it is established that the assessee recorded invoice of Rs.84.10 lakh in its accounts for the year under consideration. It is also equally true that Ashoka Leyland deducted tax at source on such amount to the tune of Rs.8,41,050/- but deposited it with the exchequer in the month of April, 2011. The dispute has arisen because of this only. Whereas the claim of the assessee is that the benefit of TDS should be allowed in the year in which the assessee has recorded the corresponding income and the Revenue is contending that such benefit can be given only in the year of deposit of TDS.
  4. Section 199(3) of the Act, which is relevant for our purpose, reads as under:

“The Board may, for the purposes 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”.

  1. The relevant rule is 37BA which is reproduced as under: “Credit for tax deducted at source for the purposes of section 199.

(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) 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:

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. www.TheTAXtalk.com

(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.

  1. The AO has relied on sub-rule (1) of section 37BA for denying the benefit of TDS during the year under consideration. This part of the Rule provides that the credit for TDS shall be given to the person to whom payment has been made or credit has been given on the basis of information relating to TDS furnished by the deductor. What is material for sub-rule (1) is the beneficiary of credit for the TDS, being the person to whom payment has been made, which in the instant case is the assessee. The ld. CIT(A) has, in addition, relied on sub-rule (4) of Rule 37BA, which again provides that the credit for TDS shall be granted on the basis of information relating to deduction of tax at source furnished by the deductor. How, this rule prejudices the claim of the assessee is anybody’s guess. Obviously, the information about the TDS by Ashok Leyland is not denied. Both the sub-rules simply provide for granting of the benefit of TDS. The point of time at which the benefit of TDS is to be given, is governed by sub-rule (3) of Rule 37BA, which unequivocally provides through clause (i) that the ‘credit for tax deducted at sourceand paid to the Central Government, shall be given for the assessment year for which such income is assessable‘. It is, ergo, abundantly clear from the mandate of Rule 37BA(3)(i) that the benefit of TDS is to be given for the assessment year for which the corresponding income is assessable. Since the income of Rs.84.10 lakh, on which tax of Rs.8,41,050/- was deducted at source, is patently assessable in the year under consideration, we hold that the benefit of the TDS should also be allowed in the same year, namely, the year under consideration. www.TheTAXtalk.com We, therefore, overturn the impugned order and direct accordingly.
  2. In the result, the appeal is allowed.

Order pronounced in the Open Court on 20th September, 2019.

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