TDS credit on conflict of cash and accrual accounting. ITAT following High Court allowed proportionate TDS when TDS only was offered to tax
The appellant assessee had filed the instant appeal contesting the order of the Commissioner of Income-Tax (Appeals) [(CIT(A)] confirming inter alia the TDS credit restricted by the Assessing officer (AO).
ABCAUS Case Law Citation
ABCAUS 2346 ( 2018) 05 ITAT
The assessee followinh cash system of accounting did not offer consultancy income to tax as the same was not received during the relevant Assessment Year. However, it offered the entire amount of TDS corresponding to the said consultancy service as income and claimed the same amount as TDS in the computation of income.
The AO, applying Rule 37BA(3)(i) of the Income Tax Rules, 1962 (the Rule) restricted the amount of TDS credit as 10% of the amount of TDS amount offered to tax by assessee and disallowed the TDS credit for the balance 90% of TDS.
It can be explained by way of an hypothetical illustration as under:
| Amount (Rs.) | |
| a. Consultancy Income | 100 |
| b. Corresponding TDS @ 10% | 10 |
| c. Amount Offered to Tax | 10 |
| d. TDS Credit Claimed | 10 |
| e. TDS Credit Allowed by AO @ 10% of c above | 1 |
| f. TDS Credit disallowed by AO | 9 |
The CIT(A) rejected the appeal of the assessee.
The matter travelled to the ITAT with respect to determination o the relevant AY, in which the credit of such TDS was to be made available to the assessee.
The Tribunal observed that undisputedly, the assessee followed cash system of accounting in terms of Section 145 and offered the income on actual receipt basis. In the relevant AY, the assessee had not offered accrued consultancy but offered only the corresponding TDS component to tax which was in consonance with the provisions of Section 198 of the Income Tax Act, 1961 (the Act) which stipulates that the amount of tax deducted at source shall be deemed to be the income received.
The ITAT further observed that in terms of Section 199(1), the amount of tax deducted at source is to be treated as a payment of tax on behalf of the person from whose income the deduction was made.
It was noted that the CBDT, in terms of Section 199(3), has framed Rule 37BA- Credit for tax deducted at source for the purposes of section 199. As per the sub rule (3)(i), the 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.
The Tribunal also observed that the Tribunal decisions relied upon by the assessee/Revenue leads to two lines of thoughts on the issue of TDS credit, one favoring grant of full TDS credit in the year of deduction itself and the other which, following strict interpretation, allows TDS credit in AY in which the income has actually been assessed / offered to tax.
However, it was observed that the Hon’ble High Court has decided an identical issue wherein it reversed the decision of the Tribunal in allowing credit of tax based on TDS certificates without corresponding assessment of income in the assessment years concerned. The Hon’ble High Court held that sub-sections (1) and (3) of Section 199 read with Rule 37BA of the Rules specifically authorise the assessee to retain TDS certificates and to produce it and claim credit in the year in which income on which recovery of tax made is returned for assessment.
In view of the above, the Tribunal opined that Tribunal’s order following former view, had not considered the decision of Hon’ble High Court.
Accordingly, following the wisdom of higher judicial authority, the ITAT dismissed the relevant ground of appeal.
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