TDS not applicable on provisions if payee not identifiable to whose account the credit for such TDS is to be given – ITAT

TDS not applicable on provisions if payee not identifiable to whose account the credit for such TDS is to be given u/s  203(1) under Chapter XVII-B – ITAT

ABCAUS Case Law Citation:
ABCAUS 1104 (2017) (01) ITAT

Assessment Year : 2010-11 ; 2011-12

Important Case Laws relied upon:
Dishnet Wireless Ltd. Vs. DCIT – [2015] 60 taxmann.com 329 (Chennai-Trib.)
Industrial Development Bank of India Vs. ITO – [2007] 293 ITR (AT) 267 (Mumbai)
Abad Builders (P) Ltd. Vs. ACIT – [2014] 43 taxmann.com 128 (Cochin-Trib)

Brief Facts of the Case:
A TDS survey was conducted at the premises of the assessee company. Thereafter, the summons were issued u/s 131 of the Income-tax Act, 1961 (the Act) asking for details/information in response to which, necessary details were furnished by the assessee. Thereafter, the Assessing Officer passed the order u/s 201 and 201(1A) holding that it failed to deduct the TDS in respect of provisions made under several heads of income. Accordingly, the demand u/s 201(1) was raised with interest u/s 201(1A).

On appeal, CIT(A) sustained the same. Aggrieved, the assessee filed this appeal.

Contentions of the Assessee:
It was submitted by the assessee that at the end of the financial year the assessee made provision for various expenses. Next year when the actual expenditure was incurred, the provision was reversed and the deduction was claimed on the basis of actual expenditure incurred making deductions for TDS.

It was further submitted that when the payee was an identified person, then even while making the provision, the TDS was deducted. But, when the payee was not an identifiable person, no TDS was made. He submitted that when the payee is not identifiable, the TDS could not be made from a lump sum provision made by the assessee under various heads of income.

Contentions of the Revenue:
The Revenue submitted that by making the provision, the assessee claimed the deduction for the expenditure. A provision can be made only when the liability is an ascertained liability. Therefore, the assessee cannot claim that the payee in respect of whom the liability is created is unidentifiable. He further stated that as per provision of Section 194C(2), the tax is to be deducted at source where any sum is credited to any account whether called suspense account or by any other name in the books of account of the person liable to pay such income. Therefore, when the assessee made the provision in its books of account, the liability of TDS arose.

Observations made by the Tribunal:
The Tribunal observed that as per the scheme of Chapter XVII-B of the Income-tax Act, 1961, there is a provision for deduction of tax at source. Ordinarily, the deduction is to be made at the time of payment or the credit of the amount to the account of payee. However, as per provision of Section 194C(2), the tax is to be deducted even if the amount is not credited to the account of the payee but to the suspense account.

The Tribunal further observed that the in the case of Abad Builders (P) Ltd. after considering the above provision, held that tax is to be deducted even in respect of provision for expenses. However, the in the case of Dishnet Wireless Ltd. held that in the case of the year end provision where the party/payee is identifiable, the TDS is to be deducted and where the party is not identifiable, no TDS is deductible. Similar view has been taken in the case of Industrial Development Bank of India.

Considering the scheme of Chapter XVII-B with regard to tax deduction at source, the ITAT expressed its agreement with the views expressed by ITAT Mumbai Bench and ITAT Chennai Bench.  

The Tribunal opined that as per the scheme of TDS under Chapter XVII-B Section 199, the credit for the TDS is to be given to the deductee. Thus, the identification of the person from whose account income tax was deducted at source is a pre-requisite condition so as to make the provision for Chapter XVII-B workable. Tax deducted at source is considered to be tax paid on behalf of the person from whose income the deduction was made and, therefore, the credit for the same is to be given to such person. When the payee is not identifiable, to whose account the credit for such TDS is to be given. Section 203(1) lays down that for all tax deductions at source, the tax deductor has to furnish a certificate to the person to whose account such credit is to be given. Therefore, when the tax deductor cannot ascertain the payee who is the beneficiary of a credit of tax deduction at source, the mechanism of Chapter XVII-B cannot be put into service.

Held:
The Tribunal set aside the orders and restored the matter to the file of the Assessing Officer for both the years under consideration. The AO was directed to verify whether the payee is identifiable and the amount payable to him is ascertainable or not. In case payee is not identifiable, the provision of Chapter XVII-B i.e., tax deduction at source, cannot be pressed into service and, therefore, the assessee is not required to deduct tax at source in such a case.

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