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Facts
The assessee, an agent for a foreign shipping line, claimed TDS credit for amounts where tax was deducted at source by clients on payments made to the assessee. The revenue authorities allowed credit only for a portion of the claimed TDS, prorated against the income offered by the assessee.
Held
The Tribunal held that TDS credit should be allowed based on the information in Form 26AS, regardless of whether the income was offered by the assessee or if the procedure for crediting to a third party was strictly followed. The intention of the legislature is to grant credit to someone.
Key Issues
Whether the assessee is entitled to claim full TDS credit as per Form 26AS, even if the entire amount was not offered as income or if the procedure for crediting to a third party was not fully complied with.
Sections Cited
143(1), 139(9), 199, 37BA, 143(1)(a), 10(23FB), 115U
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Income Tax Appellate Tribunal, “SMC” BENCH MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN
Date of Hearing 18.06.2025 Date of Pronouncement 15.09.2025 आदेश / ORDER PER SANDEEP GOSAIN, JM:
The present appeal has been filed by the revenue challenging the impugned order dt. 26.02.2025 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi (NFAC) for the assessment year 2023-24. The assessee has raised the following grounds of appeal:
1. The Learned Addl / JCIT (A)-2, Surat (hereinafter referred to as ["the CIT (A) "] erred in dismissing the appellant's claim for tax deducted at source ('TDS") of Rs. 95,799/- for which credit was not granted by the Deputy Director of Income Tax, CPC, Bengaluru ("the Assessing Officer") while processing its return of income vide Intimation passed under section 143(1) of the Income- tax Act, 1961 ("the Act") dated 09.01.2024.
2. The CIT (A) erred in dismissing the appellant's claim for TDS which was not granted in the intimation passed under section 143 (1) of the Act based on Rule 37 BA by applying a proportionate formula.
3. The CIT (A) erred in not considering appellant's ground where it was mentioned that out of the total amount of revenue of Rs. 1,41,86,672/- as per Form 26 AS, an amount of Rs. 89,91,331/- was appellant's agency fees which is as per the financial statements while Rs. 52,49,276/- was receipts on behalf of Foreign Principal's account. Tax was deducted at source at an applicable rate and was claimed by the appellant being an agent of Foreign Principal. The appellant submits that since TDS has been deducted on invoices raised on behalf of the Foreign Principals under the PAN of the appellant and the same appears in Form 26AS of the appellant, credit thereof ought to be granted to the appellant. By denying such credit to the appellant, the credit of such TDS has not been given to anyone which can never be the intention of the legislature as the said TDS would not remain available to anyone.
4. The appellant submits that the CIT (A) failed to appreciate that Rule 37BA will apply for grant of credit to a person different from the payee only when the requisite procedure (viz. filing of declaration by the deductee and reporting by the deductor in the name of the other person) has been complied with and not when such procedure has not been complied with, in which case the payee ought to continue to get the credit for TDS based on entry in Form 26AS.
The Learned CIT (A) erred in not considering appellant's submissions where it was mentioned that an online reply was filed on e-filing portal on 07.12.2023 in response to notice under section 139 (9) of the Act, where the appellant had disagreed for the proposal by the Tax Department to treat the return filed by the appellant as defective.
6. The CIT (A) erred in rejecting appellant's ground merely for a reason that income on which TDS is deducted has not been offered as an income in appellant's Profit & Loss Account. The Learned CIT (A) failed to appreciate that while the total receipts as per Form 26 AS is Rs. 1,41,86,672/-, out of above, a sum of Rs. 89,91,331/- was reflecting in Profit & Loss Account as Sale of Services - Operational & Commission and the balance amount of Rs. 51,95,341/- consists of receipts earned on behalf of Foreign Principal on which tax was deducted at source. Said amount is credited to the profit and loss account and by way of an accounting (journal) entry is transferred to Balance Sheet item and hence entire credit of TDS as claimed ought to be granted to the appellant.
7. The CIT (A) erred in not appreciating the business model of the appellant and the established trade practice in the shipping industry in which it operates wherein the customers deduct taxes on any amounts paid/credited by them to the appellant. However, the appellant in turn owes certain amount to its foreign principals and accordingly such reimbursements effected by it cannot form part of its total income being credited to profit and loss account and thereafter transferred by way of an accounting (journal) entry to balance sheet as 'receivables' or 'payables'.
8. The CIT (A) erred in not considering the alternate ground of the appellant that an adjustment cannot be made in an intimation under section 143 (1) of the Act without providing a reasonable opportunity to the appellant to rebut the same which is contrary to the first proviso to section 143(1)(a).
The only issue raised in this appeal for consideration is with regard to grant of credit for TDS of the entire amount as appearing in form 26AS, whereas the revenue authorities allowed to the extent of Rs. 1,74,861/-.
Therefore the short grant of Rs. 95,799/- is on account of the fact that TDS appearing in from 26AS relates to receipts equivalent to Rs. 1,41,86,672/- while the receipts offered to tax by the assessee in its return of income stood at Rs. 91,65,381/-, the credit has been proportionately allowed as per intimation order dated 09.01.2024 issued u/s 143(1) of the Act.
Ld. CIT(A) dismissed the appeal by relying upon the Sec. 199 of the Act r.w.r 37BA(2) of the Rules. The Ld. CIT(A) was of the view that the assessee ought to have got the TDS Certificates issued in the name of the foreign shipping line by filing the necessary declarations with the persons responsible for deducting the TDS. Now argued with the order of Ld. CIT(A), the assessee has preferred the present appeal.
I have heard the counsels for both the parties, perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. However to counter the stand of revenue authorities, the Ld. AR argued that assessee has been acting as an agent for SITC Container Lines Company Limited who is a resident of Hong Kong, As such agent, its scope of work includes cargo booking, container monitoring, liasioning with importers, lading, handling of cargo at the terminal and carrying out the necessary exporters and government authorities for statutory approvals, issue of bill of documentation, etc. For this purpose, it raises invoices importers/exporters/ freight forwarders for ocean freight, terminal handling charges, documentation charges, etc. A part of this amount received from the importer/exporter/ freight forwarder is retained by the assessee and the balance part is transferred to the account of its principal. However, it is of essence for its business viability that bifurcation of such amount between what belongs to it and such amount which has to be transferred to the principal cannot be shared with the importer/exporter/ freight forwarder. Otherwise, the customers would push it for a better deal. In such circumstances, the concerned importer/exporter/ freight forwarder has deducted tax at source when the assessee made the payment to the foreign shipping line, it has ensured on the entire amount of the invoice raised by the assessee on them. In turn, that the foreign shipping line has deposited due taxes. In this regard, on sample basis Form 15CA/15CB had been placed at the time of hearing before the Bench.
It was further submitted that the assessee has been filing its return of income, declaring such gross receipts as its income which it is entitled to receive. The amount that is received and transferred to its principal is reflected as a balance sheet item in its audited financial statement. This position has been accepted by its Auditor without any qualification in the audit report. It also requires consideration that, the amount of income as reflected in the return of income stands accepted without any adjustment.
Where as per section 199(1) of the Act, a deduction of tax at source made in accordance with the provisions of Chapter XVII and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whom inter alia the deduction was made. As per the assessee in the present case, since the deduction of TDS has been made from the payment made to the assessee, it is entitled to get credit in respect of the same.
I have gone through the Section 199(3) of the Act which enables the CBDT to make such rules for the purposes of giving such credit including the rules for grant of such credit to a person other than that referred to in sub section (1) and sub section (2) thereof. Pursuant thereto, rule 37BA of the Rules has been notified by the CBDT.
In my considered view according to sub-rule (1) thereof, such credit for TDS has to be allowed to the person to whom payment has been made or credit has been given on the basis of information relating to deduction of tax furnished by the deductor to the Income-tax authority. As in the present case, such information is contained in Form 26AS which is also according to the said rule, thus the assessee should be allowed credit in respect of the entire amount of TDS as reflected in such Form.
Although Sub-rule (2) of Rule 37BA enables the recipient of income to file a declaration with the deductor to the effect that such TDS may be reflected in the name of the other person. But this enabling provision is not mandatory. However, if the necessary requirement in the Rule is fulfilled, then, the deductor has to reflect the TDS in the name of the other person in which event the said person would get credit in respect of such TDS. Otherwise, TDS credit has to be allowed to the person from whose payment such TDS has been deducted. As in the present case on account of business expediency, the assessee could not have divulged this information with the importers/exporters/ freight forwarders.
In this regard reliance is being placed upon the decision in the case of CIT v. Relcom (2015) 62 taxmann.com 190 (Del), wherein it was held as under:
i. the High Court was concerned with the case where work had been performed by the assessee's sister company being Relcom Engineering Private Limited and invoices and in Form 26AS, assessee's PAN was reflected by the deductor. The CIT (A), ITAT and the High Court have upheld the claim of TDS credit in the hands of the assessee though the income was reflected in the hands of its sister concern (see the relevant facts in para 2. the extract from the CIT(A)'s order in para 4 and the Court's conclusion in paras 7 to 9 thereof). ii. In the case of Arvind Murjani Brands (P.) Ltd. v. ITO (2012) 137 ITD 173 (Mum), wherein it was held as under: where the property was let out by the Landlords for the benefit of a Franchisee. The lease agreement was entered into with Arvind Brands Limited. The assessee would receive the rent amount from the Franchisee who would pay such amount after deduction of tax at source. It. in turn would pay such amount to Arvind Brands Ltd. who will thereafter pay the same amount to the landlord. In this case, the rental income was entirely passed on by the assessee to Arvind Brands Ltd. and hence was not reflected as income by it. However, the Tribunal has found it to be entitled to grant of tax credit in respect of the TDS deducted by the Franchisee (see the relevant facts in paras 4 to 6 at pages 5 and 6 and the relevant conclusion in paras 11, 14 and 15 at pages 7 to 9). iii. In the case of ACIT v. Mile Stone Real Estate Fund being Order dated 22.09.2020 in wherein it was held as under:
This was a case where the assessee was a venture capital trust who had received contributions from the investors and made investments in venture capital undertakings. Based on section 10(23FB) and section 115U of the Act, the assessee acted as a pass through and the income which it generated from venture capital undertakings had to be assessed in the hands of the investors. Therefore, the assessee did not reflect any income to tax but claimed refund of the TDS deducted by the venture capital undertakings. The Tribunal has upheld the assessee's claim. The facts are in para 1, grounds in para 2 and the Revenue's submissions before the Tribunal in para 3 which are similar to those urged in the present case i.e., relying upon the provisions of section 199 and rule 37BA (2). The conclusion thereon in paras 5 and 6 completely supports the assessee's case. iv. In the case of ACIT v. Digi JPR Networks Private Limited being Order dated 04.08.2015 in wherein it was held as under: where the parent company of the assessee deducted tax at source on the payment which it made to the assessee for onward payment to the broadcasters or the channel companies. The assessee reflected such amounts in the Balance sheet and did not route the same thorough its Profit & loss account. However, its claim for TDS has been upheld by the CIT(A) as well as the Tribunal (see the facts in paras 3 and 4, the conclusion reached by the CIT(A) as reproduced in para 6 and the Tribunal's conclusion in para 8).
V. In the case of Lastly, in IVRCL-JL (JV) v. ACIT (2016) 386 ITR 564 (T&AP), wherein it was held as under: where the assessee was a joint venture who was awarded certain contracts by the Irrigation Department of the Government of Andhra Pradesh. Later these contracts were given by the assessee on sub-contract to one of its constituents on a back to back basis without any margin. Hence, it returned its income as nil but claimed credit in respect of the TDS deducted by the Government on the invoices raised by it which has been allowed by the Court (see the facts in para 2, the AO's case in para 3, the Revenue's submission before the Court in paras 11, 20 and 23 and the Court's conclusion in paras 12, 13, 15, 17, 18, 19, 22, 24 and 27).
Although during the course of hearing, Ld. DR has inter alia urged that the cases as relied upon by the assessee were those where the other person was a resident of India, while in the present case, the other person being the shipping line was a non- resident of India. Although these arguments have been raised for the first time and expressed concern over whether the payment made by the assessee to the non-resident shipping line has been subjected to TDS and they have filed their return of income in India. In this regard Ld. AR submitted that the other person being a resident or a non-resident of India would not make any difference to the principles as accepted by the High Court and the Tribunal referred to above. In any event of the matter, the assessee has also ensured that the foreign shipping line has deposited due taxes on the payment made by it to the non-resident shipping line. It also understands that, the said non-resident shipping line is complying with the obligations under the Act including filing of its return of income in India. A copy of the acknowledgement for filing of return of income by the foreign shipping line for A.Y 2023-24 has also been annexed for the purpose of reference. Moreover it is not the case of the Revenue that the assessee has not offered the correct income to tax as well as there is no qualification by its Auditor in the audit report.
Therefore considering the totality of the facts and circumstances as discussed by me above, I Allow the balance tax credit in respect to TDS of Rs. 95,799/-, accordingly grounds raised by the assessee stands allowed.
Order pronounced in the open court on 15.09.2025 Sd/- (SANDEEP GOSAIN) JUDICIAL MEMBER Mumbai, Dated 15/09/2025 KRK, PS आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Assessee 1. ��थ� / The Respondent. 2. संबंिधत आयकर आयु� / The CIT(A) 3. आयकर आयु�(अपील) / Concerned CIT 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण,मु�बई/ DR, ITAT, Mumbai 5. गाड� फाईल / Guard file. 6. आदेशानुसार/BY ORDER, स�ािपत �ित //True Copy//
उप/सहायक पंजीकार ( Asst. Registrar) आयकर अपीलीय अिधकरण, मु�बई मु�बई / ITAT, Mumbai मु�बई मु�बई