ADDL. CIT, SPECIAL RANGE- 4, NEW DELHI vs. HSCC (INDIA) LTD. , NOIDA

We have heard the rival submissions and perused the materials available on record. The assessee is a public sector undertaking registered under the Companies Act, 1956 and wholly owned by the Government of Page | 2

The ld. AO observed that there was a difference in interest income as shown in Form 26AS of Rs 27,20,81,606/- and interest income credited in profit and loss account of Rs 19,63,54,245/- thereby resulting in difference of Rs 7,05,14,427/-. The assessee provided the reconciliation statement for the said difference with documentary evidences. The ld AO however observed that assessee could explain the difference only to the Page | 3

The ld. AO observed that as per 26AS statement, TDS credit available to the assessee was Rs 2,72,09,248/-. As per the income tax return, the assessee had claimed whole of this amount eventhough the corresponding income has not been credited to its Profit and Loss Account. The ld. AO by referring to the provisions of Rule 37BA(2) of the Income Tax Rules which provides that if any part of the income on which tax has been deducted at source, is assessable in the hands of the person other than the deductee, credit for such TDS shall be given to that other person and not to the deductee. In the present case, the assessee has not recognized an amount of Rs 7,05,44,427/- as interest income claiming that the said interest income pertains to its clients. Out of this, a sum of Rs 78,68,154/- is already added hereinabove and the balance sum of Rs 6,26,46,273/- was treated by the ld. AO as income attributable to the clients of the assessee and hence the said income is not assessable in the hands of the assessee. The ld. AO observed that since income is not assessed, TDS credit also cannot be given to the assessee. Accordingly, the ld. AO denied the corresponding credit of TDS calculated at the rate of 10% of Rs 6,26,46,273/- amounting to Rs 62,64,627/- in the assessment.

The ld. AO observed that there were certain differences in receipts credited in profit and loss account and receipts as per 26AS statement. The assessee explained that in some cases, the income is not credited in its profit and loss account as it is following mercantile system of accounting and recognizing income on accrual basis, whereas the clients being Government entities deduct tax at source on cash basis and hence there is always bound to some difference in receipts. The assessee submitted that in some cases, consultancy fees raised in previous years is Page | 4

In view of the above, the assessee was denied total TDS credit of Rs 1,04,79,029/- (6264627+4214402).

The assessee filed certain additional evidences before the ld. CIT(A) which were duly admitted and even remand report was called for from the ld. AO. The remand report was duly submitted by the ld. AO. The assessee also filed rejoinder to the said remand report before the ld. CIT(A).

With regard to the addition made in the sum of Rs 78,68,154/- by the ld. AO, the ld. CIT(A) observed that the assessee is a government company engaged in rendering services of health care & family welfare to the common public and works directly under the Ministry of Health & Family Welfare, Government of India. The Ministry enters into agreement with HSCC India Limited for execution of various projects, for which HSCC is appointed as consultant and paid consultancy charges. As soon as the agreement is entered Ministry transfers funds to the account of HSCC with the instructions that the amount should be kept in separate bank account having the project name as decided by the Ministry. HSCC is bound by the agreement and has to act accordingly and credit the interest earned on the above amount to the account of particular project/Ministry (Government of India). It was explained that the difference in income is due to Tax deducted by the bank on the interest income against fixed Page | 5

With regard to denial of credit of TDS to the tune of Rs 62,64,627/- under Rule 37BA(2) of the Income Tax Rules, the ld. CIT(A) agreed with the submissions of the assessee that Government of India i.e Ministry of Health and Family Welfare does not fall in the definition of a „person‟ defined us 2(31) of the Act as well as charging section 4 of the Act. Hence the assessee argued that the income of Government of India is not taxable and any tax if deducted as per Rule 37BA(2) of the Income Tax Rules cannot be recovered by Government of India as there is no Permanent Account Number (PAN) for Government of India. Applying this logic, the assessee had to collect the TDS from Income Tax Department and pay the same to Ministry of Health and Family Welfare. If this is not done, the TDS credit of Rs 62,64,627/- would not be granted to the assessee. The same would not be granted to Ministry of Health and Family Welfare also as they do not possess any PAN. This action would result in unjust enrichment to the Income Tax Department. With these observations, the ld. CIT(A) directed the ld. AO to grant TDS credit of Rs 62,64,627/- to the assessee. Aggrieved, the revenue is in appeal before us.

With regard to denial of credit of TDS to the tune of Rs 42,14,402/- under Rule 37BA(3) of the Income Tax Rules, the ld. CIT(A) observed that the assessee had submitted that there are two parts of the contracts / procurement work of the assessee with respect to the payments received from the Ministry of Health and Family Welfare. The first part of the payment is with respect to cost of equipments / medicines on which tax is deducted by the Ministry u/s 194C of the Act and second part of the payment is with respect to consultancy fees of the assessee on which tax is deducted u/s 194J of the Act by the Ministry. The ld CIT(A) did not agree with the contention of the assessee that the corresponding income portion for the equipments is not even taxable in the hands of the assessee as the machine is not sold by the assessee or retained by the assessee. Only the consultancy fees represent income of the assessee. The equipments bought using the funds of the Ministry are to be placed at the respective projects itself. The assessee merely receives the funds from the Ministry and pays to the supplier of the equipments towards its cost. Since the Ministry had deducted tax at source while releasing funds to the assessee, the TDS credit for the same is being sought by the assessee, though the income thereon is not offered to tax by the assessee as it does not belong to the assessee. Infact there is no income component at all involved therein as assessee merely acts as a post office / agent of collecting funds from the Ministry and paying to the supplier towards cost of equipments. The ld CIT(A) however did not agree with this contention. Similarly with regard to the consultancy fees being offered to tax by the assessee on accrual basis, whereas the clients deduct tax at source on cash / payment basis, the ld CIT(A) did not appreciate the reconciliation statement for the same submitted by the assessee. The ld. CIT(A) proceeded to uphold the decision of the ld. AO that TDS credit could be granted only to the extent of income declared by the assessee in the Page | 7

We find that with regard to the interest income of Rs 7,05,14,427/- being the difference between 26AS statement and that reflected in profit and loss account, the assessee had duly furnished the entire reconciliation as under:-

During the course of assessment proceedings, the assessee was able to give details of interest income earned on funds received from the Government of India to the tune of Rs 6,26,46,273/- from various projects. Based on that , the ld. AO agreed to the contention that the said interest income does not belong to the assessee and indeed belongs to Government of India and hence not taxable in assessee‟s hands. We find that similar would be the treatment for the remaining interest income of Rs 78,68,154/- as the same also cannot be taxed in the hands of the assessee. It is not in dispute that the entire interest income of Rs 7,05,14,427/- is earned by the assessee out of funds received from the Government of India. As per the letter dated 3.12.2013 issued by All India

We have already held that the entire interest income of Rs 7,05,14,427/- belongs to the Government of India and not to the assessee. The interest figure of Rs 6,26,46,273/- is included in the above figure of Rs 7,05,14,427/-. Since the entire interest of Rs 7,05,14,427/- is not taxable in the hands of the assessee, accordingly the interest of Rs 6,26,46,273/- also would not be taxable in assessee‟s hands. But as stated earlier, this interest income is earned by the assessee out of funds received from the Ministry and the same interest is to be passed on to the Government by the assessee. But the Banks while crediting the interest deducts tax at source , on which assessee does not have any control. Irrespective of the fact, that assessee gets the refund of TDS from the Income Tax Department, it has to pay to Ministry of Health and Family Welfare and others the interest income including the TDS portion. Hence assessee collects the TDS refund from Income Tax Department and passes it on to Ministry of Health and Family Welfare and others. If the said TDS credit is denied to the assessee, then it would result in loss to the assessee for no fault of it and it would end up draining its financial resources for doing a job for the Government of India. Since the Ministry of Health and Family Welfare and others, being Government of India, cannot be treated as a person u/s 2(31) of the Act, the assessee acts as an intermediary to collect the TDS from the Income Tax Department and passes on to Ministry of Health and Family Welfare and others. Hence the Page | 9

We find that the assessee had duly furnished the complete reconciliation statement of TDS of Rs 42,14,402/- which are enclosed in Pages 15 and 16 of the Paper Book. For the sake of convenience, the said reconciliation statement is reproduced below:-

In the result, the appeal of the assessee is allowed and appeal of the revenue is dismissed.