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Facts
HSCC (India) Ltd, a PSU, faced additions and denial of TDS credit for AY 2014-15 due to differences in interest income and consultancy fees between Form 26AS and its books. The assessee contended that certain interest income belonged to the Government and not to itself, and that timing differences in accounting methods (mercantile vs. cash basis for TDS) justified the discrepancies. The case involved cross appeals concerning the taxation of specific interest income and the allowance of TDS credit on both interest and consultancy fees.
Held
The Tribunal held that the interest income of Rs 7,05,14,427/- and specifically Rs 78,68,154/-, which was earned from funds received from the Ministry of Health and Family Welfare for projects, belongs to the Government/clients and not the assessee, hence not taxable in the assessee's hands. It further ruled that the assessee is entitled to TDS credit of Rs 62,64,627/- for this income under Rule 37BA(2), as the Government of India is not a 'person' u/s 2(31), and denying credit would lead to unjust enrichment. For consultancy fees of Rs 42,14,402/-, the Tribunal allowed TDS credit, acknowledging the timing difference between the assessee's mercantile accounting and the deductor's cash-based TDS under Rule 37BA(3) and section 145 of the Act.
Key Issues
Whether the assessee is entitled to TDS credit on interest income and consultancy fees where there is a mismatch between Form 26AS and its books of accounts due to the income belonging to the government/clients or timing differences in accounting methods.
Sections Cited
section 143(3), section 194J, section 194C, Rule 37BA(2), Rule 37BA(3), section 2(31), section 4, section 145
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in /Del/2018 filed by the assessee and 5902/Del/2018 filed by the revenue for AY 2014-15, arise out of the order of the Commissioner of Income Tax (Appeals)-35, New Delhi [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No. 297/2016-17 dated 22.06.2018 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 06.12.2018 by the Assessing Officer, Addl CIT, Special Range-4, New Delhi (hereinafter referred to as „ld. AO‟). As these are cross appeals, they are Page | 1
ITA No. 6033/Del/2 HSCC (India) Ltd taken up together and disposed of by this common order for the sake of convenience.
The assessee has raised the following grounds of appeal before us:-
“1. That the learned Commissioner of Income Tax (Appeal) erred in law and as well as on facts while confirming the disallowance of the TDS claimed corresponding to contract receipts amounting to Rs. 42,14,402/-.
2. That the Learned Commissioner of Income Tax (Appeals) confirmed the disallowance of TDS without taking in account documents, placed before Learned CIT (Appeals) as Additional evidence wherein consultancy income, against contact receipt under section 194J is already shown as income by the Assessee in its books of accounts, during the year under assessment.
That the Learned Commissioner of Income Tax (Appeals) confirmed disallowance of TDS, without appreciating the fact that the contracts receipts under section 194C, is not part of income of the Assessee.
4. That the Assessee craves leave to add, alter, substitute or change any grounds of appeal
s.”
3. The revenue has raised the following grounds of appeal before us:-
“1. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in holding that the assessee is entitled to the credit of TDS of Rs.62,64,627/- when the income corresponding to the TDS has not been credited to its P&L account but is credited to the respective project accounts owned by the Government.
2. Whether on the facts in the circumstances of the case and in law, the Ld CIT(A), while deleting the addition of income of Rs.78,68,154/-(made by the AO on account of difference between the income as per books and interest income as per Form 26AS) on the ground that the said income belongs to the respective client/project accounts owned by the Government, has erred in not simultaneously directing the AO to deny credit of corresponding TDS on the said income to the assessee as the income admittedly does not belong to the assessee.”
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
ITA No. 6033/Del/2 HSCC (India) Ltd India under Ministry of Health and Family Welfare. It is engaged in the business of providing conceptual studies and management consultancy, health care facility design, project management, procurement of health related product, logistics and installation. The return of income for the Asst Year 2014-15 was filed by the assessee on 29.11.2014 declaring total income of Rs 39,58,60,720/-. The assessee derives its revenue primarily from the Government of India, in the form of consultancy fees received in respect of various services as under:- a) On Design Engineering / Studies / Training/ Information & Technology; b) On Procurement Services ; and c) On Construction Contracts
The Ministry of Health had entered into an agreement with the assessee for execution of various projects, for which assessee is appointed as consultant and paid consultancy charges. Pursuant to the agreement, the Ministry transfers funds to the assessee‟s bank account with the instructions that the amount should be kept in separate bank account having the project name as decided by the Ministry. The assessee is bound by the agreement and has to act accordingly and credit the interest earned on the above transferred amount to the account of particular project of Ministry of Health & Family Welfare.
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
ITA No. 6033/Del/2 HSCC (India) Ltd extent of Rs 6,26,46,273/- and proceeded to add the difference sum of Rs 78,68,154/- as undisclosed interest income of the assessee.
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
ITA No. 6033/Del/2 HSCC (India) Ltd accounted in current year and similarly in some cases consultancy fees raised in current year is accounted by client in next year. The assessee filed a reconciliation statement of consultancy fees before the ld. AO. The ld. AO concluded after examining the reconciliation statement that TDS credit only to the extent of income offered would be granted to the assessee and since certain income is not offered to tax by the assessee during the year, corresponding TDS credit of Rs 42,14,402/- was not granted.
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
ITA No. 6033/Del/2 HSCC (India) Ltd deposits which belong to the various projects / clients of the assessee and as per the agreements with the client, assessee has to credit the interest earned on these fixed deposits to the account of the client. Therefore the interest earned on these fixed deposits is not reflected in the income of the assessee but credited to the account of the client / project of the assessee. The details filed by the assessee to the tune of interest of Rs 78,68,154/- were examined by the ld. CIT(A) and the ld. CIT(A) concluded that the same does not belong to the assessee at all and that the same belongs to the project / clients of the assessee and hence it cannot be taxed in the hands of the assessee. Aggrieved on this decision, the revenue is in appeal before us.
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.
ITA No. 6033/Del/2 HSCC (India) Ltd
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
ITA No. 6033/Del/2 HSCC (India) Ltd relevant year. Since there is difference in Form 26AS and as per profit and loss account, the corresponding TDS of Rs 42,14,402/- was rightly denied by the ld. AO. Aggrieved, the assessee is in appeal before us.
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:-
s Name of the Gross income Gross Difference TDS as per TDS deductor amount as per income 26AS claimed in No. Ledger amount as ITR per 26AS 1 Bank of Baroda 1,21,42,369 1,40,55,152 19,12,783 14,05,516 14,05,516 2 Canara Bank 5,05,82,172 5,02,07,403 (3,74,769) 50,20,740 50,20,740 3 indian Overseas 10,80,37.626 14,89,39,998 4,09,02,372 1,48,94,084 1,48,94,084 Bank Punjab national 37,48,656 1,71,05,22 0 1,33,56,564 17,10,528 17,10,528 4 Bank 5 State bank of 1,58,32,002 2,64,28, 59 1,05,96,857 26,42,924 26,42,924 Patiala 6 Syndicate $ank 86,17,887 1,04,21,213 18,03,326 10,42,118 10,42,118 7 State Bank of 1,01,216 1,01,216 10,126 10,126 India 8 UCO Bank 26,06,467 48,12,214 22,05,747 4,81,221 5,81,221 Corporation Bank 10,331, 10,331 1,991 1,991 Total 19,63,54,245 27,20,81,606 7,05,14,427 2,72,09,248 2,72,09,248
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
ITA No. 6033/Del/2 HSCC (India) Ltd Institute of Medical Sciences (AIIMS) addressed to the assessee ,which is enclosed in page 12 of the Paper Book, we find that the interest earned on funds received by the assessee from the Ministry would have to be credited to the respective project funds itself. Hence the interest of Rs 78,68,154/- can never be treated as income of the assessee and hence the same had been rightly deleted by the ld. CIT(A). Accordingly, the Ground No. 2 raised by the revenue is dismissed.
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
ITA No. 6033/Del/2 HSCC (India) Ltd assessee would be entitled for TDS credit of Rs 62,64,627/- which had been rightly granted by the ld. CIT(A). Accordingly, the Ground No. 1 raised by the revenue is dismissed.
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:-
It could be seen from the above, that the first three items represent amounts received from Government towards various projects. These are Page | 10
ITA No. 6033/Del/2 HSCC (India) Ltd not consultancy charges attributable to the assessee. The sanction letters of Ministry of External Affairs, Punjab Health Systems Corporation and State Program Monitoring Support Unit for release of funds for specific purposes are enclosed in Pages 17 to 26 and Pages 45 to 57 of the Paper Book respectively. In respect of consultancy fees, the same is released by the Ministry of External Affairs and other deductors and had been duly offered to tax by the assessee either in the year of receipt or in the year to which it pertains based on mercantile system of accounting regularly employed by the assessee in terms of section 145 of the Act. It is not in dispute that the assessee offers the consultancy income on accrual basis based on mercantile system of accounting. Hence in the year of offer of income thereon, the same may not be reflected in Form 26AS as it may not be subjected to deduction of tax at source in view of the policy of the Government to deduct tax at source only at the time of making payment and accordingly the said consultancy fees would get reflected in Form 26AS of the assessee only in the year of making payment to the assessee. This would obviously give rise to difference in income being offered to tax by the assessee on accrual basis and income reflected in Form 26AS of the assessee. The reconciliation statement to this effect is already on record, which had not been appreciated by the lower authorities. In any event, this would only be a timing difference as it is not the case of the revenue that income attributable to TDS was never offered to tax by the assessee. Assessee offers income on accrual basis and TDS is reflected in Form 26AS on cash/ payment basis. No mistake whatsoever has been found by the lower authorities on the reconciliation statement submitted. Hence the assessee would be entitled for TDS credit of Rs 42,14,402/- in the year under consideration. Accordingly, the grounds raised by the assessee are allowed.
ITA No. 6033/Del/2 HSCC (India) Ltd
In the result, the appeal of the assessee is allowed and appeal of the revenue is dismissed.