Loading judgment…
Facts
The assessee filed an appeal against an order that dismissed their appeal as belated. The assessee claimed TDS credit of Rs. 2,60,000/- on rental income, which was deducted by the tenant. The CPC denied the TDS credit as it was not reflected in Form 26AS. The assessee contended that the intimation was received late, making their appeal within time.
Held
The Tribunal held that the assessee's appeal was filed within the time limit as the intimation was received late. It was further held that the assessee is entitled to the credit of TDS deducted by the deductor, even if the deductor failed to deposit it with the Central Government. The ITAT directed the AO to allow the credit of TDS.
Key Issues
1. Whether the appeal was belatedly filed. 2. Whether the assessee is entitled to TDS credit when the deductor failed to deposit the deducted tax with the government.
Sections Cited
143(1), 194-I, 199, 201, 205
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC‘ BENCH
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against order dated 24/11/2023 passed by Addl./JCIT(A)-5, Mumbai in relation to adjustment made u/s.143(1) for the A.Y.2013-14. 2. In the grounds of appeal assessee has raised following grounds:- “1. On the facts and in the circumstances of the case and in law, the first appellate authority erred in holding the appeal before it to be belated, and in not condoning delay if any, in filing of the same. 2. On the facts and in the circumstances of the case and in law, the first appellate authority erred in confirming findings in
2 ITA No.152/Mum/2024 Mrs. Rekha Maheshwari intimation order u/s.143(1), wherein a tax demand of Rs.1,84,830/- had been determined as against a refund due of Rs.1,16,190/-. 3. On the facts and in the circumstances of the case and in law, the first appellate authority erred in not allowing credit for TDS on rental income from SVIL Mines Limited, in a sum of Rs.2,60,000/-. 4. On the facts and in the circumstances of the case and in law, the first appellate authority erred in confirming charge of interest under the Act. 3. Before us ld. Counsel submitted that ld. CIT (A) has dismissed the appeal on the ground that appeal was filed on 04/02/2023 against order dated 18/08/2014 u/s. 143(1). The assessee’s contention was that intimation itself was received on 14/01/2023, which Ld. First Appellate Authority has stated that assessee had failed to substantiate its claim. He submitted that assessee has filed the proof for intimation u/s. 143(1) which was received on 14/01/2023 and thus, he has wrongly held that the appeal is barred by limitation. 4. In view of the fact that the intimation u/s.1 43(1) itself was received on 14/01/2023, then the appeal was filed on 04/02/2023 was within time, accordingly, the finding of the ld. CIT (A) for not condoning the delay is reversed as the appeal was filed within time. However, the Ld. CIT (A) also decided the appeal on merits. 5. The brief facts are that assessee is an individual and had declared income under the head ‘income from house property’ from rent of Rs.26,00,000/- received from tenant SVIL Mines Ltd in respect of property situated at D-10, Ring Road, Rajouri
3 ITA No.152/Mum/2024 Mrs. Rekha Maheshwari Garden, New Delhi. The assessee had claimed credit of TDS of Rs.2,60,000/- @ 10% which was deducted on rent u/s.194I of the Act by the tenant having TAN DELS25756D. Since TDS was not reflected in Form 26AS, the CPC has denied claim of TDS to the assessee. The assessee’s case before the ld. CIT (A) was that tenant had made the payment of rent after deducting TDS @10% and in support, the copy of bank statement was also filed that payments were made by the tenant after deducting the TDS. Copy of ledger account by the tenant showing the amount of TDS credit to them was also filed. However, the ld. CIT (A) after referring the Section 199 and 205 of the Act and CBDT instruction dated 01/06/2015 and OM dated 11/03/2016 held that mere deduction of TDS amount would not entitle the assessee for credit of TDS as it should be deposited in the Government account. The assessee had relied upon various judgments of Gujarat High Court in the case of Kartik Vijaysinh Sonavane [2021] 132 Taxmann.com293 (Gujarat), pertain to the validity of recovery from the deductee and the bar on recovery by the AO on such demands raised due to non- grant of TDS credit, where the deductor of tax has violated the TDS provisions and the court has relied on the Gauhati High Court decision in the case of Om Prakash Gattani [2001] 117 Taxman 549 (Gauhati) and Gujarat High Court decision in the case of Sumit Devendra Rajani (2014) 49 taxmann.com 31. However, the ld. CIT(A) inferred that Gauhati High Court has held that assessee was not entitled for TDS credit by virtue of mere deduction of TDS. However his conclusion of is incorrect.
4 ITA No.152/Mum/2024 Mrs. Rekha Maheshwari 6. We have heard both the parties and perused the impugned order. The short issue for our consideration is that, tenant has deducted TDS @10% and after deducting the TDS had made the payment to the assessee. Since the amount of TDS deducted was not reflected in Form 26AS presumably he had not declared any complete details in the TDS returns or has not paid TDS deducted from the assessee, the claim of TDS credit has been denied. This issue stands covered by series of decisions as relied upon by the assessee before us and also before the ld. CIT(A). The Hon’ble Gujarat High Court in the case of Kartik Vijaysinh Sonavane vs. DCIT 440 ITR 11(Guj) held that whether TDS has been deducted by the employer of the assessee, it will always be opened for the department to recover from the said employer at the credit of same could not have been denied by the assessee. The Hon’ble Gujarat High Court has relied upon its own judgment rendered in the case of Devarsh Pravinbhai Patel vs. Asstt. CIT in Appeal No.12965 of 2018 dated 24/09/2018 where employee in the case of the petitioner who is an employer of the Kingfisher Airlines worked as a pilot, no TDS on salary was deducted but not deposited. The Hon’ble Gujarat High Court after referring to the Hon’ble Gauhati High Court judgment in the case of ACIT vs. Om Prakash Gattani had allowed the same by holding that the assessee deductee is entitled to credit of the tax deducted at source with respect to amount of TDS for which Form No.16A issued by the employer deductor. If the department is of opinion that deductor has not deposited the said amount of tax deducted at source, it will
5 ITA No.152/Mum/2024 Mrs. Rekha Maheshwari always been open for the department to recover the same from the deductor. But department cannot deny the benefit of tax deducted at source by the employer and credit has to be given. 7. The Hon’ble Gauhati High Court which has been referred by the ld. CIT(A) is in favour of the assessee because in the case of Om Prakash Gattani (supra), Hon’ble Gauhati High Court was dealing with the TDS not deposited of prize money payable to the petitioner. It held and observed that section 205 clarifies the position where it provides that where tax is deductible at source, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income. What is noticeable in this provision is that its applicability is not dependent upon the credit for tax deducted being given under section 199. What is necessary for applicability of this provision is that the amount has been deducted from the income. In case where the amount has been deducted but not paid to the Central Government that eventuality is taken care of by section 201 The assessee could not show that under the law it may be permissible to proceed against the assessee even after deduction of the tax at source, nor could it be held that merely by deduction of tax at source, credit for deduction of tax at source has to be given even though the amount may not have been made over to the Government treasury. As mere deduction of tax at source would not close the chapter of tax liability unless it is deposited in the Government.
6 ITA No.152/Mum/2024 Mrs. Rekha Maheshwari 8. The Hon’ble Gauhati High Court interpreted the Section 205 which clarified the position that it provides that where tax is deductible at source, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income. The Hon’ble High Court held that the applicability is not dependent upon the credit for tax deducted being given under section 199 and what is necessary for applicability of this provision is that the amount has been deducted from the income. In case that amount has been deducted but not paid to the Central Government that eventuality is taken care of by section 201. Thus, accordingly, it was held that once the TDS has been deducted, assessee cannot be asked to pay the tax and department could have been initiated the proceedings u/s.201 in the hands of the deductor. 9. Similar view has been taken by the Hon’ble Karnataka High Court in the case of Smt. Anusuya Alva vs. DCIT-8(1) wherein in the context of 194I only the Hon’ble High Court held that Section 205 is barred against direct diamond on assessee where the tenant-lessee of assessee statutorily deducted tax u/s.194I for monthly rent payable to assessee but failed to remit the same to Central Government, Revenue could not enforce recovery of that amount from assessee for such failure on the part of tenant, in view of embargo/ prohibition provided u/s.205. The relevant observation of the Hon’ble High Court reads as under:-
“8. Section 205 of the Act reads as under:
7 ITA No.152/Mum/2024 Mrs. Rekha Maheshwari "205. Bar against direct demand on assessee : Where tax is deductible at the source under Sections 192 to 194, Section 194A, Section 194B, Section 194BB, Section 194C, Section 194D, Section 194E, Section 194EE, Section 194F, Section 194G, Section 194H, Section 194-I, Section 194J, Section 194K, Section 195, Section 196A, Section 196B, Section 196C and Section 196D, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income." On a plain reading of this provision, it is very clear that in a situation where the tax is deductible at source under Section 194- I of the Act, as in the present case, and to the extent to which the tax has been deducted from the income, the assessee shall not be called upon to pay the tax himself/herself to such extent. That means what the section provides for is to put an embargo or prohibition from raising a demand on the assessee in respect of the amount, which was deductible and actually deducted to the extent it has been deducted. The section by itself does not say that the amount should also be paid to the Central Government. There is no doubt that such an obligation is cast on the person responsible namely, the person who has deducted the amount and the Act also provides for initiation of proceedings against the person on his/her failure to do so, right upto the prosecution of the person for recovery of the amount with interest. The condition of remittance is not referred to or made a requirement for the protection to the assessee under Section 205 of the Act. Even if one reads the earlier provisions such as 192, 194-I, 199, 200, 201, 202 and 203 to presume that payment being on behalf of the assessee having expressly made applicable when the amount is remitted and granted to give credit to the amount of the tax payable by the assessee also, only when the amount deducted is also remitted, whereas, there is a clear departure in the case of Section 205 by not mentioning the words 'remittance of the amount' in this section. Here again, for imposing the bar on the Revenue for making a direct demand on the assessee, what is indicated in the section is a requirement in law for deduction and factual deduction and nothing more. Insofar as such requirements are concerned, in the present case, it is not much in dispute that it has happened or fulfilled. In fact, the bar only is not to raise demand on the assessee herself or to enforce recovery on the
8 ITA No.152/Mum/2024 Mrs. Rekha Maheshwari assessee after the deduction is made in respect of the amount deducted. That means, once deduction is made, the Revenue is expected to look upto the person who had deducted the tax for realizing the amount, if such person fails in remitting the amount to the Central Government. 9. I am of the view that this understanding and such interpretation of Section 205 of the Act is also in consonance with the general principles of law, particularly the principles of the Law of Principal and Agent. If we look at the scheme for the provision of deduction of tax at source, it becomes obvious that such person is acting on behalf of the Revenue, i.e., as an agent of the Revenue. In fact, the person is enabled statutorily to make deduction and remit the amount to the Central Government, though in the instant case, the person who has deducted the amount may be the tenant or lessee of the petitioner and there is such inter se relationship as between the two, insofar as the deduction of tax at source representing 20 per cent of the monthly rent payable as envisaged under Section 194-I of the Act is concerned, the deduction is under the statutory obligation and on behalf of the Revenue and because of the compulsion herein. It is not as if the petitioner could prevent such deduction. When the person like a tenant acts as a representative or agent of the Revenue for such deduction and if there is any violation on his/her part, the consequence should fall only on the Revenue and that cannot be foisted on the assessee. It is no doubt true that the assessee if pays the tax in terms of the tax liability, i.e., under the assessment order and to the extent of the amount is not paid to the Government remains a liability on the assessee also and could look upto the tenant to recover the amount for reimbursement. The question in the light of the provisions is that, should the assessee be driven to that plight ? I think that the provision is to provide a protection to the assessee and to prevent the Revenue from embarking on the recovery proceedings in respect of such amount. If such being the object of the provision, it is not possible to understand the word 'deduct' occurring in Section 205 as 'deducted and remitted'. 10. Even on the general principles of law, the Law of Principal and Agent, as discussed above, for a default of the agent of the Revenue, the petitioner-assessee, who is a third party in relation to such relationship cannot be penalised. In the circumstances, I
9 ITA No.152/Mum/2024 Mrs. Rekha Maheshwari am of the view that the Revenue is to be definitely restrained in terms of Section 205 of the Act from enforcing any demand on the assessee-petitioner insofar as the demand with reference to the amount of tax which had been deducted by the tenant of the assessee in the present case, and assuming that the tenant had not remitted the amount to the Central Government. The only course open to the Revenue is to recover the amount from the very person who has deducted and not from the petitioner. 10. The Hon’ble Delhi High Court in the case of Sanjay Sudan vs. Assistant Commissioner of Income Tax 452 ITR 107(Del) held that revenue cannot adjust withholding tax which has not been deposited by the dedector / employer in the Central Government. Again the Hon’ble Delhi High Court hence referred to the provision of u/s. 205 of the Act and in favour of the assessee. This principle has been reiterated by the Hon’ble Delhi High Court in the case of PCIT vs. Jasjit Singh in Income Tax Appeal No.295/2023 dated 02/11/2023 wherein the only issue was whether assessee is entitled to credit the concerning tax which has been deducted with respect to transaction entered and not deposited in the Central Government. The Hon’ble High Court after analyzing the provision of Section 199 under Rule 37BA have made a very detailed observation which for the sake of ready reference are reproduced hereunder:- 4. This view was also taken by this court via decisions dated 31.10.2023 rendered in W.P.(C) No. 9308/2022, titled Vishesh Khanna v. DCIT 2023:DHC:8267-DB and W.P.(C) No. 9043/2021, titled BDR Finvest Pvt. Ltd. v. DCIT 2023:DHC:8284-DB. 5. We may also add to the reasoning that is already embedded in the aforementioned judgments, in view of the renewed emphasis, albeit with greater vigour, laid by the appellant/revenue.
10 ITA No.152/Mum/2024 Mrs. Rekha Maheshwari 6. The submission of Mr Bhatia [based on Section 199 of the Act] simply boils down to this: the expression “and paid” found in sub- section (1) of the said provision mandates that credit for tax deducted at source can only be extended when the deductor deposits the amount with the Central Government. 7. In this context, it is important to note that sub-section (3) of Section 199 of the Act alludes to the power invested in the Central Board of Direct Taxes (CBDT) to frame rules as to how credit in respect of tax deducted or tax paid in terms of Chapter XVII is to be given. [See Rule 37BA]. Significantly, the CBDT is empowered to frame rules that may be necessary to give credit to a person “other than those referred to in sub-section (1) and sub-section (2)” of Section 199. Therefore, Section 199, read in its entirety, does not limit credit only to those deductees whose deductors have deposited the amount with the Central government. 7.1 Moreover, the expression “and paid” to the Central Government found in Section 199(1) must be contextualized in the setting in which it is placed, i.e., Chapter XVII, whereby, the sanctions for failing to deposit tax with the Central government are laid on the payor/deductor. 7.2 Section 199, which is contained in Chapter XVII and, inter alia, includes provisions for collection and recovery of tax. Chapter XVII of the Act is divided into eight (8) parts. 7.3 Part A, which is general, includes Sections 190 and 191. Part B concerns Deduction [of tax] at source. Part BB relates to the Collection [of tax] at source. Part C pertains to Advance payment of tax. Part D concerns Collection and recovery of tax. 7.4 Part E concerns “tax payable under provisional assessment” and includes Sections 233 and 234 of the Act as omitted by the Taxation Laws (Amendment) Act, 1970 [w.e.f. 1-4-1971], and the Direct Tax Laws (Amendment) Act, 1987 [w.e.f. 1-4-1989], respectively. 7.5 Part F concerns Interest chargeable in certain cases. Lastly, Part G provides for provisions for the levy of fees in certain cases.
11 ITA No.152/Mum/2024 Mrs. Rekha Maheshwari 8. As would be evident, Chapter XVII of the Act puts in place a legislative scheme for the collection of taxes by various modes, which includes direct levy [See Section 191], deduction of tax at source, or collection at source. 8.1 Sections 192 to 195 and 196A to 196D provide for the deduction of tax at source for payments made under various heads. For instance, payments made by way of salary, interest on securities, dividends, and interest (other than interest on securities), winnings from lotteries or crossword puzzle, and winnings from horse race are amenable to deduction of tax at source under Sections 192, 193, 194, 194A, 194B and 194BB, respectively. 8.2 Likewise, payments made to contractors and insurance commission, payments made in respect of life insurance policy, and payments made to the non-resident sportsmen or sports associations are liable for deduction to tax at source under Sections 194C, 194D, 194DA, and 194E, respectively. 8.3 As far as payments made to non-residents [not being a company], or to a foreign company are concerned, any interest (not being interest referred to in section 194LB or section 194LC or section 194LD) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries" ) payable to such non-resident is made amenable to deduction of tax at source under Section 195 of the Act. 8.4 Specifically, the grossing up principle finds statutory recognition in Section 198 of the Act. This is a principle, whereby, income which is payable, say, under any agreement/arrangement [in a case not referred to in Section 192(IA), and the tax chargeable on that income is required to be deducted by the payor, then the income is increased by the payor/deductor and offered to tax inclusive of the tax deducted at source. 8.5 Chapter XVII also contains provisions where, if tax is not deducted at source, it can be recovered from the payee. This is contained in Sections 191 and 202 of the Act.
12 ITA No.152/Mum/2024 Mrs. Rekha Maheshwari 8.6. Significantly, Chapter XVII contains provisions for penalizing the payor/deductor when he fails to deposit the tax deducted at source with the Central Government. For instance, the Act provides for consequences qua the person who is obliged to deduct tax at source but fails to do so or, after deducting fails to deposit the same. Under Section 201, such a person is deemed to be an „assessee-in-default‟ and would, upon this eventuality occurring, be liable to pay interest [See sub-section (1A) of Section 201]. 8.7 Furthermore, the „assessee-in-default‟ is also liable for imposition of penalty under Section 221 of the Act. Besides this, outside Chapter XVII, penalty can also be levied under Section 271C. 8.8 In addition, thereto, a person who fails to deposit tax deducted at source, under the provisions of Chapter VII-B, is liable for punishment with rigorous imprisonment under Section 276B. 8.9 That said, both impositions of penalty and prosecution are subject to the defence of „reasonable cause‟ as provided in Sections 273B and 278AA of the Act respectively. 9. Importantly, Section 201(2), provides that where a person who, although required to, does not deduct tax or does not pay the tax deducted at source or after deducting fails to pay wholly or part of the tax as required under the Act, would have a statutory charge created on his assets concerning both the tax as well as the interest payable under sub-section (1A) of the said provision. 10. Thus, in our opinion, the Act does not seem to cast a burden on the deductee/payee with regard to the deposit of money, which is retained as tax, by the payer i.e., the deductor. Therefore, insofar as the deductee/payee is concerned, once the payer/deductor, who acts as an agent of the Central Government, has retained money towards tax, credit for the same cannot be denied, having regard to the consequences and the modes available for recovering the said amount from the payer/deductor. 11. In this particular case, the deductors are individuals who, concededly, after retaining the tax deducted at source did not fully deposit the same, as noted above, with the Central Government.
13 ITA No.152/Mum/2024 Mrs. Rekha Maheshwari
Upon the respondent/assessee becoming aware of this fact, a police complaint was lodged, which was brought to the notice of the appellant/revenue. Despite this aspect being brought to the notice of the appellant/revenue, no steps were taken either under the provisions of the Act or under the common law for recovery or even under the extant statute(s) for bringing deductors to book in accordance with the law. 13. In our opinion, the argument advanced by Mr Bhatia that the amount deducted towards tax at source will not be given credit because the deductor has chosen not to deposit the amount with the Central Government is erroneous for another reason, which is that the nature of the amount retained by the deductor continues to remain as „tax’. 13.1 This aspect clearly emerges upon perusal of the contents of the information provided in the Tax Payers Information Series-28 booklet titled ‘Tax Deduction at Source (TDS) Other Than Salaries’ published by the Income Tax Department. The booklet notes that tax deducted at source will be treated as payment of ‘tax‟ on the assessee‟s behalf. For convenience, the relevant part of the booklet is extracted hereafter: 4.2 Credit of TDS Where taxes have been deducted at source from any payment of income receivable by an assessee, the amount of tax deducted at source would be included in the income of the assessee while computing the income of the assessee and would be deemed to be the income received (S.198). Further credit will be given to the assessee while calculating the net tax payable by him and the tax deducted at source will be treated as a payment of tax on his behalf (i.e. to the Central Government by the payer who has deducted the tax at source (S.199)). [Emphasis is ours] 14. The Act has, thus, provided a regime as to how tax is required to be collected against certain payments. Once the deductee adheres to the statutory regime and allows the deductor to retain money towards tax, the nature of the amount cannot change and, therefore, the deductee, in our
14 ITA No.152/Mum/2024 Mrs. Rekha Maheshwari view, would be entitled to the credit of the amount retained by the deductor towards tax. Any other view would result in a situation where even though the assessee would have grossed up his income [by including the tax deducted at source] and offered the same for taxation, he would be denied the benefit of having the resultant tax demand adjusted against tax deducted at source by the payer. This handicap the assessee/deductee [i.e., the respondent/assessee] would suffer only because the deductor, who acts as the agent of the Central Government, chooses not to deposit the amount retained towards tax. 11. Respectfully following the aforesaid principles laid down by the Hon’ble High Courts in various cases we hold that credit of TDS cannot be denied to the assessee. Accordingly, we direct the ld. AO to allow the credit of TDS.
In the result, appeal of the assessee is allowed.
Order pronounced on 25th July, 2024.
Sd/- Sd/- (RATNESH NANDAN SAHAY) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 25/07/2024 KARUNA, sr.ps
15 ITA No.152/Mum/2024 Mrs. Rekha Maheshwari
Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. BY ORDER, 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// (Asstt. Registrar) ITAT, Mumbai