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Facts
The assessee, National Commodity & Derivatives Exchange Ltd., received penalty income from its members and subsequently transferred it to the NCDEX Investor (Client) Protection Fund Trust. Tax deducted at source (TDS) on this income was credited to the assessee's Form 26AS, but the assessee did not offer the penalty income in its profit and loss account, leading to the denial of TDS credit by lower authorities.
Held
The Tribunal upheld the decision of the lower authorities, ruling that TDS credit can only be claimed by an assessee in whose hands the amount from which tax is deducted is treated as income. Since the penalty income was not taxable in the assessee's hands, the TDS credit was rightly refused. Regarding the alternative claim for credit to the IPF Trust, the Tribunal noted that it was not the subject matter of the current appeals but suggested a mechanism for the assessee to furnish a declaration to the deductor to allow the concerned authorities to consider granting TDS credit to the IPF Trust.
Key Issues
1. Whether the assessee is eligible for TDS credit on penalty income transferred to an Investor Protection Fund, when the income was not offered in its profit and loss account. 2. Whether the TDS credit for such income should be granted to the NCDEX Investor (Client) Protection Fund Trust.
Sections Cited
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Income Tax Appellate Tribunal, MUMBAI BENCH “B” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAHUL CHAUDHARY
These appeals by the assessee are directed against two These appeals by the assessee are directed against two These appeals by the assessee are directed against two separate orders, both dated 29.11.2023 both dated 29.11.2023, passed by the Ld. passed by the Ld. Commissioner of Income Commissioner of Income-tax (Appeals) – National Faceless Appeal National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2017-18 Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2017 Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2017 and 2018-19 respectively. 19 respectively. As identical issue in dispute issue in dispute is involved in both these appeals in both these appeals, therefore same were heard together and me were heard together and disposed off by way of this consolidated order for convenience. disposed off by way of this consolidated order for convenience. disposed off by way of this consolidated order for convenience.
As identical grounds have been raised in both the appeals identical grounds have been raised in both the appeals identical grounds have been raised in both the appeals except quantum , therefore, for brevity , therefore, for brevity, grounds raised in grounds raised in assessment year 2017 assessment year 2017-18 is reproduced as under:
Ground 1 - - Non-grant of credit for withholding taxes claimed grant of credit for withholding taxes claimed on penalty transferred to Investor Protection Fund on penalty transferred to Investor Protection Fund 1.1 The learned Commissioner of Income The learned Commissioner of Income-tax (Appeals) ("Ld. CIT(A)") tax (Appeals) ("Ld. CIT(A)") erred in not granting the credit of taxes withheld on penalty erred in not granting the credit of taxes withheld on penalty erred in not granting the credit of taxes withheld on penalty transferred to Investor Protection Fund Trust. to Investor Protection Fund Trust. 1.2 The Ld. CIT(A) erred in not appreciating the facts that the appellant The Ld. CIT(A) erred in not appreciating the facts that the appellant The Ld. CIT(A) erred in not appreciating the facts that the appellant acts as a trustee who collects the penalty from the members and acts as a trustee who collects the penalty from the members and acts as a trustee who collects the penalty from the members and transfers the entire gross , amount of penalty (including TDS) to transfers the entire gross , amount of penalty (including TDS) to transfers the entire gross , amount of penalty (including TDS) to 'Investor Protection Fund Trust' as per the statutory obligation referring stor Protection Fund Trust' as per the statutory obligation referring stor Protection Fund Trust' as per the statutory obligation referring to the prescribed guidelines and regulations and it is a case of diversion to the prescribed guidelines and regulations and it is a case of diversion to the prescribed guidelines and regulations and it is a case of diversion of income by overriding title. of income by overriding title. 3. Before us, the assessee also raised an additional Before us, the assessee also raised an additional Before us, the assessee also raised an additional/alternative ground which is reproduced as under: reproduced as under:
1:0 Re.: Granting of credit for taxes withheld on penalty income 1:0 Re.: Granting of credit for taxes withheld on penalty income 1:0 Re.: Granting of credit for taxes withheld on penalty income to NCDEX Investor (Client) Protection Fund: to NCDEX Investor (Client) Protection Fund:
1: 1 The Appellant submits that considering the facts and circumstances 1: 1 The Appellant submits that considering the facts and circumstances 1: 1 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, of its case and the law prevailing on the subject, the credit of taxes the credit of taxes withheld on penalty income transferred to and taxable in the hands of withheld on penalty income transferred to and taxable in the hands of withheld on penalty income transferred to and taxable in the hands of 'NCDEX Investor (Client) Protection Fund Trust' ought to be granted to 'NCDEX Investor (Client) Protection Fund Trust' ought to be granted to 'NCDEX Investor (Client) Protection Fund Trust' ought to be granted to 'NCDEX Investor (Client) Protection Fund Trust'. 'NCDEX Investor (Client) Protection Fund Trust'.
The additional ground raised being alternat The additional ground raised being alternative to the regular ive to the regular grounds raised, is admitted for adjudication in view of settled is admitted for adjudication in view of settled is admitted for adjudication in view of settled principle in the case of NTPC Ltd. 229 ITR 283 (SC) NTPC Ltd. 229 ITR 283 (SC). In grounds principle in the case of raised, the main issue in dispute is that the assessee has received raised, the main issue in dispute is that the assessee has received raised, the main issue in dispute is that the assessee has received penalty income from its member penalty income from its members, which pertain to “NCDEX Client rtain to “NCDEX Client Protection Fund”. The said penalty income ”. The said penalty income has been subsequently has been subsequently transferred to said trust but the transferred to said trust but the tax deducted at source ( tax deducted at source (TDS) on this amount was credited this amount was credited in the hands of assessee and reflected in the hands of assessee and reflected into the Form No. 26AS of the assessee. into the Form No. 26AS of the assessee. The assessee claimed credit The assessee claimed credit of said TDS but the lower authorities have not allowed the credit of he lower authorities have not allowed the credit of he lower authorities have not allowed the credit of the said TDS in the hands of the assessee for the reason that said the said TDS in the hands of the assessee for the reason that said the said TDS in the hands of the assessee for the reason that said penalty income was not offered by the assessee in its profit and loss income was not offered by the assessee in its profit and loss income was not offered by the assessee in its profit and loss account.
We have heard rival submission of the parties on the issue in heard rival submission of the parties on the issue in heard rival submission of the parties on the issue in dispute and perused the relevant material on record. We find that dispute and perused the relevant material on record. We find that dispute and perused the relevant material on record. We find that as far as the issue of non as far as the issue of non-credit of TDS on penalty income which credit of TDS on penalty income which has been subsequently transferred to NCDEX investor client has been subsequently transferred to NCDEX investor client has been subsequently transferred to NCDEX investor client protection fund trust und trust, is concerned the Co-ordinate Bench of the ordinate Bench of the Tribunal in the case of the assessee in 3808/M/2023 Tribunal in the case of the assessee in ITA No. 3807, 3808/M/2023 Tribunal in the case of the assessee in ITA No. 3807, 3808/M/2023 for assessment years s 2013-14 and 2014-15, has already upheld the has already upheld the finding of the lower authorities finding of the lower authorities that assessee is not eligible for credit that assessee is not eligible for credit of said TDS amount against it tax liability of said TDS amount against it tax liability. The relevant finding of . The relevant finding of the Tribunal is reproduced as under: the Tribunal is reproduced as under:
“11. We have heard the ld. Counsel for the appellant and the ld. CIT 11. We have heard the ld. Counsel for the appellant and the ld. CIT 11. We have heard the ld. Counsel for the appellant and the ld. CIT-DR. Perused record. Perused record.
It is contende 12. It is contended on behalf of the appellant that the credit towards the d on behalf of the appellant that the credit towards the amount of TDS deducted by the members (on whom the penalty was imposed) amount of TDS deducted by the members (on whom the penalty was imposed) amount of TDS deducted by the members (on whom the penalty was imposed) ought to be allowed to the appellant. In the alternative, it is submitted that the ought to be allowed to the appellant. In the alternative, it is submitted that the ought to be allowed to the appellant. In the alternative, it is submitted that the said credit ought to be given to the IPF whi said credit ought to be given to the IPF which is a separate assessee. ch is a separate assessee.
The ld. CIT 13. The ld. CIT-DR has submitted that credit for TDS can only be given to the DR has submitted that credit for TDS can only be given to the deductee in whose hands the amount (out of which the tax is deducted at deductee in whose hands the amount (out of which the tax is deducted at deductee in whose hands the amount (out of which the tax is deducted at source) is brought to tax. He submitted that once amount of penalty was not source) is brought to tax. He submitted that once amount of penalty was not source) is brought to tax. He submitted that once amount of penalty was not treated as income in the hands of the appellant, the credit for TDS has rightly eated as income in the hands of the appellant, the credit for TDS has rightly eated as income in the hands of the appellant, the credit for TDS has rightly been refused. It is submitted that grant of credit to the IPF, which is a been refused. It is submitted that grant of credit to the IPF, which is a been refused. It is submitted that grant of credit to the IPF, which is a separate assessee, is not subject matter of present appeals. separate assessee, is not subject matter of present appeals. separate assessee, is not subject matter of present appeals.
We have considered the submissions mad 14. We have considered the submissions made. It is necessary to note that e. It is necessary to note that the TDS credit can be claimed by an assessee in whose hands, the amount the TDS credit can be claimed by an assessee in whose hands, the amount the TDS credit can be claimed by an assessee in whose hands, the amount (out of which said deduction is made) is taxed as income. In the (out of which said deduction is made) is taxed as income. In the (out of which said deduction is made) is taxed as income. In the present case, the penalty income is held to be not taxable in the hands of the appellan the penalty income is held to be not taxable in the hands of the appellan the penalty income is held to be not taxable in the hands of the appellant and, therefore, the TDS credited has rightly been refused to the appellant. therefore, the TDS credited has rightly been refused to the appellant. therefore, the TDS credited has rightly been refused to the appellant.” 5.1 However, as far as the alternative ground of the assessee is However, as far as the alternative ground of the assessee is However, as far as the alternative ground of the assessee is concerned, the Tribunal (supra) has given following finding: concerned, the Tribunal (supra) has given following finding concerned, the Tribunal (supra) has given following finding “15. On behalf of the assessee, reliance was place 15. On behalf of the assessee, reliance was placed on the decision of this d on the decision of this Tribunal in Arvind Murjani Brands (P.) Ltd. vs ITO (2012) 21 Arvind Murjani Brands (P.) Ltd. vs ITO (2012) 21 Arvind Murjani Brands (P.) Ltd. vs ITO (2012) 21 taxmann.com 131 (Mum). taxmann.com 131 (Mum). We find that the said decision turned on its own We find that the said decision turned on its own facts. In para 15 it has been held that credit for the TDS has to be allowed to facts. In para 15 it has been held that credit for the TDS has to be allowed to facts. In para 15 it has been held that credit for the TDS has to be allowed to the payee of the the payee of the amount in the year for which said tax was deducted and the amount in the year for which said tax was deducted and the amount was paid after deduction of tax at source. amount was paid after deduction of tax at source.
So far as the alternate prayer for allowing such credit, to the IPF Trust is 16. So far as the alternate prayer for allowing such credit, to the IPF Trust is 16. So far as the alternate prayer for allowing such credit, to the IPF Trust is concerned, we find that the said issue is not the subject matter concerned, we find that the said issue is not the subject matter concerned, we find that the said issue is not the subject matter of these appeals. However, it would be open to the appellant to furnish a declaration appeals. However, it would be open to the appellant to furnish a declaration appeals. However, it would be open to the appellant to furnish a declaration as contemplated by the proviso to sub as contemplated by the proviso to sub-rule (2) of Rule 37 BA of the said Rules rule (2) of Rule 37 BA of the said Rules to the deductor, on whom the penalty was imposed. In the event such to the deductor, on whom the penalty was imposed. In the event such to the deductor, on whom the penalty was imposed. In the event such declaration is furnishe declaration is furnished and the deductor reports the tax deduction in the d and the deductor reports the tax deduction in the name of the IPF Trust, it would be open to the concerned authorities to name of the IPF Trust, it would be open to the concerned authorities to name of the IPF Trust, it would be open to the concerned authorities to consider grant of the TDS credit to IPF Trust. Subject to this, no case for consider grant of the TDS credit to IPF Trust. Subject to this, no case for consider grant of the TDS credit to IPF Trust. Subject to this, no case for interference is made out. interference is made out.”
5.2 Respectfully following th Respectfully following the above finding of the Tribunal finding of the Tribunal (supra), the alternative/additional ground of the assessee is alternative/additional ground of the assessee is alternative/additional ground of the assessee is adjudicated accordingly accordingly.
In the result, the appeals of the assessee are dismissed. In the result, the appeals of the assessee are dismissed. In the result, the appeals of the assessee are dismissed.