SANDERSONS & MORGANS,KOLKATA vs. ACIT, CIRCLE - 54, KOLKATA, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH “C”, KOLKATA [Before Shri Mahavir Singh, JM & Shri M.Balaganesh, AM] ITA No.1520/Kol/2009 Assessment Year : 2004-05 (APPELLANT ) (RESPONDENT) Sandersans & Morgans -versus- A.C.I.T., Circle-54, Kolkata Kolkata (PAN:ABBFS 4291 B) For the Appellant : Shri J.P.Khaitan & Shri S.Basu, Advocate For the Respondent : Shri D.Banerjee, JCIT Date of Hearing : 21.09.2015. Date of Pronouncement : 23.09.2015 ORDER Per Shri M.Balaganesh, AM 1. This appeal of the revenue arises out of the order of the Learned CITA in Appeal No. 85/CIT(A)-XXXVII/ACIT-54/08-09. dated 18.03.2009 for the Asst Year 2004-05 arising out of the order of the Learned Assessing officer framed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

2 ITA No.1520/Kol/2009 Sandersans & Morgans A.Yr.2004-05 tune of Rs. 5,38,193 ( 1498887-960694) in the assessment. Later the assessee firm filed a rectification petition u/s 154 of the Act on 28.5.2008 before the Learned AO enclosing the TDS certificate for Rs. 1,01,090/- seeking credit for TDS to the tune of Rs. 1,01,090/- based on the physical TDS certificates produced. The Learned AO rejected the same by quoting the provisions of section 155(14) of the Act wherein the TDS certificates not submitted along with the return of income is to be submitted within two years from the end of the assessment year in which income was assessable. This action of the Learned AO u/s 154 of the Act was upheld by the Learned CIT(A) by making the following observations :- “The appellant filed a petition u/s 154 along with the TDS certificates. The appellant prayed for credit for tax deducted at source. The AO noticed that the appellant has not made the claim for the tax deducted at source in the return of income filed. Hence the AO rejected the appellant’s petition. Since the appellant has not filed the TDS certificates and claimed credit in the return of income filed, there is no mistake apparent from record amenable for rectification u/s 154. The AO is correct as per law in rejecting the appellant’s petition. The AO’s action is upheld.”

3.1. The Learned AR argued that the finding given by the Learned CIT(A) that the assessee had not claimed the TDS in the return filed is factually incorrect. As could be seen from the statement of facts filed before the Learned CIT(A) and before us and in the IT return acknowledgement, the assessee had clearly stated that a sum of Rs. 14,98,887/- towards TDS was claimed in the return by the assessee. He further argued that the TDS certificate for Rs. 1,01,090/- was duly furnished to the Learned AO by the assessee by way of an independent letter dt 28.5.2008 filed on 30.5.2008 which is enclosed in page 42 of the paper book filed by the Learned AR. He argued the provisions of section 199(3) of the Act read together with Rule 37BA of Income Tax Rules and stated that the same are only procedural in nature and would accordingly apply to pending cases also. He argued that based on the above provisions it is for the Learned AO to have verified the fact of deduction of tax at source and remittance of TDS made thereon to the account of central government from the side of the deductor. He further placed reliance on the following decisions in support of his contentions:- Escorts Ltd vs DCIT reported in (2007) 15 SOT 368 (Delhi ITAT)

3 ITA No.1520/Kol/2009 Sandersans & Morgans A.Yr.2004-05 Alipurduar Tea Co. Ltd vs Agricultural ITO reported in 112 ITR 878 (Cal) CWT vs Sharvan Kumar Swarup and Sons reported in 210 ITR 886 (SC)

In response to this, the Learned DR vehemently supported the orders of the lower authorities.

3.2. We have heard the rival submissions and perused the materials available on record. We find that the provisions of section 199(3) of the Act read with Rule 37BA of Income Tax Rules would squarely apply in the facts of the instant case. For the sake of convenience, the provisions of section 199(3) are reproduced below:- “Section 199(3) – The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary , including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and sub-section (2) and also the assessment year for which such credit may be given.”

For the sake of convenience, the said rule 37BA is reproduced hereunder:-

Rule 37BA – Credit for tax deducted at source for the purposes of section 199

“(4) Credit for tax deducted at source and paid to the account of the Central Government shall be granted on the basis of - (i) the information relating to deduction of tax furnished by the deductor to the income tax authority or the person authorized by such authority ; and (ii) the information in the return of income in respect of the claim for the credit, Subject to the verification in accordance with the risk management strategy formulated by the Board from time to time. “ We also find that the aforesaid rule though introduced only with effect from 1.4.2009 would have to be construed only as procedural in nature and hence should apply to all pending proceedings. We find that the case law relied upon by the Learned AR in the case of CWT vs Sharvan Kumar Swarup and Sons reported in 210 ITR 886 (SC) is well placed, wherein it was held that :-

4 ITA No.1520/Kol/2009 Sandersans & Morgans A.Yr.2004-05 “Substantive law is concerned with the ends which the administration of justice seeks ; procedural law deals with the means and instruments by which those ends are to be attained. The latter regulates the conduct and relations of courts and litigants in respect of the litigation itself; the former determines their conduct and relations in respect of the matters litigated. What facts constitute a wrong is determined by the substantive law ; what facts constitute proof of a wrong is a question of procedure. So far as the administration of justice is concerned with the application of remedies to violated rights, we may say that the substantive law defines the remedy and the right, while the law of procedure defines the modes and conditions of the application of the one to the other. In Izhar Ahmad Khan vs Union of India , AIR 1962 SC 1052 (1962) Suppl. 3 SCR 235 at 251, it is observed (at page 1059 of AIR 1962 SC): The division of law into two broad categories of substantive law and procedural law is well-known. Broadly stated, whereas substantive law defines and provides for rights, duties and liabilities, it is the function of the procedural law to deal with the application of substantive law to particular cases and it goes without saying that the law of evidence is a part of the law of procedure. Procedural law, generally speaking, is applicable to pending cases. No suitor can be said to have a vested right in procedure. Bennion’s Statutory Interpretation (first edition, page 446, paragraph 191) lays down as follows: Because a change made by the legislator in procedural provisions is expected to be for the general benefit of litigants and others, it is presumed that it applies to pending as well as future proceedings.” We also find that the case law relied upon by the Learned AR in the case of Alipurduar Tea Co. Ltd vs Agricultural ITO reported in 112 ITR 878 (Cal) is well placed , wherein it was held that : “Held, that there is a lacuna in the Act in that there is no power in the Agricultural Income-tax Officer to revise his own order where the appellate order income-tax assessment is made more than four years after the date of the original assessment. No tax which is not leviable by the authority of law should be collected or realized by the State and, if realized by the State, should be refunded by the State. The scheme of fiscal statutes should be looked at from that point of view and, in case of injustice, the court should ensure that such injustice is rectified as far as practicable unless the same is contrary to the expressed legislative intent. The legislative intent manifested in the scheme of the Act is that the tax for agricultural income should be computed on the basis of the income computed under the Income-tax Act. Though there is no machinery providing for rectification of the order under the Act after the appellate or revisional authority has passed order under the Income-tax Act, the provisions should be read

5 ITA No.1520/Kol/2009 Sandersans & Morgans A.Yr.2004-05 attributing ancillary and incidental powers to the authorities concerned to implement and carry into effect the major legislative intent. In such a situation, when manifest injustice is being done to the taxpayer and where the legislative intent of taxing agricultural income on the basis of the computation made under the Income-tax Act is being defeated, it would be proper to read that the Commissioner has inherent power to direct the Agricultural Income-tax Officer to take into consideration the order passed by the Appellate Assistant Commissioner of Income-tax, for computation of agricultural income-tax. The Commissioner of Agricultural Income-tax should, therefore, use his revisional power and dispose of the pending application before him by directing the Agricultural Income-tax Officer to recompute the agricultural income-tax payable for the two years in question on the basis of the order passed by the Appellate Assistant Commissioner of Income-tax for the said two years.” We also find that the case law relied upon by the Learned AR in the case of Escorts Ltd vs DCIT reported in (2007) 15 SOT 368 (Delhi ITAT) is well placed , wherein it was held that : “6. The scheme for giving credit for TDS was sought to be modified through clauses 56 and 59 of the Finance Bill, 2002 and the same have also been explained in the Memorandum explaining the provisions of the Finance Bill to state that: "Under the existing provisions of section 199 of the Income-tax Act, any deduction made in accordance with the provisions of sections 192 to 194, 194A, 194B, 194BB, 194C, 194D, 194E, 194EE,,19ifF, 194G, 194H, 194-1, 194J, 194K, 194L, 195, 196A, 196B, 196C and 196D and 'Paid to the account of Central Government is treated as a payment of tax on behalf of the person from whose income the deduction was. made or the owner of the security or depositor or owner of the property or of unit-holder or of the shareholder, as tile case may be and credit given to such person for the amounts so deducted on the production of a certificate furnished under section 203 in the assessment made under this Act for the assessment year for which such income is assessable. Hardship is being faced by the assessee since in many cases certificates under section 203 are not furnished to them and as a result credit is not given for the tax so deducted. With a view to mitigate this hardship, it is proposed to insert a new sub-section (14) in section 155 to provide that where in the assessment for any previous year or in any intimation or deemed intimation under sub-section (1) of section 143 for any previous year, credit for tax deducted in accordance with the provisions of section 199 has not been given on the ground that the certificate furnished under section 203 was not filed with the return and subsequently such certificate is produced before the Assessing Officer within two years from the end of the assessment year in which such income is assessable, credit of TDS shall be given to the assessee on production of such certificate. Nothing contained in the proposed sub-section shall apply unless the income from which tax has been deducted has been disclosed in the return of income filed by the assessee for that assessment year. The proposed amendment shall enable the Assessing Officer to rectify the order of assessment or any intimation or deemed intimation under sub-section (1) of section 143.

6 ITA No.1520/Kol/2009 Sandersans & Morgans A.Yr.2004-05 As a consequence, it is also proposed to amend sub-section (9) of sect.ion 139 to provide that where the return is not accompanied by proof of the tax, if any, claimed to have been deducted at source, the return of income shall not be regarded as defective if such certificate was not furnished under section 203 to the person furnished his return of income and such person produces the certificate within a .period of two years specified under sub-section (14) of section 155. The proposed amendment will take effect from Ist June, 2002." 7. As per our considered view, credit for TDS must in every case be given to the assessee from whose income tax was deducted at source and paid to the credit of the Central Government. If the recipient of the income considers that he is not liable to tax in respect of the income, wholly or partly, therefore, does not disclose the amount of such income in his return, the Income-tax Department cannot refuse to give credit merely by contending that the income had not been disclosed in the return filed by the assessee for the assessment year. The assessee may as per relevant provisions of Income-tax Act, consider the income either as not taxable in his hands or as being relatable to a different assessment year and he may even claim set off of loss or other deductions against such income. The assessee may also be not chargeable to tax on the income because of the overriding provisions of Double Taxation Avoidance Agreement and/ or because of the provision for exemption of such income, whether wholly or partly, under some provisions of the Income-tax Act. It would be, therefore, improper and even impermissible for the revenue to swallow the amount of TDS after having received and enjoyed the same. It cannot be ignored that every item of TDS carries with it an obligation of trust and accountability to return the amount and/ or give credit for the amount so deducted depending upon the tax liability of the recipient to be determined in the course of his assessment. If a wrong assessment is made for whatever reasons, the Department has all the powers to rectify the same by resort to rectification of mistakes, revision and/or other proceedings, legally available under the Statute. Assessee's income for which tax is deducted at source should not be refused to be given credit. Being a case of direct tax, there is also no question of unjust enrichment being claimed so as to take the credit of tax without an obligation to return the same to the assessee. The payer does not pay the amount of TDS as his own liability and he only acts as the agent of the Government or as trustee to collect the TDS for the Government, free of cost. If no credit is to be given to the payer and/ or to the payee, the Government would have no authority to treat the same as tax and article 265 does not empower the Government to make any levy or collection of tax not authorized by law. There may be cases in which the assessee is not in a position to have the records and make complete claim of credit for TDS due to many factors beyond his control, therefore, provisions relating to time-limit for claiming credit of TDS should also be liberally construed. If the tax due to the Government is not. barred by limitation for collection or recovery, the refund of TDS due to the assessee should not be equally hit by any bar of limitation nor should there be any fetter on the assessee to claim credit for TDS at any time.” We also find that the income attributable to the TDS under dispute before us has been duly offered to tax by the assessee and hence in the interest of justice , the assessee

7 ITA No.1520/Kol/2009 Sandersans & Morgans A.Yr.2004-05 should be given due credit for TDS thereon more so when the certificate for the same has been filed by the assesee before the Learned AO on 30.5.2008.

In view of the aforesaid facts and circumstances and respectfully following the judicial precedents relied upon hereinabove, we direct the Learned AO to grant credit for TDS amounting to Rs. 1,01,090/- to the assessee. The grounds raised by the assessee in this regard are allowed.

In the result, the appeal of the assessee is allowed.

Order pronounced in the court on 23.09.2015.

Sd/- Sd/- [Mahavir Singh] [M.Balaganesh] Judicial Member Accountant Member Date :.23.09.2015. R.G.(.P.S.)

Copy of the order forwarded to: 1. Sandersons & Morgans, Royal Insurance Bldg., 5, Netaji Subhas Road, Kolkata-7000001. 2 The A.C.I.T., Circle-54, Kolkata. 3. The CIT-XIX, Kolkata, 4. The CIT(A)-XXXVII, Kolkata. 5. DR, Kolkata Benches, Kolkata True Copy, By order,

Deputy /Asst. Registrar, ITAT, Kolkata Benches