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IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM)
.. , ,
./I.T.A. No.4531/Mum/2013
( / Assessment Year :2008-09)
Income Tax Officer 18(3)(2), / M/s PHE Consultants,
Room No.203, 2nd Floor, 101, Owners Industrial Estate,
Vs.
Piramal Chambers, Lalbaug, Gabriel Street,
Mahim,
Parel, Mumbai-400016
Mumbai-400012.
( /Appellant) .. ( / Respondent)
. / . /PAN/GIR No. :AAAFP7913K
/ Appellant by Shri Premanand J
/Rspondent by S/Shri V V Mehandale,
And S S Phadakar
/ Date of Hearing : 6.7.2015
/Date of Pronouncement : 10.7.2015
/ O R D E R
PER B.R. BASKARAN (AM)
The Revenue has filed this appeal challenging the order dated
11.3.2013 passed by Ld CIT(A)-16, Mumbai and it relates to assessment
year 2008-09.
2. The Revenue is aggrieved by the decision of the ld. CIT(A) in directing
the AO to delete the addition of Rs.16,75,142/- made by AO by treating
the TDS amount as income of the assessee u/s 198 of the Income Tax
Act, 1961(the Act).
2 I T A N o . 4 5 3 1 / Mu m / 2 0 1 3
3. The facts relating to the issue cited above are stated in brief. The
assessee firm is engaged in the business of undertaking contract works
and offering consultancy services. The assessee has received a sum of
Rs.153.26 lakhs from Municipal Office, as advance amount for providing
certain Consultancy work. The Municipal Office deducted tax at source of
Rs.17,36,471/- from the above said payment. During the year under
consideration the assessee offered a sum of Rs.5,41,295/- only, out of the
above said amount of Rs.153.26 lakhs and the balance amount of
Rs.148.27 lakhs was shown as liability in the balance sheet. However, it
appears that the assessee had claimed the entire TDS amount of
Rs.17,36,471/- against the tax payable and accordingly claimed refund
also.
4. The AO noticed that the provisions sec. 198 states that the TDS
amount deducted shall be deemed to an income received by the assessee.
Accordingly, the AO took the view that the assessee should have offered
the TDS amount of Rs.17,36,471/- as its income during the instant year.
However, during the year under consideration, the assessee had declared
gross receipt of Rs.5,41,295/- only and the corresponding TDS amount
thereon worked out Rs.61,329/-. Accordingly the AO took the view that
the balance amount of TDS amount Rs.16,75,142/- (Rs.17,36,471/- (-)
Rs.61,329/-) was to be assessed as income of the assessee under section
198 of the Act and accordingly added the same to the total income.
5. In the appellate proceedings, the assessee contended before the ld.
CIT(A) that the income from consultancy contract work shall be
determined in accordance with the method of accounting regularly
followed by the assessee and hence the assessment of TDS amount
separately in the instant year is not correct. The Ld CIT(A) accepted the
contentions of the assessee that the income from consultancy contract
3 I T A N o . 4 5 3 1 / Mu m / 2 0 1 3
work have to be assessed on the basis of method of accounting regularly
followed by the assessee. In this regard, the ld.CIT(A) placed reliance on
the decision of Mumbai Bench of the Tribunal in the case of M/s Industrial
Plant and Waste Treatment Corporation in ITA No.5039/Mum/2008(AY-
2005-06) dated 9.10.2009. Accordingly, the ld.CIT(A) directed the AO to
delete the addition made by him. Aggrieved, the revenue has filed this
appeal before us.
6. The Ld D.R submitted that the assessing officer has assessed the
TDS amount in terms of provisions of sec. 198 of the Act and hence the Ld
CIT(A) was not justified in deleting the same. On the contrary, the ld A.R
submitted that the assessee has offered the advance amount received by
it in the current year as well as in the subsequent years in accordance with
the method of accounting regularly employed and hence the AO was not
justified in assessing the TDS amount alone separately by disregarding the
method of accounting employed by the assessee.
7. We heard the rival contentions and perused the record. The
controversy before us revolves around the provisions of sec. 198 of the
Act, which reads as under:-
"198. All sums deducted in accordance with the foregoing
provisions of this Chapter shall, for the purposes of computing the
income of an assessee, be deemed to be income received."
A proviso is also attached to the above said provision and since it is not
relevant, we have not extracted the same. A careful perusal of the above
said provisions would show that
(a) It is a deeming provision, i.e., it deems that the TDS amount
is an income received by the assessee.
(b) It is for the purposes of computing the income of an assessee.
4 I T A N o . 4 5 3 1 / Mu m / 2 0 1 3
The various provisions prescribed in Chapter XII mandates for deduction of
tax at source either at the time of credit of the income to the account of
payee or at the time of payment thereon, whichever is earlier, meaning
thereby, a person would receive the income only net of tax. Hence, there
is a possibility to contend that the income-tax already deducted from the
said income was not received by him and hence the same shall not form
part of his income. This type of contention may not lead to computation
of right amount of tax resulting in loss to the revenue. This aspect can be
explained by way of an example. Let us assume that Mr. A , inter alia,
receives interest income of Rs.1.00 lakh. Let us further assume that he is
in the tax bracket of 30%. The payer of interest income shall deduct TDS
@ 10%, i.e., Rs.10,000/- from the above said interest income of Rs.1.00
lakh. While computing total income, Mr. A is required to declare interest
income as Rs.1.00 lakh and not as Rs.90,000/-, as per the provisions of
sec. 198 of the Act. On the amount of Rs.1.00 lakh, Mr. A shall be paying
income tax of Rs.30,000/-, whereas on Rs.90,000/-, he will be paying only
Rs.27,000/-, thus resulting in a loss of Rs.3,000/- to department. Hence,
in order to overcome this type of contentions and further in order to
ensure that the assessees declare only the Gross amount of income, the
provisions of sec. 198 of the Act has created a fiction that the tax
deducted at source shall be deemed to be income received.
8. It is pertinent to note that the provisions of sec. 198, though states
that the Tax deducted at source shall be deemed to be income received,
yet it does not specify the year in which the said deeming provisions
applies. However, sec. 198 states that the same is deemed to be income
received "for the purpose of computing the income of an
assessee." The provisions of sec. 145 of the Act state that the income
of an assessee chargeable under the head "Profits and gains of business
5 I T A N o . 4 5 3 1 / Mu m / 2 0 1 3
or profession" or "Income from other sources" shall be computed in
accordance with either cash or mercantile system of accounting regularly
employed by the assessee. Hence a combined reading of provisions of
sec. 198 and sec. 145 of the Act, in our view, makes it clear that the
income deemed to have been received u/s 198 has to be computed in
accordance with the provisions of sec. 145 of the Act, meaning thereby,
the TDS amount, per se, cannot be considered as income of the assessee
by disregarding the method of accounting followed by the assessee.
Hence it is provided in Rule 37BA of the Income tax Rules that TDS credit
is to be given to the assessee in the assessment year in which such
income is assessable, meaning thereby, the TDS amount shall also be
given proportionate credit.
9. In the instant case, the TDS has been deducted on the advance
amount of Rs.153.26 lakhs paid to the assessee for execution of Contract
work. During the year under consideration, the assessee seems to have
executed only a small portion of the contract work and hence it has
declared only Rs.5,41,295/- as its gross receipts out of the advance
amount of Rs.153.26 lakhs, referred above. The remaining amount was
shown as a liability and the Ld A.R has stated that it was taken as gross
receipts in the subsequent year in accordance with the quantum of
contract work executed. Thus, it is seen that the assessee has offered the
contract receipts in accordance with the method of accounting regularly
employed by it. Hence, what is required to be examined in terms of
provisions of sec. 198 of the Act is whether or not the assessee has
offered the Gross amount of consultancy receipts. Accordingly, we are of
the view that the assessing officer was not justified in assessing the TDS
amount, per se, by disregarding the method of accounting followed by the
assessee and without examining whether the assessee has offered gross
6 I T A N o . 4 5 3 1 / Mu m / 2 0 1 3
amount of consultancy charges. Accordingly, we are of the view that the
Ld CIT(A) was justified in deleting the impugned addition.
10. In the result, the appeal filed by the Revenue is dismissed.
Pronounced accordingly on 10th July, 2015.
th
10 July, 2015
Sd sd
( / AMIT SHUKLA) (.. / B.R. BASKARAN)
/ JUDICIAL MEMBER / ACCOUNTANT MEMBER
Mumbai: 10th July,2015.
. ../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
True copy
(Asstt. Registrar)
, /ITAT, Mumbai
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