Commissioner of Income-tax-1 Versus Bhooratnam & Co. [2013 (1) TMI 478 - ANDHRA PRADESH HIGH COURT]
Income belonging to other person:
Some time a person may receive income in his name but in reality income belongs to some other person or income is taxable in hands of other person. There can be many such circumstances like:
- Income earned and credited in name of minor children, but income is clubbed in hands of one of parents for income-tax purpose.
- Income earned by a person (agent) holding securities on behalf of other persons (principal)
- Income received by a company which belongs to a unit which is in process of demerger and will be merged into another company with effect from an earlier date.
- Cases of amalgamations, reconstructions of companies, takeovers etc. wherein for time being income is received by existing or transferor company and is to be passed over to resultant company etc.
- Income received by a security holder, the income belongs to real owner of security.
- Fixed deposits held by Courts, Advocates etc.
Rule 37BA is reproduced below with highlights for analysis:
Income-tax Rules, 1962
Credit for tax deducted at source for the purposes of section 199.
37BA. (1) Credit for tax deducted at source and paid to the Central Government in accordance with the provisions of Chapter XVII, shall be given to the person to whom payment has been made or credit has been given (hereinafter referred to as deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorised by such authority.
(2) 2[(i) where under any provisions of the Act, the whole or any part of the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit for the whole or any part of the tax deducted at source, as the case may be, shall be given to the other person and not to the deductee :
Provided that the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax referred to in sub-rule (1).]
(ii) The declaration filed by the deductee under clause (i) shall contain the name, address, permanent account number of the person to whom credit is to be given, payment or credit in relation to which credit is to be given and reasons for giving credit to such person.
(iii) The deductor shall issue the certificate for deduction of tax at source in the name of the person in whose name credit is shown in the information relating to deduction of tax referred to in sub-rule (1) and shall keep the declaration in his safe custody.
(3) (i) Credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable.
(ii) Where tax has been deducted at source and paid to the Central Government and theincome is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax.
(4) Credit for tax deducted at source and paid to the account of the Central Government shallbe 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 verification in accordance with the risk management strategy formulated by the Board from time to time.
Press notice for clarification:
Press notice dated July 10, 2012 clarifying responsibility of deductor is reproduced below with highlights for analysis:
DEDUCTORS MUST COMPLY WITH THEIR OBLIGATIONS TO ENSURE CORRECT CREDIT TO PERSONS FROM WHOSE INCOME TAX IS DEDUCTED AT SOURCE
New Delhi: Ashadha 19, 1934
July 10, 2012
All deductors other than Government deductors must file their quarterly TDSstatement for the quarter ending 30th June 2012, on or before 15th July 2012 and Government deductors must file their statement on or before 30th July 2012. While submitting their statements, the deductors have to choose correct and relevant form, quote correct PAN against all entries and ensure that correct CIN/BIN is quoted in the TDS statement. Non-quoting of PAN or TAN in TDS statements or delay in filing of TDS statements may lead to levy of penalty.
Filing of TDS statement with correct PAN and CIN/BIN is important because under Rule 37BA ofIncome Tax Rules, 1962 credit for tax deducted at source is given to the deductees on the basis of TDS statement furnished to the Income-tax Department by the deductor. Filing of TDS statements with incorrect PAN or other details of the deductee would, therefore, cause inconvenience to the deductees (taxpayer).
In case the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, the deductee must file a declaration with the deductor that credit for the TDS shall be given to the other person and not to the deductee. The declaration filed by the deductee must contain the name, address, Permanent Account Number of the person to whom credit is to be given and reasons for giving credit to such person. The deductor must, in the TDS statement, report the tax deduction in the name of such other person and also issue the TDS certificate in the name of the person in whose name credit is shown in the TDS statement.
TDS certificates for deductions on income other than salary income (Form 16A) for the quarter ending 30th June 2012 should be issued on or before 30th July 2012.
No form has been prescribed:
So far any form has not been prescribed for declaration to be made by deductee to enable tax deductor to issue TDS certificate in name of other person to whom income belongs. Though the Rule and the press note both say about the mandatory contents of such declaration. It is desirable that the Board issue a specified form for this purpose to meet with different situations in which such declaration may be required.
When the position of parties are known about the real beneficiary of income, the person receiving income can make declaration in advance and the tax deductor can deposit tax, inform or incorporate name of beneficiary of income and issue TDS certificate in his name instead of person to whom income is paid. For example, a bank holding securities can make a declaration in advance that securities are held by bank as security holder, the interest income belongs to real owners so that tax can be deducted and deposited in name of real owner of security. Similar will be case when a declaration is made on behalf of minor children in whose name security or deposits are held, to enable bank / security issuer to issue TDS certificate in name of parent in whose hands income is assessable.
For example father of minor child can make declaration in following style:
Sub: Declaration for issue of TDS certificate in name of father due to clubbing of Minors income in the Hands of Parents.
The following fixed deposits accounts are in name of my minor children:
A/c no. name of holder my relation
….. Master S (minor) father
…… Miss D (Minor) father
Interest on above deposits are subject to TDS. The income of above minor children is to be clubbed with my income under section 64 (1A).
I make declaration under Rule 37BA (2) of Income-tax Rules and request you to add my name( as father and natural guardian), and issue TDS certificates in my name .
My detailed particulars are hereunder –
Name and address of father of minor depositors mentioned above:
PAN No of Father (for Clubbing of Income)
Address Contact No. (M)
Assessment Year (AY)
It is further declared that, income of my minor children will be taxable in my hands. So I am willing to declare and pay tax on their income within my Income Tax Return, and therefore, to enable me to claim credit for such TDS on my children’s investments, please incorporate my name and PAN Number for the same in your records and issue me certificate of TDS.
Kindly do the needful at the earliest. Thanking You,
Yours faithfully, F
Fathers for minor child …… (Signature)
Post declaration requires revised TDS return:
In some situations income may be earned by one person during course of some legal proceedings. A declaration can be made only when such legal proceedings are completed. For example, in case of reconstruction of companies. In such cases tax deductor might have filed returns of TDS giving names of original company. In such situation a revised return of TDS may have to be filed or a rectification to TDS return need to be made.
For example a draft of declaration is given below in case of demerger of a unit of one company into another companys:
Letter head of Declarer Ltd. ( in short D)
Declaration under Rule 37BA of the Income-tax Rules,1962 read with section 199 of theIncome-tax Act, 1961.
Name, address and PAN of declarer: …..
Declaration made to:
… India, having PAN …. And TAN
We D, hereby declare that we have received income by way of interest from you which belongs to and is assessable in hands of M/s Beneficiary P. Ltd ( in short B) . The credit for Tax deducted at source is therefore allowable in favor of B.
Details about credit to be given to other person to whom income belongs are as follows:
Name , address and PAN of other person to whom credit for TDS is to be given:
Name: M/s Beneficiary P. Ltd
Address: …….. India.
Details of payment or credit or income in relation to which credit is to be given to B:
Interest paid by you to us during the financial year 2013-14 and tax deducted as follows:
Date of payment or credit of interest
Amount of interest Rs.
Tax Deducted and deposited by you Rs.
Reasons for giving credit to the other person namely B:
One unit of D has been demerged from D and merged into B vide order dt. of … High Court, under provisions of the Companies Act, 1956 with effect from 01.04.2013.
During proceedings of the demerger, D has received incomes from you for said Unit. In view of demerger order, with effect from 01.04.2013 (the effective date) the income belongs to B and is assessable in hands of B. However, the income was received by us (D) and tax was deducted by you in name of D.
As the income belongs to B , credit for Tax Deducted at source is to be allowed in favor of B.
We, D undertake that we will not claim credit for aforesaid amounts of tax deducted at source and B will be entitled to claim the same.
We request you to kindly furnish information to the Income-tax Department in your return of TDS or revised return of TDS or by way of rectification of the TDS return or in other suitable mode , as may be applicable in your case, to state details of income and amount of TDS in name of B instead of D so that name of D appears in Form 26AS on the website of the Income-tax Department.
Original TDS certificates dated …… issued by you in name of D are returned herewith.
Kindly issue TDS certificate in name of B.
We also undertake to indemnify you, in case you suffer any loss due to showing amount of TDS in TDS returns and due to issuing TDS certificates in name of B.
We seek your co-operation in this regard.
For Declarer Ltd.
Copy to be forwarded along with explanatory letter, list of declarations and all declarations to:
- Beneficiary Ltd.
- The A.O. of D … and
- The A.O. of B ………
The revenue is disputing credit of TDS. Cases have been wherein credit for TDS is not allowed in any hand, though income is taxed. The revenue is also disputing claims for allowing credit even before High Courts and may appeal before the Supreme Court also.
For example, a judgment of Andhra Pradesh High Court is reproduced bElow with highlights:
HIGH COURT OF ANDHRA PRADESH
Commissioner of Income-tax-1
Bhooratnam & Co.
I.T.T. APPEAL NOS. 117 & 222 OF 2012†
NOVEMBER 23, 2012
M.S. Ramachandra Rao, J.
The respondent/assessee in I.T.T.A.No.117 of 2012 is M/s. Bhooratnam and Co., a partnership firm engaged in the manufacture of PSCC/RCC and MS pipes, cement slabs and also executes civil contracts. With effect from 16-07-2003, the said firm was converted into a company by name M/s. Bhooratnam Construction Company (P) Limited. By virtue of the conversion, all the assets and liabilities of the erstwhile partnership firm had become assets and liabilities of this Company. In I.T.T.A.No.222 of 2012, this company is the respondent.
2. The assessee along with three others i.e. M/s. Koya and Company Construction Limited, the Indian Hume Pipe Company Limited and M/s. Taherali Industries and Projects Private Limited entered into a joint venture agreement called “Agreement for Collaboration and Cooperation” on 12-03-2003 for the purposes of preparing and submitting prequalification/post qualification tender to the Hyderabad Metropolitan Water Works and Sewerage Board. According to the terms of the said agreement dated 12-03-2003 between these entities, each party i.e. co-venturer in the joint venture is responsible for his respective profit or loss earned by him in the execution of each one’s respective share in works. Each of the parties to the joint venture is concerned with its share of work/contract and the profit or loss arising therefrom and the agreement was not to be treated as an agreement to earn profits only.
3. Contract receipts up to 15-07-2003 were offered for taxation in the hands of the firm and after 15-07-2003 from all existing works/contracts on hand have been declared in the hands of the company.
4. On 01-11-2004, for the assessment year 2004-05, for the period up to 15-07-2003, the firm filed its return of income declaring an income of ₹ 1,23,47,000/-.
5. On 29-11-2004, for the assessment year 2004-05, for the period after 15-07-2003 up to 31-03-2004, the company filed a return admitting a taxable income of ₹ 4,32,08,820.
6. With respect to the contract work receipts, TDS was done but the assessee claimed credit of the tax mentioned in the said TDS certificates, the assessing officer, in the assessment orders of both the firm and the company, refused to give credit on the ground that some of the TDS certificates belong to the joint venture and some other TDS certificates are in the name of Directors and do not relate to the assessee firm/company.
7. Appeals were filed to the CIT (Appeals) by the firm and the company and by orders dated 04-12-2007 and 25-01-2007, the said appeals were allowed on the ground that as per the agreement dated 12-03-2003 mentioned above, each co-venturer has got its own share of work; that each co-venturer has to execute the work and get TDS certificate for having done work for its share of work; that even though the TDS certificate are in the name of the joint venture, the formation of the joint venture is only for a limited purpose of bidding tender; that each co-venturer in the joint venture has got its own separate responsibility of executing work and to receive contract receipts and also with tax liabilities; that the return of income filed by the assessee admitting contract receipts and TDS with regard to contract work of co-venturer is in order ; and that the assessing officer having entertained to assess the income/receipts part mentioned in the TDS certificate cannot disown the TDS certificates and refuse to give credit to TDS made out of the gross contract receipts. The appellate authority held that having assessed the gross receipts of the contract from TDS certificates, the assessing authority cannot ignore the tax deduction part; that the TDS certificates were not doubted; that they were not issued for a second time; and where the joint venture had not filed the return of income and claimed credit for TDS certificates, then the said credit has to entertained in the assessee’s hands. The appellate authority directed the assessing officer to verify and allow credit of TDS certificate.
8. Aggrieved thereby the Revenue filed further appeals to the Income Tax Appellate Tribunal.
9. By order dated 03-06-2011, the Tribunal dismissed the appeal filed by the Revenue(I.T.A.No.1671/Hyd/2010) in respect of the firm and held that there has been a tax deduction at source either in the name of the company or in the name of the Director and it covers all the tax payable by the assessee. It relied upon Rule 37-B A of the Income Tax Rules, 1962 and held that the assessing officer is required to give credit for the TDS certificate filed by the assessee company either in the name of the assessee or in the name of the Director. It accepted the contention of the assessee that the income included in the TDS certificates has been considered for the purpose of determining the total income of the assessee and that on the same logic, due credit should also be given to the TDS involved in that certificate.
10. The Tribunal by order dated 28-07-2011 rejected the appeal of the Revenue in regard to the company (I.T.A.No.218/Hyd/11) by following its above order dated 03-06-2011 in I.T.A.No.1671/Hyd/2010 in the case of the firm.
11. Aggrieved thereby, the present appeals under Section 260-A of the Income Tax Act, 1961 have been filed contending:
(a) that the credit for TDS given on the TDS certificates produced in the names of the Joint Venture is not in accordance with Rule 37-B A of the Rules framed under the I.T. Act.
(b) The assessee is not eligible for TDS credit on the certificates produced in the names of the Directors when the same is not in accordance with Rule 37-B A of the above Rules.
12. Heard Sri J.V.Prasad, learned Senior Standing Counsel for the Income Tax Department and Sri C.P.Ramaswamy, learned counsel for the assessees.
13. S.199 (1) of the Act provides that any deduction of tax made in accordance with the provisions of Chapter XVII of the Act and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made. Under sub section (3) of Section 199, the CBDT may, for the purpose of giving credit in respect of tax deducted at source or paid in terms of the provisions of Chapter XVII of the Act, make such rules as may be necessary, including the rules for the purpose 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.
14. Rule 37BA of the Rules framed under Section 199(3) of the Act (introduced with effect from 01-04-2009 by Income Tax (Sixth Amendment) Rules, 2009 by the CBDT) is as follows:
“Credit for tax deducted at source for the purposes of section 199.
Xxxxxx Already reproduced in article so here not reproduced to avoided repetitio
15. By the Income Tax (8th amendment) Rules, 2011, the CBDT amended Rule 37 BA and in sub rule (2), for clause (i), the following clause was substituted:
Xxxxxx Already covered in article so here not reproduced to avoided repetition.
16. This amendment has done away with the specified four clauses in the pre-amended Rule 37BA which restricted the benefit of the rule only in four specified situations. It has thus widened the scope of the rule 37 BA thereby enabling the credit of taxes to the actual payee in whose hands the income is assessable and not restricting this benefit only to the specified four situations.
17. In our view, the CIT (Appeals) and the Tribunal have rightly held that the assessee is entitled to the credit of the TDS mentioned in the TDS certificates issued by the contractor, whether the said certificate is issued in the name of the Joint Venture or in the name of a Director of the assessee company. They have considered the terms of the agreement dated 12-03-2003 among the parties to the joint venture and held that credit for TDS certificates cannot be denied to the assessee while assessing the contract receipts mentioned in the said certificates as income of the assessee. The income shown in the TDS certificates has either to be taxed in the hands of the joint venture or in the hands of the individual co-joint venturer. As the joint venture has not filed return of income and claimed credit for TDS certificates and the TDS certificates have not been doubted, credit has to be granted to the TDS mentioned therein for the assessee.
18. Rule 37BA is a procedural provision dealing with the manner of giving credit for tax deducted at source for the purposes of section 199. It therefore applies to pending proceedings. As observed in State of Madras v. Lateef Hamid & Co. AIR 1972 SC 1781, where a new procedure is prescribed by law, it governs all pending cases.
19. In Tikaram & Sons v. Commissioner of Sales Tax AIR 1968 SC 1286 it was held that alterations in the form of procedure are always retrospective, unless there is some good reason or other why they should not be. The amendment to Rule 37 BA mentioned above which has been introduced by the Income Tax (8th amendment) Rules, 2011 notified vide Notification No. 57/2011 dated 24-10-2011, being procedural in nature, would have retrospective effect and has to be given effect to.
20. The Revenue cannot be allowed to retain tax deducted at source without credit being available to anybody. If credit of tax is not allowed to the assessee, and the joint venture has not filed a return of income, then credit of the TDS cannot be taken by anybody. This is not the spirit and intention of law.
21. Therefore, in our view, the Assessing Officer erred in denying the benefit of the TDS mentioned in the TDS certificates filed by the assessees on the ground that the TDS certificate is issued in the name of the joint venture or a Director and not the assessee.
22. In this view of the matter both the appeals are dismissed as they are without any merit. There is no question of law much less any substantial question of law to be considered in these appeals. No costs.
To avoid disputes and to grant credit for TDS at least in hands of one of assessee who is returing income, standard procedures for TDS, TDS return, revision or rectification of TDS return etc. should be made.
In absence of prescribed forms and standard procedures disputes can take place on such issues even in cases involving minor amount of TDS.
The tax deductor will play extremely safe, therefore provisions and procedures must be abundantly clear.