May 2019


Pradip Kapasi | Gautam Nayak | Bhadresh Doshi
Chartered Accountants


Section 145 requires the assessee to compute his income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” in accordance with either cash or mercantile system of accounting, which is regularly followed by the assessee. The assessee following cash system of accounting would be offering to tax only those incomes which have been received by him during the previous year. On the other hand, most of the provisions of Chapter XVII-B provide for deduction of tax at source at the time of credit of the relevant income or at the time of its payment, whichever is earlier. Therefore, often tax gets deducted at source on the basis of the mercantile system of accounting followed by the payer, which requires crediting of the amount to the account of the assessee in his books of account. However, the underlying amount on which the tax has been deducted at source is not includible in the income of the assessee till such time as it has been received by him.


Section 198 provides that all sums deducted in accordance with the provisions of Chapter XVII shall be deemed to be income received, for the purposes of computing the income of an assessee.


Till Assessment Year 2007-08, section 199 provided for grant of credit for tax deducted at source to the assessee from income in the assessment made for the assessment year for which such income is assessable. From Assessment Year 2008-09, section 199 provides that the CBDT may make rules for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of Chapter XVII, including rules for the purposes of giving credit to a person other than the payee, and also the assessment year for which such credit may be given.


The corresponding Rule 37BA, issued for the purposes of section 199(3), was inserted with effect from 01.04 2009. The relevant part of this Rule, dealing with the assessment year in which credit of TDS can be allowed, is as follows:


(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


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