Section 199/205 – Assessee cannot be made to suffer because of non-deposit of tax deducted with the government by the deductor – Under section 205, the assessee / deductee cannot be called upon to pay the tax – Credit for the tax deducted at source has to be allowed in the hands of the deductee irrespective of whether or not the same has been deposited by the deductor to the credit of the Central government

4. Aricent Technologies Holdings Ltd. vs. Addl. CIT (Delhi)

Sushma Chawla (J.M.) and Dr. B.R.R. Kumar (A.M.)

ITA. No. 5708/Del/2019

A.Y.: 2015-16

Date of order: 23^rd December, 2019

Counsel for Assessee / Revenue: Ajay Vohra, Neeraj Jain and Anshul Sachar / Sanjay I. Bara

Section 199/205 – Assessee cannot be made to suffer because of non-deposit of tax deducted with the government by the deductor – Under section 205, the assessee / deductee cannot be called upon to pay the tax – Credit for the tax deducted at source has to be allowed in the hands of the deductee irrespective of whether or not the same has been deposited by the deductor to the credit of the Central government

FACTS

The assessee in its return of income had claimed credit to the extent of Rs. 18,79,68,945. The A.O., upon completion of the assessment u/s 144 r.w.s. 143(3), allowed the credit of TDS of Rs. 16,57,18,029. Thus, credit for TDS was short-granted to the extent of Rs. 2,22,50,916.

The assessee had, along with the return of income, furnished complete details including the names of the parties, the amount paid by them and the tax deducted at source in respect of the TDS of Rs. 18.79 crores.

HELD

The Tribunal observed that the issue which has arisen in the present ground of appeal is against the short credit of tax deducted at source. It noted that the assessee had furnished the party-wise details of the amounts aggregating to Rs. 18.79 crores deducted out of payments due to the assessee, which are also furnished as part of the Paper Book.

It also noted that the grievance of the assessee is two-fold. First of all, it was pointed out that in case subsequent to the processing of the assessment order, if changes are made in the Form No. 26AS by the parties who had deducted tax at source out of the payment made to the assessee, then the credit of the same should be allowed to the assessee. The Tribunal held that it found merit in the plea of the assessee though the AR for the assessee has not filed any evidence in this regard. But in case necessary evidence is available, then it is the duty of the A.O. to allow the claim as per Revised Form No. 26AS.

As regards the next stand of the assessee, that in case the deductor deducts tax at source, i.e. withholds tax out of payments due / paid to the assessee but does not deposit the tax withheld by it, then why should the assessee suffer? The Tribunal held that

(i) Under section 199(1) it is provided that if tax has been deducted at source in accordance with the provisions of Chapter XVII and paid to the Central government, the same shall be treated as payment of tax on behalf of the person from whose income the deduction was made; and

(ii) Under section 205 it is further provided that where the tax has been deducted at source by the deductor out of the payments due to the deductee, then such deductee cannot be held liable for payment of such tax which was deducted at source by the deductor.

Once tax has been deducted then the deductor is liable to deposit the same into the credit of the Central government. Such amount which is withheld by the deductor out of the amount due to the deductee, i.e., the person to whom the payments are made, then the said deduction shall be treated as payment of tax on behalf of the person from whom such deduction was made as per the provisions of section 199(1).

It also observed that there are provisions under the Act dealing with the recovery of tax at source from the person who has withheld the same. In terms of section 205 of the Act, the assessee / deductee cannot be called upon to pay tax to the extent to which tax had been deducted from the payments due.

Consequently, it follows that credit for such tax deducted at source, which is deducted from the account of the deductee by the deductor, is to be allowed as taxes paid in the hands of the deductee irrespective of the fact whether or not the same has been deposited by the deductor to the credit of the Central government.

The deductee in such circumstances cannot be denied credit of tax deducted at source on its behalf. It held that where the assessee is able to furnish the necessary details with regard to tax deduction at source out of the amounts due to it, then the action which follows is allowing the credit of such tax deducted at source to the account of the deductee.

In case where the deductor deposits the tax deducted at source to the credit of the Central government and the deduction reflects in Form No. 26AS, may be on a later date, then it is incumbent upon the assessee to produce the necessary evidence in this regard and it is also the duty of the A.O. to allow such credit of tax deducted at source as taxes paid in the hands of the deductee assessee.

It observed that its view is supported by the ratio laid down by the Bombay High Court in Yashpal Sahani vs. Rekha Hajarnavis, Assistant Commissioner of Income-tax [(2007) 165 taxman 144 (Bom.)] and the Gujarat High Court in the case of Sumit Devendra Rajani vs. Assistant Commissioner of Income-tax [(2014) 49 taxmann.com 31 (Gujarat)].

Applying the same parity of reasoning in the decision of the Bombay High Court in Pushkar Prabhat Chandra Jain vs. Union of India [(2019) 103 taxmann.com 106 (Bombay)], the Tribunal directed the A.O. to allow the credit of tax deducted at source in the hands of the assessee where the assessee produces the primary evidence of the same being deducted tax at source out of the amount due to it.