ORDER
Sanjay Arora, Accountant Member - This is an Appeal by the Revenue agitating the Order by the Commissioner of Income Tax (Appeals)-27, Mumbai ('CIT(A)' for short) dated 14.09.2011, allowing the assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2008-09 vide order dated 29.11.2010.
2.1 The primary facts of the case, which are simple and undisputed, are that the assessee, an individual, claimed credit for tax deduction of source (TDS) on interest for Rs.56.80 lacs received by her for and on behalf of an Association of Persons (AOP) by the name, M/s. Hosang Mistry & Co., of which she is the member, per her return of income for the year. The interest was on 8% RBI saving bonds issued through Union Bank of India (the issuer of securities). As the said bonds could not be subscribed to by an AOP, resolution was passed by it for investment for and on its behalf by the assessee, who happened to be the only individual member of the AOP. That is, though the funds utilized and invested were of the AOP (PB pages 36-38), the investment/s was in the name of assessee (PB pages 25-32). Tax deducted at source (TDS) certificate was accordingly issued in the name of assessee for Rs. 11,70,080 (PB page 24), who though remitted the full amount of interest (Rs. 56.80 lacs) to the AOP (PB page 16), the de facto owner of the bonds (investment) (PB pages 39-40).
2.2 In the view of the Assessing Officer (A.O.), the bonds being held by the assessee, also receiving interest thereon, besides claiming TDS in its respect, the interest was liable to be assessed in her hands. Credit for TDS was allowed by him, i.e., as claimed. The ld.CIT (A) directed deletion of the interest on the basis that the assessee is only the de jure owner of both, the bonds and interest thereon, the beneficial interest therein being of the AOP. The interest has been duly assessed in the hands of the AOP; also recovering tax thereon (PB pages 17-23). As regards credit for TDS, the relevant provision (section 199) has since been amended (by Finance (No.2) Act 1996, w.e.f 1/4/1997) to provide for deduction of tax, besides the person in whose hands the corresponding income (i.e., on which credit for TDS is being claimed) is assessable, also qua the owner of the security, deposit or property yielding the said income. Accordingly, it is permissible to allow credit for TDS to the person other than in whose hands the corresponding income is assessable. Decisions in the case of CIT v. Sonal Bansal [2008] 167 Taxman 311 (Punj. &Har.) and ITO v. T.G. Veeraraghavan [2007] 108 ITD 288 (Coch.) were relied upon by him for precedence. Aggrieved, the Revenue is in appeal.
3. We have heard the parties, and pursued the material on record.
Findings
3.1 Our first observation in the matter is that the Revenue has only challenged the direction of the ld. CIT(A) in-so-far as it relates to allowing credit for TDS to the assessee, on the ground that the same is violative of and inconsistent with the provision of sec. 199 of the Act. The assessee, on the other hand, contends that in view of the amended law, insistence on the allowance of the credit (for TDS) to the person in whose hands the corresponding income is assessable, is not appropriate as the same may not always hold, so that an allowance has to be made for the peculiar facts and circumstances of a given case. Rule 37BA, providing for such circumstances, was introduced only w.e.f 01.04.2009, so that prior thereto there was ambiguity in the matter, which therefore is to be considered in favour of the assessee inasmuch as two views were possible. In fact, there has been instances, as in Jupudi Kesava Rao v. CIT [1935] 3 ITR 339 (Mad) , Toyo Engg. India Ltd. v. Jt. CIT [2006] 5 SOT 616 (Mum.) , and Escorts Ltd. v. Dy. CIT [2007] 15 SOT 368 (Delhi) , where credit for TDS has been allowed in the hands of the deductee without the corresponding income being brought to tax in his hands. Finally, if such a view is discountenanced, it would lead to a futile exercise by way of refund of the tax recovered to the AOP, while recovering the same from the assessee; the two being assessed at the same rate of tax (30%), i.e., to no gain or effect. Rather, consequential issues, such as of levy of interest u/s. 234D and withdrawal of interest granted on refund (u/s. 244A) to the assessee, as well as tax implications thereof, would arise, though to no material effect. The decision in the case of Commissioner Of Income-Tax v. Nagri Mills Ltd. [1958] 33 ITR 681 (Bom) is invoked to submit that the Revenue should not dispute matters which are to no consequence.
3.2 Continuing further, the next thing that needs to be clarified, even though this aspect of the matter is no longer in dispute, is that the interest income under reference is assessable only in hands of AOP. Income is to be assessed in hands of the right person only Income Tax Officer v. Atchaiah [1996] 218 ITR 239/84 Taxman 630 (SC) . Coming to the issue at hand, we find the assessee's case to be based more on convenience than on law, or even on equity. No doubt, the law (sec. 199) stands amended to provide for TDS as being treated as payment of tax for and on behalf of, besides the person from whose income deduction of tax stands made, the owner of the relevant security, deposit or property yielding income. The same, however, has necessarily to be read in consistence with provisos thereto, also inserted simultaneously (by Finance (No.2) Act, 1996, w.e.f 01/04/1997), which, on the contrary, seek to provide credit in the hands of the person, other than the deductee, in whose hands the income, ostensibly of the deductee, is assessable in law, so that in case of joint ownership, credit is to be allowed in proportion to the income. That is, to the same purport and effect as rule 37BA, brought on the statute-book subsequent to the substitution of the sec. 199 by Finance Act, 2008 w.e.f. 01/4/2008. The rule only seeks to; firstly, specify such instances and, two, provide for the mechanism therefor. In fact, the owner of the security (bonds) in the instant case is only the AOP; the assessee being only a de jure owner, with the property in the bonds being admittedly of the AOP.
3.3 As regards the argument qua ambiguity, the same is completely misplaced. The law, per sections 190 & 191, provides for TDS being only a manner of collection of tax chargeable on the relevant income. Section 199(1) itself lays down that TDS is to be treated as tax paid for and on behalf of the person from whose income tax is deducted. Other categories of persons, being the owner of the relevant property, are also provided. The law thus contemplates of the deductee being the person other than from whose income tax deduction stands made. It, therefore, rather than being a source of ambiguity, serves to eliminate it. The AOP returned the interest income on the bonds, with the assessee excluding the same from her return. Why, we wonder, then, the TDS could not be claimed in the hands of AOP? Tax deduction at source, it is to be appreciated, is only toward the charge of tax u/s. 4 of the Act and, therefore, credit for same would normally be to the person in whose hands the said income is assessable (u/s. 199(1)), and for the relevant year/s (ss. 199(2) & (3) r/w s. 190), being consistent and in accord with the scheme of the Act. That the said person has paid the tax in full on his own, or has not preferred to claim credit in respect of the TDS, is no ground for allowing credit to another. The amendment to sec. 199, as already clarified, is toward mitigating and resolving difficulties that may arise on account of the difference in the ostensible and the real owner of the underlying security (property) and the income thereon, so that on a declaration being made by the deductee, credit for TDS could be claimed by and allowed to the real (de facto) owner, even as the TDS certificate/s is in the name of the ostensible owner (deductee). Recourse to the rule 37BA, introduced subsequently (w.e.f. 01/04/2009), would arise only where the rule denies, as it did in some of the cases cited, credit to the AOP on the ground the TDS certificate being in the name of the assessee (deductee).
The case law cited
3.4 The decisions in the case of Sonal Bansal (supra) and T.G. Veeraraghavan (supra) are not applicable, being in respect of assessment year/s prior to AY 1997-98, with effect from which the provision of s. 199 stood amended by Finance (No.2) Act, 1996.
As regards the decision in the case of Nagri Mills Co. Ltd. (supra), it needs to be borne in mind that there is no estoppel against law, and each year is a separate unit of assessment. The said decision is to be considered as rendered in the peculiar facts of the case, and not as a statement of law inasmuch as the same can no longer be said to represent good law in view of the decision by the apex court in the case of CIT v. Swadeshi Cotton & Flour Mills (P.) Ltd. [1964] 53 ITR 134 . Toward this one may in fact refer to the decisions by the hon'ble courts as in the case of New Victoria Mills Co. Ltd. v. Commissioner Of Income-Tax, U.P [1966] 61 ITR 395 (All) ; Escorts (Agents) P. Ltd. v. Commissioner Of Income-Tax, Delhi. [1971] 80 ITR 61 (Delhi) ; J.K Woollen Manufacturers Private Ltd. v. Commissioner Of Income-Tax, U.P* [1967] 65 ITR 237 (All.) ; Mysore Spg. & Mfg. Co. Ltd. v. CIT [1966] 61 ITR 572 (Bom.) [affirmed by hon'ble apex court in CIT v. Mysore Spg. & Mfg. Co. Ltd. [1970] 78 ITR 4 (SC) ]; and S.M Ziaddin v. Commissioner Of Income-Tax. [1993] 203 ITR 136/71 Taxman 580 (Mad) .
In the case of Toyo Engg. India Ltd. (supra), the assessee-company, providing technical services as well as executing construction of projects in the areas of fertilizers, petrochemicals, gas and petroleum, etc., was following project completion method for the latter business. The issue that arose was of the year for which credit for TDS was to be allowed. It is in that context it was held by the tribunal that the nexus between the amount of income and the assessment year may not be specific and immediate in all cases, so that it may not be possible to correlate the two at all times. The decision is rendered in the facts of the case and in view of the failure to establish a correlation between the quantum of income and the year of its assessability, the very basis of section 199. The same, thus, has no application in the facts and circumstances of the case. The decision in the case of Escorts Ltd. (supra), again, represents one such instance; the assessee claiming that the income, on which tax stood deducted at source, was not assessable under the Act. The Revenue, however, having collected the tax at source, duly evidenced by a certificate in its respect, could not deny credit for the same, i.e., the TDS in its respect. This forms the basis of this decision, and which, therefore, clearly has not application in the instant case. To the same purport and effect and, therefore, fate as to the reliance thereon, is the decision in the case of CIT v. Punjab Financial Corpn. [2005] 277 ITR 469/[2006] 152 Taxman 120 (Punj.&Har.) , wherein only a part of the income on which tax stood deducted was chargeable to tax; the balance falling to the share of the State Government, the joint owner (in a defined ratio) of the relevant security, and thus outside the purview of the Act. The assessment year involved was AY 1978-79. It was held that credit for the TDS thereon could not be denied, which would in any case have to be refunded, and to the assessee-deductee itself.
We may at this stage refer to the decision by the tribunal in the case of ITO v. Shri Anupallavi Finance & Investments [2011] 131 ITD 205/9 taxmann.com 163 (Chennai) , wherein, adverting to sections 190, 191, 198 and 199 of the Act, it was held that the deduction of tax at source does not necessarily, or is required to, march alongside the corresponding income, recognition of which by the recipient could be either on accrual or on receipt basis. The tax liability, however, would arise only on it becoming assessable. It is in view of and to address this mismatch in time between the TDS and the accrual and/or receipt of the corresponding income that section 199 r/w ss. 190 and 191 clarifies that the credit for TDS shall be available for the year/s in which the corresponding income is assessable. Further, there was complete harmony between the erstwhile section 199 and section 199 as it stands after substitution by Finance Act, 2008 w.e.f. 01.04.2008 read with r. 37BA.
In Jupudi Kesava Rao (supra), the issue involved was whether the word 'succession' in section 26(2) of the Income-tax Act, 1922 would include 'transfer' where the business devolves on the coparcener of a Hindu Undivided Family (HUF) by survivorship. The hon'ble court held that section 26(2) concerns the transfer of ownership and not merely of management. There was accordingly no succession when the petitioner-coparcener becomes the owner of the HUF business. We see no parity or correspondence between the said decision and the issue involved in the instant case, i.e., whether the credit for TDS is to be allowed in the hands of the titular holder or the beneficial owner, in whose hands the corresponding income is in law assessable, having in fact been returned and assessed only there-under.
4. In the result, the Revenue's appeal is allowed.
SUNIL