Itta/117/2012 Of The Commissioner Of Income Tax-I v. M/S. Bhooratnamand Company

HONOURABLE SRI JUSTICE GODA RAGHURAMANDHONOURABLE SRI JUSTICE M.S.RAMACHANDRARAO I.T.T.A.Nos.117 and 222 of 2012COMMON JUDGMENT (per Hon’ble Sri Justice M.S.Ramachandra Rao): The respondent/assessee in I.T.T.A.No.117 of2012 is M/s.Bhooratnam and Co., a partnership firmengaged in the manufacture of PSCC/RCC and MS pipes,cement slabs and also executes civil contracts. Witheffect from 16-07-2003, the said firm was converted into acompany by name M/s.Bhooratnam ConstructionCompany (P) Limited. By virtue of the conversion, all theassets and liabilities of the erstwhile partnership firm hadbecome assets and liabilities of this Company. InI.T.T.A.No.222 of 2012, this company is the respondent. The assessee along with three others i.e.M/s.Koya and Company Construction Limited, the IndianHume Pipe Company Limited and M/s.Taherali Industriesand Projects Private Limited entered into a joint ventureagreement called “Agreement for Collaboration andCooperation” on 12-03-2003 for the purposes of preparingand submitting prequalification/post qualification tender tothe Hyderabad Metropolitan Water Works and Sewerage Board. According to the terms of the said agreementdated 12-03-2003 between these entities, each party i.e.co-venturer in the joint venture is responsible for hisrespective profit or loss earned by him in the execution ofeach one’s respective share in works. Each of the partiesto the joint venture is concerned with its share ofwork/contract and the profit or loss arising therefrom andthe agreement was not to be treated as an agreement toearn profits only. Contract receipts up to 15-07-2003 were offeredfor taxation in the hands of the firm and after 15-07-2003from all existing works/contracts on hand have beendeclared in the hands of the company. On 01-11-2004, for the assessment year 2004-05, for the period up to 15-07-2003, the firm filed its returnof income declaring an income of Rs.1,23,47,000/-. On 29-11-2004, for the assessment year 2004-05, for the period after 15-07-2003 up to 31-03-2004, thecompany filed a return admitting a taxable income ofRs.4,32,08,820. With respect to the contract work receipts, TDSwas done but the assessee claimed credit of the taxmentioned in the said TDS certificates , the assessingofficer , in the assessment orders of both the firm and the company, refused to give credit on the ground that someof the TDS certificates belong to the joint venture andsome other TDS certificates are in the name of Directorsand do not relate to the assessee firm/company. Appeals were filed to the CIT (Appeals) by thefirm and the company and by orders dated 04-12-2007and 25-01-2007, the said appeals were allowed on theground that as per the agreement dated 12-03-2003 mentioned above, each co-venturer has gotits own share of work; that each co-venturer has toexecute the work and get TDS certificate for having donework for its share of work; that even though the TDScertificate are in the name of the joint venture, theformation of the joint venture is only for a limited purposeof bidding tender; that each co-venturer in the joint venturehas got its own separate responsibility of executing workand to receive contract receipts and also with taxliabilities; that the return of income filed by the assesseeadmitting contract receipts and TDS with regard tocontract work of co-venturer is in order ; and that theassessing officer having entertained to assess theincome/receipts part mentioned in the TDS certificatecannot disown the TDS certificates and refuse to givecredit 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, theassessing authority cannot ignore the tax deduction part;that the TDS certificates were not doubted; that they werenot issued for a second time; and where the joint venturehad not filed the return of income and claimed credit forTDS certificates, then the said credit has to entertained inthe assessee’s hands. The appellate authority directedthe assessing officer to verify and allow credit of TDScertificate. Aggrieved thereby the Revenue filed furtherappeals to the Income Tax Appellate Tribunal. By order dated 03-06-2011, the Tribunaldismissed the appeal filed by the Revenue(I.T.A.No.1671/Hyd/2010) in respect of the firm and heldthat there has been a tax deduction at source either in thename of the company or in the name of the Director and itcovers all the tax payable by the assessee. It relied uponRule 37-B A of the Income Tax Rules, 1962 and held thatthe assessing officer is required to give credit for the TDScertificate filed by the assessee company either in thename of the assessee or in the name of the Director. Itaccepted the contention of the assessee that the incomeincluded in the TDS certificates has been considered forthe purpose of determining the total income of theassessee and that on the same logic, due credit should also be given to the TDS involved in that certificate. The Tribunal by order dated 28-07-2011 rejectedthe appeal of the Revenue in regard to the company(I.T.A.No.218/Hyd/11 ) by following its above order dated03-06-2011 in I.T.A.No.1671/Hyd/2010 in the case of thefirm. Aggrieved thereby, the present appeals underSection 260-A of the Income Tax Act, 1961 have beenfiled contending: a)that the credit for TDS given on the TDScertificates produced in the names of the JointVenture is not in accordance with Rule 37-B A ofthe Rules framed under the I.T. Act. b)The assessee is not eligible for TDS credit onthe certificates produced in the names of theDirectors when the same is not in accordancewith Rule 37-B A of the above Rules. Heard Sri J.V.Prasad, learned Senior StandingCounsel for the Income Tax Department and SriC.P.Ramaswamy, learned counsel for the assessees. S.199 (1) of the Act provides that any deduction oftax made in accordance with the provisions of ChapterXVII of the Act and paid to the Central Government shall be treated as a payment of tax on behalf of the personfrom whose income the deduction was made. Under subsection ( 3) of Section 199, the CBDT may, for thepurpose of giving credit in respect of tax deducted atsource or paid in terms of the provisions of Chapter XVII ofthe Act, make such rules as may be necessary, includingthe rules for the purpose of giving credit to a person otherthan those referred to in sub section (1) and sub section(2) and also the assessment year for which such creditmay be given. Rule 37 BA of the Rules framed under Section199(3) of the Act ( introduced with effect from 01-04-2009by Income Tax (Sixth Amendment) Rules ,2009 by the:CBDT) is as follows “Credit for tax deducted at source for thepurposes of section 199. 37BA. (1) Credit for tax deducted at source and paid tothe Central Government in accordance with the provisionsof Chapter XVII, shall be given to the person to whompayment has been made or credit has been given(hereinafter referred to as deductee) on the basis ofinformation relating to deduction of tax furnished by thedeductor to the income-tax authority or the personauthorised by such authority. (2) (i) If the income on which tax has been deductedat source is assessable in the hands of a personother than the deductee, credit for tax deducted atsource shall be given to the other person in caseswhere- (a)the income of the deductee is included in thetotal income of another person under the provisions ofsection 60, section 61, section 64, section 93 orsection 94; (b)the income of a deductee being an association ofpersons or a trust is assessable in the hands ofmembers of the association of persons, or in thehands of trustees, as the case may be; (2) (i) If the income on which tax has been deductedat source is assessable in the hands of a personother than the deductee, credit for tax deducted atsource shall be given to the other person in caseswhere- (a)the income of the deductee is included in thetotal income of another person under the provisions ofsection 60, section 61, section 64, section 93 orsection 94; (b)the income of a deductee being an association ofpersons or a trust is assessable in the hands ofmembers of the association of persons, or in thehands of trustees, as the case may be; (c)the income from an asset held in the name of adeductee, being a partner of a firm or a karta of aHindu undivided family, is assessable as the incomeof the firm, or Hindu undivided family, as the casemay be; (d)the income from a property, deposit, security, unitor share held in the name of a deductee is ownedjointly by the deductee and other persons and theincome is assessable in their hands in the sameproportion as their ownership of the asset: Provided that the deductee files a declaration with thedeductor and the deductor reports the tax deductionin the name of the other person in the informationrelating to deduction of tax referred to in sub-rule (1). (ii) The declaration filed by the deductee underclause (i) shall contain the name, address, permanentaccount number of the person to whom credit is to begiven, payment or credit in relation to which credit isto be given and reasons for giving credit to suchperson. (iii) The deductor shall issue the certificate fordecuction of tax at source in the name of the personin whose name credit is shown in the informationrelating to deduction of tax referred to in sub-rule (1) (3) (i) Credit for tax deducted at source andpaid to the Central Government, shall be given for theassessment year for which such income isassessable. (ii) Where tax has been deducted at sourceand paid to the Central Government and the incomeis assessable over a number of years, credit for taxdeducted at source shall be allowed across thoseyears in the same proportion in which the income isassessable to tax. (4) Credit for tax deducted at source and paidto the account of the Central Government shall begranted on the basis of – (i)the information relating to deduction of taxfurnished by the deductor to the income-tax authorityor the person authorized by such authority: and (ii)the information in the return of income inrespect of the claim for the credit, subject to verification in accordance with therisk management strategy formulated by the Boardfrom time to time.” By the Income Tax (8[th] amendment) Rules,2011, the CBDT amended Rule 37 BA and insub rule (2), for clause (i), the following clausewas substituted: “ (i) Where under any provisions of the Act, thewhole or any part of the income on which tax has been deducted at source is assessable in the handsof a person other than the deductee, credit for thewhole or any part of the tax deducted at source, asthe case may be, shall be given to the other personand not to the deductee” This amendment has done away with the specifiedfour clauses in the pre-amended Rule 37BA whichrestricted the benefit of the rule only in four specifiedsituations. It has thus widened the scope of the rule 37 BAthereby enabling the credit of taxes to the actual payee inwhose hands the income is assessable and not restrictingthis benefit only to the specified four situations. “ (i) Where under any provisions of the Act, thewhole or any part of the income on which tax has been deducted at source is assessable in the handsof a person other than the deductee, credit for thewhole or any part of the tax deducted at source, asthe case may be, shall be given to the other personand not to the deductee” This amendment has done away with the specifiedfour clauses in the pre-amended Rule 37BA whichrestricted the benefit of the rule only in four specifiedsituations. It has thus widened the scope of the rule 37 BAthereby enabling the credit of taxes to the actual payee inwhose hands the income is assessable and not restrictingthis benefit only to the specified four situations. In our view, the CIT (Appeals) and the Tribunalhave rightly held that the assessee is entitled to the creditof the TDS mentioned in the TDS certificates issued bythe contractor, whether the said certificate is issued in thename of the Joint Venture or in the name of a Director ofthe assessee company. They have considered the termsof the agreement dated 12-03-2003 among the parties tothe joint venture and held that credit for TDS certificatescannot be denied to the assessee while assessing thecontract receipts mentioned in the said certificates asincome of the assessee. The income shown in the TDScertificates has either to be taxed in the hands of the jointventure or in the hands of the individual co-joint venturer. As the joint venture has not filed return of income andclaimed credit for TDS certificates and the TDS certificates have not been doubted, credit has to begranted to the TDS mentioned therein for the assessee. Rule 37 BA is a procedural provision dealing withthe manner of giving credit for tax deducted at source forthe purposes of section 199. It therefore applies topending proceedings. As observed in STATE OFMADRAS v. L. HAMID[[1]], where a new procedure isprescribed by law, it governs all pending cases. In TIKARAM AND SONS v. COMMISSIONER OF SALES TAX[[2]]it was held that alterations in the form ofprocedure are always retrospective, unless there is somegood reason or other why they should not be. Theamendment to Rule 37 BA mentioned above which has been introduced by the Income Tax (8[th] amendment)Rules, 2011 notified vide Notification No.57/2011 dated24-10-2011, being procedural in nature, would haveretrospective effect and has to be given effect to. The Revenue cannot be allowed to retain taxdeducted at source without credit being available toanybody. If credit of tax is not allowed to the assessee,and the joint venture has not filed a return of income, thencredit of the TDS cannot be taken by anybody. This is notthe spirit and intention of law. Therefore, in our view, the Assessing Officer erred indenying the benefit of the TDS mentioned in the TDScertificates filed by the assessees on the ground that theTDS certificate is issued in the name of the joint venture ora Director and not the assessee. In this view of the matter both the appeals aredismissed as they are without any merit. There is noquestion of law much less any substantial question of lawto be considered in these appeals. No costs. ____________________________ JUSTICE GODA RAGHURAM __________________________________ JUSTICE M.S.RAMACHANDRA RAO Date:23-11-2012Kvr [1]AIR 1972 SC 1781 at para 13 page 1784-1785AIR 1972 SC 1781 at para 13 page 1784-1785 [2]AIR 1968 SC 1286 at para 8 page 1292AIR 1968 SC 1286 at para 8 page 1292