ITAT, BENCH ‘C’ CHENNAI Allowability of credit of TDS on income not liable to tax

Allowability of credit of TDS on income not liable to taxWhen TDS is made on a particular income which is otherwise not liable for tax, the assessee is entitled for the said credit of the TDS; even if the income earned by the assessee has not been offered for tax being not liable for tax, the assessee is entitled for credit of TDS made in respect of that income.

ITAT, BENCH ‘C’ CHENNAI

Supreme Renewable Energy Ltd.

v.

ITO

ITA No. 11/Mds/2008

August 14, 2008

RELEVANT EXTRACTS:

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6. After hearing the rival contentions and considering the materials on record, we note that the deposit on interest earned by the assessee is mandatory as per status required. Therefore, the interest income earned, on the deposit is not out of surplus fund of the assessee but due to the statutory requirement under which the deposit was made for availing the credit facility of installation of machinery. In the case of GT vs. Karnal Co-operative Sugar Mills Ltd. (supra), the Hon'ble Supreme Court has held:

"In the present case, the assessee had deposited money to open a letter of credit for the purchase of the machinery required for setting up its plant in terms of the assessee's agreement with the supplier. It was on the money so deposited that some interest had been earned. This was, therefore, not a case where any surplus share capital money which was lying idle had been deposited in the bank for the purpose of earning interest. The deposit of money in the present case was directly linked with the purchase of plant and machinery. Hence, any income earned on such deposit was incidental to the acquisition of assets for the setting up of the plant and machinery. The interest was a capital receipt, which would go to reduce the cost of asset."

Thus it is clear from the judgement of Hon'ble Supreme Court that when the deposit is directly linked with the purchase of machinery then the income earned on such deposit is incidental to the acquisition and installation of the said asset. Accordingly the interest is a capital receipt and would go to reduce the asset. We are of the view that when the interest income is in the nature of capital then the assessee has rightly deducted the same from the cost of the assets and while doing so the assessee has offered the said income though capitalized for assessment. When the interest income is not directly liable for tax as the same is Incidental in the acquisition and installation of the asset then the tax deducted at source from the interest income which was duly received by the Govt. shall be refunded to the assessee or the assessee is entitled for the credit of the same. The Govt. cannot benefit itself by taking advantage of legal technical. Even otherwise once the income receipt has been deducted from the cost of machinery to be installed the assessee has indirectly offered the same for assessment and taxation because due to the reduction of cost of the machinery the depreciation on the said machinery would be lesser and the net result of this would be offering the same income otherwise.

7. In case of Toyo Engg. India Ltd. vs. JCIT (supra), the Mumbai Benches of this Tribunal has held:

“The expression 'income' includes not merely what is received or what comes in by exploiting use of a property but also what one saves by using it by oneself and also which can be converted into income. Likewise, the nexus between the deduction of tax at source and the assessable income is not apparent in every assessment year. Every amount from which TDS is made does not constitute income Tax deduction at source is basically a machinery provision for collecting tax on the potential income of the assessee. There is no such conclusive presumption that tax is invariably deducted always out of income, that is why the expression 'tax deducted at source' has been used in the Act rather than ‘tax deducted from income’.

8. In the case of Escorts Ltd. vs. DOT (supra), the Delhi Benches of this Tribunal has held that when once deduction of tax at source is made and the same is deposited with the Govt. then the assessee becomes entitled for credit of such TDS while computing the tax liability for the period irrespective of the fart that the assessee considered that he is not liable to tax in respect of the income and therefore does not disclose the amount of income in his return. The income-tax department cannot refuse to give credit merely by contending that the income has not been disclosed in the return filed by the assessee for the assessment year.

9. From the above it is clear that when a particular income is received by the assessee after deduction of tax at source and the said TDS has been duly deposited with the Govt. and the assessee has received the requisite certificate to this effect, then on production of the said certificate the assessee becomes entitled for the credit of TDS even if the assessee has not directly offered the said income for tax as the assessee considered the same was not liable to tax.

10. In view of the above mentioned decisions of the Supreme Court and order of this Tribunal, it is clear position of law that when TDS is made on a particular income which is otherwise not liable for tax, the assessee is entitled for the said credit of the TDS. In the case in hand when the assessee has earned interest on deposit mandatory for acquisition on installation of machinery then the interest was earned by the assessee and is directly incidental to the acquisition in respect of machinery and therefore the same has been rightly reduced from the cost of the machinery. In this way the assessee has indirectly disclosed income and has offered for assessment. We are of the considered view that even if the income earned by the assessee has not been offered for tax being not liable for tax, the assessee is entitled for credit of TDS made in respect of that income. Accordingly, we set aside the order of the lower authorities and hold that the assessee is entitled for credit of TDS relating to interest income of Rs.51,21,287/-.

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