TMI Blog2016 (3) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... cted at source by the Government, necessitating retention of these amounts by the Revenue till resolution of the conflicting claims. As held by the Division Bench of this Court, in Bhooratnam and Co.[2013 (1) TMI 478 - ANDHRA PRADESH HIGH COURT ] the Revenue cannot be allowed to retain the amounts representing the tax deducted at source without credit being given to anybody. If credit of tax is not allowed to the petitioner-assessee, and the sub-contractor has not made any claim for refund, it would result in credit of the TDS not being taken by anybody and this, as has been rightly pointed out by the Division Bench in Bhooratnam and Co. is not the spirit and the intention of the law. To the limited extent the assessing authority denied credit to the petitioner, for the tax deducted at source from their bills by the Government, the impugned assessment orders/rectification orders are set aside. The assessing authority shall determine the quantum of credit for TDS which the petitioners are entitled to in terms of this order, and refund the amount so computed to the petitioners herein in accordance with law. The entire exercise, culminating in final orders being passed, shall be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gross receipts of ₹ 1,07,55,16,904/-, and the same was passed on to the subcontractor; and, in view of the above, the income of Rs. Nil , as returned by the assessee, was accepted. While disallowing the petitioner s claim for refund, of the tax deducted at source from their bills by the Government, the assessing authority held that, from the agreement signed between the JV and the constituent, it was clear that the JV was just a procedural device used for submitting the bid; all the contract works were to be executed only by the constituent member; the very purpose of forming a joint venture was to act as a connecting link between the Irrigation Department and the Joint-Venture constituent, and to handover the contract work received from the former to the latter; the JV never intended to execute any work whatsoever; admission of gross receipts, in their P L Account by the JV, was only to transfer the same to their constituent; as no real work was carried on by the assessee, no income had accrued to it; and, therefore, credit for TDS was not allowable in the hands of the assessee in terms of Rule 37BA(2)(i) of the Income Tax Rules, 1962 (for short the Rules ). After extrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner had also deducted TDS, at the very same rates, while making payment to the subcontractor; both the petitioner and the sub-contractor had filed their respective returns of income; while the petitioner had filed a return with Nil income, and had claimed refund of the tax deducted at source from their bills by the Government, the sub-contractor had filed their return of income, and had claimed credit for the tax deducted at source, from their bills, by the petitioner; the sub-contractor had not sought refund of the tax deducted at source, from the bills of the petitioner, by the Government; there were two independent contracts in existence conferring distinct rights and liabilities on the parties thereto; income, arising out of the amounts received by the petitioner from the Government, was liable to be taxed only in their hands; the mere fact that the entire receipts had been transferred to the sub-contractor did not absolve the petitioner of their statutory obligation of filing their return of income, and for being assessed under the Act; as their income was Nil , the tax deducted at source, from their bills, was liable to be refunded to them alone, and not to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. It is settled law that Rules, made under the Act, should be interpreted in conformity with the provisions of the Act (Ispat Industries Ltd. v. Commr. of Customs (2006) 12 SCC 583), and not the other way round. A rule should be read as supplemental to the provisions of the parent Act. It cannot be interpreted in a manner as to come into conflict with the parent Act, in which case the Act will prevail. (STO v. H. Farid Ahmed Sons (1976) 1 SCC 245). A piece of subordinate legislation should be read in the light of the statutory scheme of the Act. (Bombay Dyeing Mfg. Co. Ltd. v . Bombay Environmental Action Group (2006) 3 SCC 434). Rules made for carrying out the purposes of the Act cannot be so framed as not to carry out the purposes of the Act, and cannot be in conflict therewith, (Laghu Udyog Bharati v. Union o f India (1999) 6 SCC 418). An expression used in a rule must, unless there is anything repugnant in the subject or context, have the same meaning as is assigned to it under the Statute. (Onkarlal Nandlal v. State of Rajasthan (1985) 4 SCC 404). Rules should be consistent with the provisions of the Act. (State of U.P. vs. Babu Ram Upadhya AIR 1961 SC 751). A statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the subsequent words from whose income the deduction was made . In the present case, the deductions were made by the Government from the amounts paid to the petitioner, and no amount was paid by the Government directly to the sub-contractor. As such the question of deducting tax at source, from the amount payable to the sub-contractor, does not arise. On a reading of Section 199(1) of the Act as a whole, it is evident that the said provision, when applied to the facts of the present case, refers only to the petitioner, and not to the subcontractor. Let us now examine the scope of Rule 37BA(2)(i) of the Rules, and whether the assessing authority was justified in denying credit of TDS to the petitioners placing reliance thereupon. While 37BA of the Rules was inserted by the Income Tax (Sixth Amendment) Rules, 2009 with effect from 01.04.2009, Sub-rule 2(i) was substituted by the Income Tax (Eighth Amendment) Rules, 2011 with effect from 01.11.2011. Rule 37BA(1) stipulates that credit for tax deducted at source, and paid to the Central Government in accordance with the provisions of Chapter XVII, shall be given to the person to whom payment has been made or credit has been give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as the case may be, shall be given to the other person and not to the deductee : Provided that the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax referred to in sub-rule (1). The pre-amended Rule 37BA(2)(i) was applicable only to the four categories of persons referred to therein. As both the learned Senior Standing Counsel for Income Tax place emphasis only on Clause (b), it is unnecessary for us to examine the scope of any of the other clauses. The petitioner, a Joint Venture, would fall within the ambit of association of persons as referred to in Clause (b) of Rule 37BA(2). Clause (b), as it then stood, was applicable only in cases where the income of the association of persons was assessable in the hands of its members (i.e if the income of the petitioner-JV was assessable in the hands of its constituent i.e the sub-contractor). In such an event, sub-rule (2)(i)(b) of Rule 37BA required credit, for such tax deducted at source, to be given to the constituent member of the joint venture. If Clause (b) were to be paraphrased, in the context of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or. The sub-contractor is assessable to tax on their income earned out the amounts received by them from the petitioner in terms of the second contract, and not in terms of the first contract between the Government of Andhra Pradesh and the petitioner-JV. As noted hereinabove, not only did the Government of Andhra Pradesh deduct tax at source from the petitioner s bills, the petitioner, in turn, while making payment to the sub-contractor, also deducted tax at source from the bills of the latter. Credit for the tax deducted at source, by the petitioner from the bills of the sub-contractor, was given to the sub-contractor as such income was assessable in their hands. Likewise credit for the tax deducted at source, from the bills of the petitioner, was required to be given to the petitioner alone as the income, from the contract entered into between them and the Government of Andhra Pradesh, was assessable only in their hands, and not in the hands of the sub-contractor. The ambit of Clause 2(i) of Rule 37BA of the Rules is restricted by its proviso. Ordinarily, a proviso is read either as an exception to the substantive provision to which it is added, or as restricting the width an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the other person, in the information relating to deduction of tax referred to in sub-rule (1). In cases where the income is assessable in the hands of a person, other than the deductee, the proviso to Clause (2)(i) enables the deductee to file a declaration with the deductor. On such a declaration being made, the deductor is required to report the tax deducted at source, not in the name of the deductee but in the name of the other person, in the information which they are required to furnish to the Income Tax Department. It is not even contended before us, by either of the learned Senior Standing Counsel for Income-Tax, that the petitioner (deductee) had made any such declaration to the State Government (deductor), or that the State Government (deductor) had reported, the tax deducted at source, in the name of the other person (the subcontractor) to the Income Tax Department. As the proviso restricts the ambit of Rule 37BA(2)(i), it is only in cases where the procedure prescribed in the proviso is followed is credit, of the tax deducted at source, required to given to the person other than the deductee. In the present case, as the deductee (the petitioner) claims that cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the Act which requires the whole, or any part of the income, on which tax is deducted at source from the bills of the petitioner-JV, to be assessable in the hands of its constituent i.e the sub-contractor. A feeble attempt is made by Sri T.Vinod Kumar, learned Senior Standing Counsel for Income Tax, placing reliance on the petitioner s own case before the Income Tax Appellate Tribunal (for short ITAT ) in I.T.A.No.1197/Hyd/2011 dated 12.07.2012 for the assessment year 2008-09, to contend that the provision referred to in Rule 37BA(2)(i), which found acceptance with the ITAT, is Section 60 of the Act. Section 60 of the Act relates to transfer of income where there is no transfer of assets and, thereunder, all income, arising to any person by virtue of a transfer, whether revocable or not and whether effected before or after the commencement of the Act, shall, where there is no transfer of the asset from which the income arises, be chargeable to income tax as the income of the transferor, and shall be included in his total income. Section 60 of the Act applies to cases where an asset belongs to one person, while the income arising from such an asset is claimed to be the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 2008-09, has attained finality, it would be wholly inappropriate for us to re-appreciate the findings recorded therein or examine the validity of its conclusions. While it does appear that the parties before us had earlier taken an opposite stand before the ITAT, it cannot also be lost sight of that the question, which fell for consideration in the appeal before the ITAT, was whether the petitioner could have been assessed to tax, estimating the profits they had made from the contract, when the entire amount received by them from the Government had been transferred to the sub-contractor. The scope of Rule 37BA of the Rules did not arise for consideration therein. In any event, any declaration of law by the ITAT would not bind this Court. It is wholly unnecessary for us, therefore, to dwell on this aspect any further. On being asked how the Revenue could retain the amount representing the tax deducted at source from the petitioners bills, and not pay it either to the petitioner or to the sub-contractor, Sri T.Vinod Kumar, learned Senior Standing Counsel for Income Tax, would submit that, as the income is assessable in the hands of the sub-contractor, it is they, and not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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