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2016 (3) TMI 651 - ANDHRA PRADESH HIGH COURT

2016 (3) TMI 651 - ANDHRA PRADESH HIGH COURT - [2016] 386 ITR 564 - Denial of credit for the tax deducted at source by the Government of Andhra Pradesh from their bills - Held that:- 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 .....

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ne hand, and its constituent sub-contractor on the other, both seeking credit for the tax deducted 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 allo .....

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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 completed within a period of three month from the date of receipt of a copy of this order. It is made clear that this order shall not preclude the assessing authority, if he so chooses, from reopening the .....

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ve joint-venture entities have invoked the jurisdiction of this Court questioning the orders passed by the Assessing Authority, for the assessment years 2010-11 to 2012-2013, denying them credit for the tax deducted at source by the Government of Andhra Pradesh from their bills. S r i S.Ravi, learned Senior Counsel appearing on behalf of the petitioner, and Sri B.Narasimha Sarma and Sri T.Vinod Kumar, learned Senior Standing Counsel for Income Tax, would agree that it would suffice, for the disp .....

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elected for scrutiny, and subsequently a notice under Section 143(2) of the Income Tax Act, 1961 (for short the Act ) was issued and served on the assessee; later a notice under Section 142(1) of the Act was issued along with a questionnaire; in response thereto, the authorized representative of the assessee appeared and furnished the information; the assessee-JV was awarded contracts by the Irrigation Department of the Government of Andhra Pradesh; later these contracts were given by the assess .....

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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; .....

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med and completed the work; this was the intention behind the amendment to Rule 37BA introduced by the Income Tax (8th amendment) Rules, 2011; in a similar case, the ITAT had held that, unless the assessee joint-venture offered income for taxation, TDS credit cannot be given; after its amendment, the scope of Rule 37BA was widened enabling credit of taxes to be extended to the actual payee in whose hands the income is assessed; and, therefore, the TDS credit, claimed by the assessee, should be d .....

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for the tax deducted at source. All the applications, for amendment of the prayer, have been allowed and, consequently, the prayer in these writ petitions now include a challenge to the assessment orders whereby the petitioners were denied the benefit of TDS credit in terms of Rule 37BA(2)(i) of the Rules. Sri S.Ravi, learned Senior Counsel appearing on behalf of the petitioners, would submit that the petitioners had entered into agreements with the Government of Andhra Pradesh for execution of .....

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led to hold the petitioner alone responsible either for non-completion or for delay or for improper execution of the work; the Government had deducted tax at source, from the bills payable to the petitioner, at 1%/2% as stipulated in Section 194C of the Act; the 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 Ni .....

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g 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 sub-contractor; it is not even the case of t .....

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t was the subcontractor who alone executed the entire work; the entire amount, received by the petitioner from the Government, was transferred, as it is, to the subcontractor; and as the entire income, on the works executed for the Government, is assessable only in the hands of the sub-contractor, and not the petitioner, it is the sub-contractor who is entitled to be given credit for the tax deducted at source by the Government from the bills of the petitioners. As noted hereinabove, the assessi .....

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it to a person other than those referred to in Sections 199(1) &(2) of the Act, as also the assessment order for which such credit may be given. The power conferred on the CBDT, under Section 199(3) of the Act, is to make rules for the purpose of giving credit to a person, other than the person from whose amounts tax is deducted at source. It is, therefore, necessary to examine whether or not the Rules made by the CBDT in this regard justify refusal by the assessing authority to give credit, .....

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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 S .....

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State of U.P. vs. Babu Ram Upadhya AIR 1961 SC 751). A statutory rule cannot enlarge or restrict the meaning of a Section. If a rule goes beyond, or is contrary to, what the Section contemplates, the rule must yield to the Statute. (Central Bank of India v. Workmen (1960) 1 SCR 200). It is necessary, therefore, to read Rule 37BA(2)(i) of the Rules in conformity with Section 194C and 199(1) of the Act. Section 194C of the Act relates to payment to contractors. Under Clause (1) thereof, any person .....

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he Government of Andhra Pradesh) to any resident ( i.e the petitioners herein) for carrying out a work in pursuance of a contract between them, deducted tax at source at the time of payment of the bills by them to the petitioners herein. Likewise, in compliance with the requirements of Section 194C of the Act, the petitioners deducted tax at source from the amounts paid by them to the sub-contractors. Section 199 of the Act relates to Credit for tax deducted and, under subsection (1) thereof, an .....

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me that tax was deducted at source. Section 199(1) of the Act, in the present case, refers to the petitioners alone, and not their constituent i.e the sub-contractors. While Sri T.Vinod Kumar, learned Senior Standing Counsel for Income Tax, would place emphasis on the words the person from whose income , in Section 199(1) of the Act, to contend that the said person is the subcontractor and not the petitioner, that would require this Court to ignore the subsequent words from whose income the dedu .....

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ractor. 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 Centra .....

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in dispute that the information so furnished refers to the petitioner as the deductee, and that tax has been deducted at source by the Government from their bills alone. As the construction to be placed on Subrule 2(i) is in issue, in the present writ petition, it is necessary to extract sub-rule 2(i) of Rule 37BA, and its proviso as it stood before, and after, its amendment. Before its amendment w.e.f. 01.11.2011, Rule 37BA(2)(i) reads thus:- 2(i) If the income on which tax has been deducted a .....

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he case may be; (c) the income from an asset held in the name of a deductee, being a partner of a firm of a karta of a Hindu undivided family, is assessable as the income of the firm, or Hindu undivided family, as the case may be; (d) the income from a property, deposit, security, unit or share held in the name of a deductee is owned jointly by the deductee and other persons and the income is assessable in their hands in the same proportion as their ownership of the asset; Provided that the dedu .....

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cted at source, 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 .....

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, 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 present case, it would require the income of the petitioner-joint venture to be assessable in the hands of the sub-contractor. Emphasis is placed by both the learned Senior Standing Counsel for Income Tax on the word shall , in Clause 2(i) of Rule 37BA of the Rules, to contend that, by its use, .....

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rity is required, nay bound, to give them credit. The assessing authority cannot refuse to give credit to the other person, in whose hands the income is assessable to tax, merely because tax was deducted at source from the amounts paid to the deductee. As noted hereinabove, in the present case, there are two distinct and independent contracts. While it does appear that the joint venture was constituted only for it to enter into a contract with the Government, and for one of its constituents to e .....

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he sub-contractor. Any action which the Government of Andhra Pradesh could have taken, for breach of the terms and conditions of the first contract, was only against the petitioner JV and not its constituent. While the sub-contractor, no doubt, executed the work, they did so in terms of the second contract entered into between them and the petitioner-JV. It is evident, therefore, that the contractual receipts under the first contract is only that of the petitioner; and the income, arising out of .....

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aking 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 .....

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that case. It is a qualification of the preceding provision. Ordinarily, a proviso is not interpreted as stating a general rule. (Haryana State Coop. Land Development Bank Ltd. v. Banks Employees Union (2004) 1 SCC 574 ; Shah Bhojraj Kuverji Oil Mills and Ginning Factory v. Subhash Chandra Yograj Sinha (1962) 2 SCR 159; Calcutta Tramways Co. Ltd. v. Corpn. of Calcutt AIR 1965 SC 1728; A.N. Sehgal v. Raje Ram Sheora AIR 1991 SC 1406; Tribhovandas Haribhai Tamboli v. Gujarat Revenue Tribunal AIR 1 .....

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construction which is that a Section/Rule must be construed as a whole, each portion throwing light, if need be, on the rest. (Tahsildar Singh v. State of U.P., 1959 Supp (2) SCR 875; Dwarka Prasad v. Dwarka Das Saraf (1976) 1 SCC 128; Commissioner of Income-tax, Kerala and Coimbatore v. P. Krishna Warriar AIR 1965 SC 59 Maxwell on Interpretation of Statutes, 10th Edn., p. 162). A proviso cannot be torn apart from the main Section/Rule nor can it be used to nullify or set at naught the real obje .....

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ab v. Kailash Nath (1989) 1 SCC 321). The proviso to Rule 37BA (2)(i) requires the deductee to file a declaration with the deductor, and for the deductor to report the tax deduction, in the name 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 bei .....

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rce, 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 credit, for the tax deducted at source, should be given to them, and not to the sub-contractor, they have justifiab .....

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hould be given to the petitionerjoint venture or to its constituent i.e. the sub-contractor. Reliance is placed by the learned Senior Standing Counsel on a Division Bench judgment of this Court, in Commissioner of Income Tax vs. Bhooratnam and Co. (2013) 357 ITR 396 (AP), in this regard. It is no doubt true that the Division Bench of this Court in Bhooratnam and Co. (2013) 357 ITR 396 (AP), placing reliance on the judgments of the Supreme Court, in State of Madras v. Lateef Hamid & Co. AIR 1 .....

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, as introduced by the Income Tax (8th Amendment) Rules, 2011, being procedural in nature, would have retrospective effect. As it would make no difference to the case on hand, whether the pre-amended or the amended Clause 2(i) of Rule 37BA of the Rules is applied, we shall proceed on the premise that the amended Clause 2(i) of Rule 37BA is alone applicable. The amended Clause 2(i) of Rule 37BA starts with the words Where under any provisions of the Act . It is only where a specific provision in .....

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. 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, th .....

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. In such cases, Section 60 of the Act requires the income from such an asset to be treated as the income of the owner of the asset alone, and to be included in his total income. Section 60 of the Act has no application to the facts of the present case, for it is not even the case of the Revenue that, while retaining an asset, the petitioner had transferred the income arising therefrom to the subcontractor. The assessing authority has clearly misconstrued Rule 37BA(2)(i) of the Rules in holding .....

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ed by the sub-contractor, the petitioner herein had contended that it was the subcontractor who should be subjected to tax on the income received from the Government, as it is they who had executed the works. Sri S.Ravi, learned Senior Counsel appearing on behalf of the petitioners, would, as an explanation to the apparent contradiction, submit that the issue before the ITAT was regarding the person in whose hands the income was to be subjected to tax, and the question as to who was entitled to .....

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ing authority, in the present cases, had merely followed the order of the ITAT in the appeal relating to an earlier assessment year. This submission of the learned Senior Standing Counsel for Income Tax does not merit acceptance as the assessment orders, in the present batch of writ petitions, make no reference to the order of the ITAT. As the order of the ITAT, for the assessment year 2008-09, has attained finality, it would be wholly inappropriate for us to re-appreciate the findings recorded .....

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e 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 .....

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