TRIKAAL MEDIINFOTECH PRIVATE LIMITED , MUMBAI V. DCIT, CIRCLE 11(3) (1), , MUMBAI

ITA 5989/MUM/2019

AI Insights

The case involves Trikaal Mediinfotech Pvt. Ltd., which appealed against the order of the Commissioner of Income Tax Appeals-18, Mumbai, concerning the denial of TDS credit for the assessment year 2015-16. The primary issue was whether the assessee was entitled to the credit of TDS amounting to Rs. 73,31,953 for income earned from software patches and modules, which was previously reduced from the cost of software development and not recognized in the profit and loss account. The Tribunal examined the accounting practices followed by the assessee, the applicability of Accounting Standard (AS) 7, and the provisions of the Income Tax Act regarding TDS. The Tribunal concluded that the assessee had effectively offered the income for tax by reducing it from the cost of the asset and thus was entitled to the TDS credit claimed.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132064 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 02-03-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 18-09-2019
• Other Referred Cases: Toyo Engineering India Limited Vs. JCIT, Supreme Renewable Energy Vs. ITO, CIT Vs. Bokaro Steel Limited
• Laws Referred To: Income Tax Act, Accounting Standard (AS) 7
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Capital receipt; TDS; Set aside

Judgement Text

vk;dj vihyh; vf/kdj.k eqacbZ ihB ßbZÞ eaqcbZ Jh] th- ,l- iUuq] v/;{k ,oa Jh fodkl voLFkh] U;kf;d lnL; ds le{k IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E” BENCH BEFORE SHRI G.S. PANNU, PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER vkvkla- 5989@eaqcbZ@2019 ¼fu-oa- 2015&16½ ITA NO.5989/MUM/2019 (A.Y.2015-16) Trikaal Mediinfotech Pvt. Ltd. 301, Anshuman, Juhu Lane Andheri (West) Mumbai-400 058 PAN No. AACCT5992R ..... vihykFkhZ/Appellant cuke Vs. Deputy Commissioner of Income Tax Circle 11 (3) (1) Aayakar Bhavan M.K. Road Mumbai-400 020 ..... izfroknh/Respondent vihykFkhZ }kjk@Appellant by : Shri Anil Sathe izfroknh }kjk@Respondent by : Shri Abjijit Chaudhari & Shri Soumendu Kumar Dash lquokbZ dh frfFk@Date of hearing : 03/03/2023 ?kks”k.kk dh frfFk@Date of pronouncement : 21/03/2023 vkns’k/ ORDER This appeal by the assessee is directed against the order of Commissioner of Income Tax Appeals-18, Mumbai [hereinafter referred to as “the CIT(A)”] dated 28/06/2019 for the assessment year 2015-16. 2. The solitary issue raised in appeal by way of ground no. 1, reads as under: “ 1. The learned CIT(A) erred in upholding the disallowance by the Assessing Officer of credit of Tax Deducted at Source amounting to Rs. 73,31,953/- claimed during the year 2 ITA NO.5989/MUM/2019 (A.Y.2015-16) under consideration in respect of Tax Deduction at Source pertaining to earlier years which were denied during the assessments of the respective years.” The other grounds raised in the appeal are in support of ground no. 1 of the appeal. 3. The brief facts of the case as emanating from records are: The assessee is engaged in providing customised software in the field of medical prescription data. The assessee entered into a joint venture agreement. As per the said agreement, the assessee was to develop software to capture, analyse and report the data made available to it. The development of the software was completed during the year under consideration. During the process of development of software, the assessee developed software patches and software modules out of which some revenue was earned and tax was deducted thereon by the parties from whom such revenue was received. The assessee consistently followed the accounting practice of reducing the said revenue from the cost incurred on the development of software. The net cost incurred was reflected under the head “Advance Recoverable” in the Balance Sheet. The assessee claimed credit for the tax deducted at source, but was denied the credit in the assessment proceedings in the earlier assessment years, for the reason that the said income was reduced from the capitalised cost. The assessee claimed disallowed tax credit aggregating to Rs.73,31,953/- during the year under consideration as the development of software was complete and the entire capitalised costs net of income earned was transferred to intangible assets. 4. Shri Anil Sathe appearing on behalf of the assessee submitted that the software was completed in AY 2015-16. The assessee had capitalised the software as intangible asset. The AO has rejected the claim of assessee primarily for the reason that the assessee should have followed accounting standard (7) and the revenue should have been recognised on percentage completion method. Since, the appellant has not credited revenue in the profit and loss account, it has violated the provisions of AS7. The learned Authorised Representative (AR) pointed that the provisions of AS7 are 3 ITA NO.5989/MUM/2019 (A.Y.2015-16) not applicable as the assessee is not in the business of construction of software but a development thereof. The learned AR further contended that the AO has erred in holding that the assessee has not recognised contract revenue and contract expenditure in the profit and loss account. Since, inception of the project till date and hence, the claim of TDS in respect of such Revenue is unjustified. To controvert the observations of AO, the learned AR submits that Rule 37BA uses the term “income assessable” and not “income assessed”. The term assessable is used to ensure that income on which tax has been deducted enters the computation machinery. The term assessable thus pre supposes that the income has been accounted for in contradistinction to the term assessed which means that subsequent to the computation of total income, tax is charged on the said income. The learned AR submits that during the period relevant to assessment year under appeal, the assessee has earned revenue of Rs.2,50,000/- against which depreciation has been claimed on the intangible assets. The accounts of the assessee have been accepted by the AO. During the year under consideration, the development phase of the software has been completed and commercial phase has started. The revenue earned from the software would be gradually offered to tax in the coming years. Not allowing TDS credit now, would be that the credit will be lost forever which amounts to unjust enrichment. The TDS provisions are machinery provisions to ensure collection of tax and not charging provisions. As long as the assessee accounts for the revenue whether by crediting to the Profit and Loss Account or reducing the revenue from the cost of asset, the effect would be same. The learned AR submitted that the assessee has offered revenue from software in the subsequent assessment years and has claimed depreciation on reduced cost of intangible asset against the said income. The Ld. Representative for the assessee submitted that TDS credit on sale of software patches and modules should have been allowed to the assesse. The learned AR in support of his submissions placed reliance on the following decisions. 4 ITA NO.5989/MUM/2019 (A.Y.2015-16) 1) Toyo Engineering India Limited Vs. JCIT 100 TTJ Mumbai 373, 2) Supreme Renewable Energy Vs. ITO 128 TTJ Chennai 352, 3) CIT Vs. Bokaro Steel Limited 236 ITR 315, 5. Per contra, Shri Abhijit Chaudhari representing the Department vehemently defended the order of CIT(A) and prayed for dismissing the appeal of assessee. The learned Departmental Representative (DR) submitted that the CIT(A) in the preceding assessment years, that is AY 2011-12 in assessee’s own case, has dismissed the appeal of assessee on identical issue. Since, there are no change in facts in the impugned assessment year, the CIT(A) followed earlier year order and dismissed the appeal of assessee. 6. Both sides heard, orders of authorities below examined. The fact that the assessee is consistently following method of accounting of reducing cost of revenue from the cost of development of software is not in dispute by the Department. It is also not disputed that in the preceding assessment years, the AO has rejected the method of recognizing profit from sale of software patches and software modules. In appeals filed by the assesee before the CIT(A), the assessee has been unsuccessful and thereafter no further appeal was filed. Insofar as method of recognition of revenue in the impugned assessment year, there has been no change. The material difference in assessment year under consideration is that the, software is fully developed and is ready for generating income. The assessee has capitalized the software as intangible asset. The assessee has reduced the revenue earned in preceding A.Y’s from the cost of the software. This has resulted in reducing overall cost of the software. Consequently, the asssessee would be eligible for depreciation on the reduced cost of software. 7. In the instant case it is not in dispute that TDS has been deducted in respect of sale of software patches. The credit of TDS deducted on aforesaid sale has not been allowed to the assessee in the relevant assessment year as the assessee had not 5 ITA NO.5989/MUM/2019 (A.Y.2015-16) disclosed the income from sale of software patches and modules and the same was instead reduced from the cost of software development. The assessee is following Project Completion Method to recognize its revenue. The assessee is now claiming credit of TDS which has been earlier denied to the assessee. As per provisions of section 199 of the Act, tax deducted at source and paid to government exchequer is treated as payment of tax on behalf of the person for whom TDS was made. Rule 37BA(3) further clarifies that credit for TDS shall be given for assessment year for which such income is assessable. 8. In the case of Supreme Renewable Energy Vs. ITO (supra) the Tribunal following the decision in the case of CIT vs. Karnal Co-Op Sugar Mills Ltd., 243 ITR 2(SC) held that when the interest income is incidental to the acquisition and installation of an asset and not directly liable for tax, assessee is entitled for the credit of the TDS from the interest income which has been duly received by the Government. For the sake of completeness relevant extracts from the order is reproduced herein below: “6. ................. Thus, it is clear from the judgment 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 Government shall be refunded to the assessee or the assessee is entitled for the credit of the same. The Government cannot benefit itself by taking advantage of legal technicalities. 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.xxxxxxxx 8. xxxxxxxx 6 ITA NO.5989/MUM/2019 (A.Y.2015-16) 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 Government 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 orders of the lower authorities and hold that the assessee is entitled for credit of TDS relating to interest income of Rs. 51,21,287.” 9. Thus, in light of facts of the case and the decision discussed above, we are of the considered view that the assessee is eligible for TDS credit earlier not allowed to the assessee. The assessee succeeds on ground No.1 of the appeal. 10. In the result, appeal by the assessee is allowed. Order pronounced in the open court on Tuesday the 21 st day of March 2023. Sd/- Sd/- (G.S. PANNU) (VIKAS AWASTHY) v/;{k/PRESIDENT U;kf;d lnL;/JUDICIAL MEMBER eaqcbZ/Mumbai, fnukad/Dated: 21/03/2023 Mahesh R. Sonavane/ V.M,Sr. P.S(O/s) 7 ITA NO.5989/MUM/2019 (A.Y.2015-16) izfrfyih vxzsf”kr of the Order forwarded to: 1. vihykFkh/The Appellant , 2. izfroknh/The Respondent. 3. vk;dj vk;qDr/ CIT 4. foHkkxh; izfrfu/kh] vk;- vih- vf/k-] eqacbZ/DR, ITAT, Mumbai 5. xkMZ QkbZy/Guard file. BY ORDER, //True Copy// (Dy./Asst. Registrar)/ Sr. Private Secretary ITAT, Mumbai