IN ITA.NO.819/2007: BETWEEN: 1. THE COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, C R BUILDING, QUEENS ROAD, BANGALORE

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1 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 17 TH DAY OF OCTOBER 2014 PRESENT THE HON'BLE MR.JUSTICE N. KUMAR AND THE HON'BLE MR.JUSTICE B. MANOHAR I.T.A. NO.819/2007 C/W ITA.NO.9/2009 IN ITA.NO.819/2007: BETWEEN: 1. THE COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, C R BUILDING, QUEENS ROAD, BANGALORE 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(1), C R BUILDING, QUEENS ROAD, BANGALORE... APPELLANTS (BY SRI.K.V.ARAVIND, ADV.) AND: M/S. ELSAMEX-TWS-SNC JV, No.25/2, 12 TH FLOOR, S.N.TOWERS, M.G.ROAD, BANGALORE RESPONDENT (BY SRI.A.SHANKAR & SRI.M.LAVA, ADVS.)

2 2 THIS INCOME TAX APPEAL IS UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 26/6/2007 PASSED IN ITA NO.1420/BANG/2005 FOR THE ASSESSMENT YEAR , PRAYING THIS HON'BLE COURT TO: 1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATE THEREIN 2. ALLOW THE APPEAL AND SET ASIDE THE ORDER DATED 26/06/2007 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE, IN ITA NO. 1420/BANG/2005 CONFIRMING THE ORDERS OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(1), BANGALORE. IN ITA.NO.9/2009: BETWEEN: M/S HIMACHAL JOINT VENTURE REP BY ITS MEMBER AOP SRI MANOHAR SHETTY, NO.25/2, 12TH FLOOR, S N TOWERS M G ROAD, BANGALORE 1... APPELLANT (BY SRI. A SHANKAR & SRI.M LAVA, ADVS.) AND: THE ASSISTANT COMMISIONER OF INCOME TAX CIRCLE 1(1), HMT BHAVAN, GANGANAGAR, BELLARY ROAD, BANGALORE RESPONDENT (BY SRI.K V ARAVIND, ADV.)

3 3 THIS ITA IS FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 12/09/2008 PASSED IN ITA NO. 344 & 345/BNG/2006, FOR THE ASSESSMENT YEAR & , PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: 1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, 2. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO. 344 & 345/BNG/2006, DATED 12/09/2008 (ANNEXURE-A) IN THE INTEREST OF JUSTICE. THESE APPEALS COMING ON FOR FINAL HEARING, THIS DAY, N.KUMAR, J., DELIVERED THE FOLLOWING: J U D G M E N T Both these appeals are taken up for consideration together as a common question of law is involved though the Tribunal has given divergent findings. 2. The assessee in ITA.No.1420/BANG/2005 is a Contractor carrying on the work of National Highways Authority of India and in terms of the contract, a sum of Rs.29,98,50,937/- was paid as mobilization advance. The National Highways

4 4 Authority of India by virtue of Section 194C of the Income Tax Act, 1961 (hereinafter referred to as the Act for brevity), deducted a sum of Rs.59,12,958/- towards TDS after obtaining Bank guarantee from the Contractor and credited the said amount to the account of the contractor with the Department. The assessee filed his returns for the assessment year declaring a loss of Rs.1,00,95,230/-. In the said returns, he has shown total receipts under the contract as Rs.7,32,14,129/-. In fact, he approached the Assessing Authority and sought for a certificate under Section 197 of the Act on the ground that there will be no income for the said assessment year which certificate was granted. In the returns, as there was no income for the said assessment year, he sought for refund of the entire TDS amount deposited by the National Highways Authority of India. However, the Assessing Authority granted a sum of

5 5 Rs.14,93,568/- as the TDS by the assessee for the receipt of Rs.7,32,14,129/- shown by the assessee in the returns and declined to pay the balance amount. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals) who affirmed the said finding. Aggrieved by the said order, the assessee preferred second appeal to the Tribunal. 3. The Tribunal held that the amount received by the assessee as advance could be said to be part of release of Bank guarantee, but for the provision contained under Section 194C of the Act, the contractee would not have deducted tax on the advance payment since there is clear understanding between the contractee and the contractor that the amount so paid is only an advance in regard to the services to be rendered by the assessee which would

6 6 be shown in the shape of the bills raised on the basis of the works completed. Till such time the bills are actually raised after the work is carried out, the nature of the amount received in advance remains as advance only. This instance would be an exception to the provision under Section 199 of the Act, which states that the amount on which TDS is deducted, the income would have to be shown in the same year. Since the amount received as advance is not income of the assessee but the amount deducted is with reference to the amount that is paid to the assessee which is the same as the assessee paying advance tax, the provisions of Section 237 of the Act would come into operation and the assessee would be entitled to all the benefits ensured in that Section and the assessee would be entitled to interest also. Accordingly, the appeal was allowed. Aggrieved by the

7 7 said order, the revenue is in appeal in ITA.No.819/ Learned counsel for the revenue assailing the impugned order contends that by virtue of Section 199 of the Act, the TDS has to be adjusted only in respect of the amount offered to tax in the particular assessment year. In respect of the remaining amount received as advance and if the said amount is offered the tax in the subsequent years, proportionate the TDS would be adjusted. In those circumstances, the question of refunding the amount would not arise and Section 237 of the Act is not attracted and therefore, he submits that the impugned order requires to be set aside. 5. Per contra, learned counsel for the assessee supported the impugned order.

8 8 6. Therefore, the substantial question of law that arises for our consideration is as under: Whether the Tribunal was right in holding that the receipts of amounts by the assessee from National Highways Authority of India (NHAI) could be treated as part of release of bank guarantee and the amount so received by the assessee should be treated as an advance and can it be an exception to the provisions of Section 199 of the Income Tax Act by availing all the benefits under Section 237 of the Act? 7. From the material on record, it is clear that the assessee is a contractor who has been paid a sum of Rs.29,28,59,937/- as mobilization advance which is not an income. But by virtue of Section 194C, TDS of Rs.59,12,958/- was deducted and credited to the account of the assessee in part. For the assessment year , the assessee has suffered loss.

9 9 Consequently, there was no income. In the returns filed, the assessee sought for refund of the entire amount. The Assessing Authority treated the receipt of Rs.7,32,14,128/- as income and granted a refund of Rs.14,93,568/- out of the TDS amount. He declined to pay the balance amount on the ground that it is adjustable in the future years as and when the assessee offers to tax. If the amount of Rs.29,98,50,937/- is a mobilisation advance and not an income at all, the question of paying income tax would not arise. When the gross receipts of Rs.7,32,14,128/- is offered and in that assessment year he has suffered loss, the question of paying any tax on the said amount also does not arise. He has passed an order for refund of Rs.14,93,568/- accepting the loss returns of the assessee. But he was in error in not refunding the balance amount on account on the ground that it is liable to be adjusted

10 10 in future years. If Rs.14,93,568/- was refundable as the assessee had no income for the assessment year , the balance amount could not have been retained when there was no income which is liable to tax at the hands of the assessee. In fact the advance has been given after taking bank guarantees. It is here Section 237 of the Act comes into operation. As rightly held by the Tribunal, the said amount is also refundable. A conjoint reading of Sections 194C, 199 & 237 of the Act makes it clear that if there was no liability to pay tax, the TDS paid is liable to be refunded and that is absolutely what the Tribunal has stated. Therefore, we do not see any justification to interfere with the orders passed. Hence, the appeal filed by the revenue is liable to be dismissed. 8. In ITA.No.9/09, strangely the Tribunal has declined to follow the judgment of the co-ordinate

11 11 Bench though one of the member is common in both the judgments. Here, the Tribunal has declined to order for refund. Therefore, the said order, for the reasons assigned by us, as above, is unsustainable and the order passed by the Tribunal is set aside and the order passed by the First Appellate Authority is restored. Thus the substantial question of law is answered in favour of the assessee and against the revenue in both the appeals. Accordingly, we pass the following: O R D E R ITA.No.819/07 is dismissed and ITA.No.9/09 is allowed. SD/- JUDGE RS/* SD/- JUDGE