By TIOL News Service

MUMBAI, NOV 28, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether TDS Credit can be denied in the hands of demerged company, when undisputedly no credit of TDS has been claimed in the return of resulting company on demerger. NO is the answer.

Facts of the case:

Consequent to completion of assessment proceedings u/s 143(3), the assessee claimed TDS credit of Rs 44,82,512/- and the amount refundable was Rs 44,88,018/-. The AO thereafter noted that the corresponding income as per TDS claimed in consequence to its demerger w.e.f. 1/4/2010 had not been offered and therefore the refund of Rs 44,82,512/- granted on basis of TDS certificate was required to be withdrawn. Accordingly the AO passed the order u/s 154 withdrawing the credit of TDS. On appeal, the CIT(A) confirmed the action of AO by observing that the income was shown in the hands of different company, while the TDS claim was made in the hands of assessee company.

Tribunal held that,

++ it It was argued by AR that corresponding income with respect to which TDS has been deducted was earlier offered in the hands of assessee company and thereafter due to High Court's order which is effective from 01/04/2010, the corresponding income as per TDS certificate was offered in the hands of demerged company. It was also brought to notice that assessee has not claimed TDS relating to income offered in the demerged company, therefore, AO was not justified in declining claim of TDS in the hands of assessee company, when it was actually deducted in the hands of assessee company by noting its PAN number. Originally the assessee company filed its original return declaring a loss of Rs.18,347.34 lakhs and claiming a refund of Rs.44,18,554 on account of TDS and TCS. Under a Scheme of Arrangement u/ss 391 to 394 of the Companies Act, sanctioned by the High Court of Judicature at Bombay, the trading undertaking of Reliance Hyper Realty Ltd. was demerged into and vested with Reliance Fresh Limited, the assessee's company's holding company. The Scheme became effective on 1st December 2011, the appointed date being 1st April, 2010. The effect of the scheme was considered in the revised financial statement for the year ended 31st March, 2011 and accordingly revised Income Tax Return (ITR) was filed on 31/03/2012. In order to give effect to such scheme, a revised return was filed declaring loss of Rs.14,17,785/- and a refund of Rs.45,03,858/- on account of TDS and TCS. The investment division of Reliance Hypermart was later merged with Reliance Commercial Land and Infrastructure Limited vide the Bombay High Court's order w.e.f April 1, 2012. Since there is always a time lag between date of filing of scheme, approval of scheme and appointed date, the Company keeps on carrying-on its normal business activities relating to all its undertakings and all transactions are receded in the books of Company;

++ in the present case, all transactions till Nov 30, 2011 were first recorded in the Company's books. On filing of the Scheme with RoC, the Scheme became effective and therefore, the Company identified the income and expenditure pertaining to the demerged undertaking for the period April 2010 to March 2011 and passed a journal entry in its books on Nov 30, 2011 for giving effect to the Scheme. Consequently, the Company filed its original return on due date claiming IDS of Rs.44,18,554/- and after the accounting entries on merger have been completed, a revised return was filed claiming TDS of 45,03,858/-, in which only income & expenditure of retained undertakings were reported and income and expenditure of demerged undertaking was included in the resulting company i.e. Reliance Fresh Limited. From the record, it is found that though the income in respect of which TDS has been claimed had been transferred to the resulting company, however TDS could not be transferred to the resulting company as the scheme became effective on 1st December 2011 and all the TDS certificates were received in name of the Assessee & all of them bears the PAN of the Assessee AADCR6588G, and it was appearing in Form 26AS of Reliance Hyper Realty Ltd. It is further found that since all the transactions relatable to trading undertaking were transferred to resulting company (Reliance Fresh Ltd). The Income on which TDS is claimed by Assessee company has been booked in the books of Reliance Fresh Ltd. i.e., Resulting Company. However, the other divisions of the company continued and since Reliance Hyper Realty Ltd. was in existence, such TDS was claimed in the Return of Reliance Hyper Realty Ltd. Confirmation was provided during the assessment proceedings that though trading income has been transferred to Reliance Fresh Ltd., the corresponding TDS has not been transferred and credit for such TDS is being claimed by Reliance Hyper Realty Ltd. and not being claimed by Reliance Fresh Ltd.

(See 2017-TIOL-1649-ITAT-MUM)