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TDS certificates need not match income

I am a cloth-indenting agent maintaining books of account on "cash basis" for the last 15 years. I receive commission (business income) on settlement of payments received by the principals. The principals deduct TDS on commission on "mercantile basis", while the payments are made to me in quite a few cases in the subsequent year on settlement of the dues. There are occasions when I do not get commission, because of bad debts suffered by the principals, so that in such cases, I receive only TDS certificates. In other words, commission booked by the principal will be on "mercantile basis" in some cases, while I will be offering the commission in the subsequent year on cash basis. The assessing officer is not giving credit for TDS amount for the reason TDS deducted does not pertain to the year of account resulting in my losing the TDS amount.

Since in business accounts are usually kept on mercantile basis, tax will have to deducted on that basis. Where the recipient as in the case of the reader maintains his accounts on cash basis, there is a mismatch between TDS certificates and the taxable income offered by the assessee in the return. This is envisaged by law, which does not require that income from which tax is deducted should be offered in the same year as the TDS certificates. There may be instances where TDS-deducted income may not be taxable at all as in the case of payments that are eligible for deductions under Sec. 10A or 10B or under Chapter VI-A. Provisions relating to tax deduction at source are not provisions for computation of income, so that the taxpayer's income is not required to be computed merely with reference to the TDS certificates. There is no provision in the statute which requires such computation.

Though the assessing officer may be interested in enquiring why related income of some TDS certificates is not being accounted, it is a matter which is easily explained. The fact that the assessee is keeping accounts on cash basis, so that in some cases, it will be accounted in the next succeeding year or in the year in which it is actually received, will be sufficient explanation. Where the amount is not received at all, such amount is not expected to be returned as income, when the assessee's method of accounting is cash. In such cases, there is, however, receipt of income to the extent of the amount covered by the TDS certificate on which credit is given in the year in which the amount covered by the TDS certificate is either refunded or adjusted against the tax payable.

Some assessing officers assume wrongly, as complained by the reader, that they are bound to assess the income in the year to which TDS certificate relates. The law itself has provided for the contingency of such income being assessable in a different year as in the reader's case or sometimes even in different hands as in the case of clubbed income (for example, income of minor child), so as to justify the credit for tax deducted at source in the year in which such income becomes taxable or in whose hands it is assessable and offered for tax. Sec. 199 provides that where the TDS certificate is filed in such cases in a different year or by a person not named in the certificate, TDS credit will not be denied. Though the provisions mentioned under Sec. 199 are not exhaustive, it is a mandate of law that credit has to be given on the basis of TDS certificates filed and that the income has to be computed under the computation provision for different classes of income under Chapter VI covering Sec. 14 to 59.

S. Rajaratnam

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