The main legal point established in the judgment is that the entitlement of the assessees to credit tax deducted at source is governed by the provisions of Section 199, Section 143(1), and Rule 37BA of the Income Tax Act, which mandate that the credit is available only in the assessment year in which the income from which tax deducted at source is assessed.

RamachandranNair, J.

1. The question raised in the two sets of appeals filed by the Revenue against the orders of the Income Tax Appellate Tribunal issued in favour of the two assesses is one and the same, i.e., whether the assesses are entitled to credit, tax deducted at source in the assessment year following the previous year in which deduction of tax at source and remittance was made by the payer even though income in respect of which deduction is made is not returned or assessed in that assessment year.

2. We have heard senior counsel Sri.P.K.R.Menon appearing for the Revenue and the learned counsel Sri.P.Balakrishnan appearing for the respondents-assessees. The undisputed facts leading to the controversy are the following.

3. The respondents-assessees were holding cumulative term deposits in banks entitling them for interest on deposits which was periodically credited by the Bank in the deposit account. As required under Section 194A of the Income Tax Act, the Banks recovered tax at source on the interest credited in the deposit account of the respondentsassessees and issued TDS certificates to the respondents. Though the respondents did not return interest income from these deposits as their income of the following assessment years, they claimed credit of tax based on TDS certificates issued by the banks. The assessment years concerned are 1997-1998 to 2000-2001. The assessing officer declined to give credit for the tax recovered and remitted by the Banks in the name of the respondents in the following assessment years for the reason that interest income on which recovery of tax is made by the Banks is not returned or assessed as income for the said assessment years.

4. In so far as the assessees’ claim that interest income credited by the Bank is not assessable in the assessment year following the year of deduction is concerned, the respondents-assessees’ claim is that they are following cash system of accounting and so much so they are liable to pay tax on the interest income only on collection of the interest amount from the banks which is on maturity of the deposit amounts. The assessing officer accepted the respondent’s contention that interest is assessable based on the system of accounting followed by them, i.e., cash. As a consequence of this, the assessing officer did not assess any interest income for the assessment year following the year of deduction, but declined to give credit for the tax recovered and remitted by the banks at source at the time of credit of interest based on TDS certificates produced, probably by applying Section 199 of the Income Tax Act.

5. When the assessees filed appeals before the CIT (Appeals), the assessees raised a contention that only the tax amount covered by the TDS certificates issued by the Banks is their income received in cash during the previous year relevant for the assessment year and therefore the TDS amount itself should be assessed as “income” and the assessees are entitled to refund of the balance amount. Even though the first appellate authority did not accept this contention, he held that even if interest is not assessable in the assessment years concerned, the assessees are entitled to credit of tax recovered at source in the assessment years relevant for the previous years during which recovery of tax and remittance of the same was made by the banks. On appeals filed by the Revenue though the Tribunal did not agree with all the findings of the CIT (Appeals), they held that the assessees are entitled to full credit of tax in the assessment years concerned, no matter interest income on which deduction has been made is not returned or assessed in those assessment years. It is against these orders that the Department has filed these appeals.

6. During hearing, counsel for the respondents submitted that by virtue of Section 268 A of the Income tax Act read with Circulars issued by the Board, appeals are not maintainable for the reason that tax amount in