TIRUMALA ESTATES,HYDERABAD vs. INCOME TAX OFFICER, WARD-4(1), HYDERABAD

Facts

The assessee firm filed its return declaring a loss and claimed a refund of Rs. 20,57,372/- for Tax Deducted at Source (TDS) on rental income for A.Y. 2022-23. The A.O./CPC, however, granted credit for only a small portion, as the corresponding income was not shown in the firm's return but was offered by its partners as co-owners, following earlier ITAT directions. The CIT(A) upheld the A.O.'s decision, denying the balance refund to the firm.

Held

The Tribunal reiterated that rental income is assessable in the hands of the partners (co-owners) under Section 26 of the Act, as per previous ITAT orders. Applying Section 199, which allows TDS credit to the person from whose income the deduction was made, and supported by Supreme Court judgments, the Tribunal held that TDS credit must be allowed to the partners. It ruled that Rule 37BA, being procedural, cannot override the substantive provision of Section 199(1).

Key Issues

Whether the assessee firm is entitled to a refund of TDS when the corresponding rental income is assessed in the hands of its partners as co-owners, and how the substantive provision of Section 199 interacts with the procedural requirements of Rule 37BA.