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Facts
The assessee, a resident of Goa governed by the Portuguese Civil Code, filed their return of income and claimed TDS credit. The CPC allowed TDS credit only partially, denying a portion based on Rule 37BA. The assessee sought rectification, which was rejected, leading to this appeal.
Held
The Tribunal held that Rule 37BA is not applicable to the assessee governed by Section 5A of the Income Tax Act. Since the TDS deducted on income other than salary is in the assessee's PAN and the income is to be apportioned as per Section 5A, the full TDS credit should be allowed.
Key Issues
Whether Rule 37BA of the Income Tax Rules, 1962, is applicable for restricting TDS credit when Section 5A of the Income Tax Act, 1961, governs the apportionment of income between spouses.
Sections Cited
154, 143(1), 5A, 199, 37BA, 234B, 234C
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Income Tax Appellate Tribunal, PUNE BENCHES “B”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BOARD, ACCOUNTANT MEMBER :
The captioned appeal at the instance of assessee pertaining to A.Y. 2023-24 is directed against the order dated 21.11.2024 framed by Addl/JCIT(A)-3, Bengaluru arising out of Rectification Order dated 25.07.2024 passed u/s.154 of the Income Tax Act, 1961.
Brief facts of the case are that the assessee is an individual and return of income for A.Y.2023-24 was furnished on 17.07.2023 declaring income of Rs.1,72,59,110/-. Return processed u/s.143(1) of the Act on 11.12.2023 accepting the returned income but denied the TDS credit of Rs.17,87,367/- as claimed by the assessee. Assessee filed rectification applications u/s.154 r.w.s.143(1) however, the same were rejected. Now the assessee is in appeal before this Tribunal raising the following grounds :
“1. In the facts and circumstances of the case and in law, the Learned CIT(A) ADDL/JCIT (A)-3, Bengaluru has erred in upholding rectification order passed under section 154 of the Income Tax Act, 1961 by Deputy Director of Income Tax, CPC, Bengaluru by allowing only proportionate TDS credit of Rs.33,55,983/- based on Rule 37BA of Income Tax Rules, 1962; as against Rs.45,28,441/- claimed by the appellant.
2. In the facts and circumstances of the case and in law, the Learned CIT(A) ADDL/JCIT (A)-3, Bengaluru has erred in not providing full TDS credit of Rs.10,36,269/- to the appellant ignoring the provisions of Section 199 of the Income Tax Act, 1961 and non- applicability of Rule 37BA(2) of Income Tax Rules, 1962.
3. The appellant craves leave to add, alter, delete or modify all or any of the above grounds of appeal. All the above grounds are without prejudice to each other.”
Ld. Counsel for the assessee submitted that the assessee is Governed by Portuguese Civil Code 1860 and therefore as per section 5A of the Income Tax Act, 1961 being a resident of Goa assessee is governed by the system of Community Property and under this section the income of husband and wife under any heads of income (other than under the head salary) shall be apportioned equally and such apportioned income is to be added in the total income of husband and wife respectively.
Ld. Counsel for the assessee further submitted that the assessee in the income tax return has claimed TDS of ₹45,28,441 which comprises of tax deducted at source of salary at ₹35,22,412 and the remaining amount of ₹10,36,269 deducted on Income from Other Sources which is required to be apportioned equally between the assessee and his wife. He further submitted that since the TDS credit is appearing under the PAN of the assessee the same should have been allowed and further he stated that Rule 37BA of the Income Tax Rules 1962 are not applicable in the given case because there is no reference of application of Section 5A of the Act. He thus concluded that the remaining credit of TDS of ₹10,36,269/- may please be allowed to the assessee.
On the other hand, ld. DR vehemently argued supporting the order of ld.CIT(A).
We have heard the rival contentions and perused the record placed before us. We observe that the assessee furnished the return of income on 17.07.2023 declaring total income of ₹1,72,59,110 which included income from salary at ₹1,07,02,188 and Income from Other Sources at ₹68,31,328 The claim of the assessee that he is a resident of Goa and is governed by Portuguese Civil Code 1860 is not in dispute before this Tribunal. Section 5A of the I.T. Act has a direct bearing on the issue in hand and the same reads as under:
“Apportionment of income between spouses governed by Portuguese Civil Code.
5A. (1) Where the husband and wife are governed by the system of community of property (known under the Portuguese Civil Code of 1860 as "COMMUNIAO DOS BENS") in force in the State of Goa and in the Union territories of Dadra and Nagar Haveli and Daman and Diu, the income of the husband and of the wife under any head of income shall not be assessed as that of such community of property (whether treated as an association of persons or a body of individuals), but such income of the husband and of the wife under each head of income (other than under the head "Salaries") shall be apportioned equally between the husband and the wife and the income so apportioned shall be included separately in the total income of the husband and of the wife respectively, and the remaining provisions of this Act shall apply accordingly.
(2) Where the husband or, as the case may be, the wife governed by the aforesaid system of community of property has any income under the head "Salaries", such income shall be included in the total income of the spouse who has actually earned it.”
We further observe that the assessee in the ITR has claimed the TDS at ₹45,28,441 along with advance tax of ₹1,01,100 and Tax collected at source of ₹30,340. The CPC has duly given the credit of advance tax as well as tax collected at source. However, for the TDS of ₹45,28,441 the claim has been allowed only at ₹33,55,983. The CPC for calculating the TDS credit allowed by it has made the computation citing Rule 37BA of the Income Tax Rules, 1962 in the following manner :
Computation of Restriction of TDS based on Rule 37BA Sl.No. Particulars Amount 01 Total receipts offered to tax under various heads 45,28,441 (Including receipts under Schedule E1 other than the Agricultural income part) in the return 02 Total receipts as per Form 26AS from various 2,33,06,642 deductors (amounts appearing against TCS and 194N are not receipts, hence omitted) 03 Credit of TDS claimed in the return 1,72,72,325 TDS credit allowable as per Rule 37BA1/2*3 33,55,983 Note : TDS credit, as restricted under Rule 37BA will be allowed to the extent of matched credit.
We further observe that when the assessee challenged the short credit of TDS of ₹11,72,458 before ld.CIT(A) ld. CIT(A) decided the issue by observing as follows :
“5.1. Ground No 1: Short Credit of TDS of Rs. 11,72,458/- 5.1.1 From the facts on record, it is evident that the Appellant has filed this appeal for non-grant of TDS by CPC claimed by it in the return of income. The Assessing Officer CPC has only allowed TDS credit to the tune of Rs. 33.55.983/- as against the claim of the Appellant of Rs. 45.28.441/- relying on Rule 37BA of Income tax Rules 1962 as under :
Sl.No. Particulars Amount 01 Total receipts offered to tax under 45,28,441/- various heads (including receipts under Schedule E1 other than the Agricultural income part) in the return 02 Total receipts as per Form 26AS from 2,33,06,642 various deductors (amounts appearing against TCS and 194N are not receipts, hence omitted 03 Credit of TDS claimed in the return 1,72,72,325 TDS credit allowable as per Rule 37BA 33,55,983 1/2*3 5.1.2 It has been contended by the Appellant that he being a resident of Goa is governed by the Portuguese Civil Code, 1860 and Section 5A of the Income Tax Act, 1961, hence, the provisions of Rule 37BA of Income Tax Rule, 1961 shall not apply. The Appellant has further stated that while applying the formula for proportionate TDS credit, the total TDS amount of 45,28,441/- is to be considered. This amount comprises of Rs. 35,22,412/-being TDS on salary, income in respect of which is fully taxed in the hands of the Appellant, and of Rs. 10,36,269/- being TDS deducted on income from other sources, which is required to be apportioned equally between the Appellant and his wife. The Appellant has further contended that the Income Tax Act, 1961 does not provide for apportionment of TDS in cases where income is apportioned under Section 5A of the Act. He further states that even assuming for convenience that TDS must be apportioned, the TDS corresponding to the apportioned income should be considered for calculating proportionate credit. Since, the income is to be apportioned equally, therefore, TDS of Rs. 10,36,269/- should also be apportioned equally between him and his wife amounting to Rs.5,03,015/- each. Furthermore, the Appellant's wife Mrs. Pooja Raikar, has not claimed any TDS out of the Appellant's TDS deduction. Therefore, the proportionate TDS credit should reflect this allocation.
5.1.3 The contentions of the Appellant have been duly perused. The Appellant being a resident of Goa is governed by the Portuguese Civil Code, 1860 and Section 5A of the Income Tax Act, 1961. The relevant provision of section 5(A) of the IT Act is reproduced hereinunder for ready reference:
Apportionment of income between spouses governed by Portuguese Civil Code.
5A. (1) Where the husband and wife are governed by the system of community of property (known under the Portuguese Civil Code of 1860 as "COMMUNIAO DOS BENS") in force in the State of Goa and in the Union territories of Dadra and Nagar Haveli and Daman and Diu, the income of the husband and of the wife under any head of income shall not be assessed as that of such community of property (whether treated as an association of persons or a body of individuals), but such income of the husband and of the wife under each head of income (other than under the head "Salaries") shall be apportioned equally between the husband and the wife and the income so apportioned shall be included separately in the total income of the husband and of the wife respectively and the remaining provisions of this Act shall apply accordingly.
(2) Where the husband or, as the case may be, the wife governed by the aforesaid system of community of property has any income under the head "Salaries", such income shall be included in the total income of the spouse who has actually earned it.
5.1.4 The provisions of section 5A of the Act clearly states that income of the Husband and wife other than income from salary shall be equally apportioned between both. It is observed that the Appellant's wife has also filed her return of income for the year under consideration. The Appellant has furnished the computation of income of his wife Mrs. Pooja Raikar. On perusal of the same it is observed that the total TDS credit claimed by is Rs. 1,57,068/-. This comprises of Rs. 89,957/- as TDS on salary and Rs. 67,111/- as TDS on income other than salary. The apportionment of her income within the Appellant's total income comes to Rs. 3,49,596/-. Accordingly, the proportionate TDS on other income, amounting to 33,555/- (50% of 67,111/-), should have been claimed by the Appellant in his return of income. However, this apportioned TDS credit has not been claimed by the Appellant and the same cannot be allowed to be claimed now.
5.1.5 The AO is directed to verify the Appellant's return of income along with that of his wife (Smt. Pooja Raikar.) for AY 2023-24 and ascertain the total income offered and the TDS claimed against the same. On verification of the same if the AO finds that the proportionate income other than salary income has been offered by the Appellant's wife, then the AO is directed to give proportionate TDS credit of the Appellant to her as per provisions of section 5A of the IT Act. In case, the Appellant's wife has not offered the proportionate income of the Appellant to tax in her return of income for the year under consideration then no proportionate TDS allowance is required to be made in her hands. However, in case the Appellant has offered the entire income to tax in his return of income for the relevant year then the AO is directed to allow full TDS credit corresponding to the income offered by the Appellant. The AO shall give an opportunity of being heard to the Appellant and call for requisite details. The appeal filed on Ground No 1 is Partly allowed for statistical purposes.
5.2 Ground No. 2: Levy of Interest u/s 234B & 234C:
The Appellant has contested the levy of interest under section 234B/C which has arisen on the income tax liability raised after the disallowance of TDS made in the intimation order. Since, the TDS disallowance has been adjudicated in para 5.1 of this order, therefore, the AO is directed to recompute the interest payable under the provisions of section 234B & 234C in the Order Giving Effect accordingly. The Appeal filed on this ground is partly allowed for statistical purposes. TAX DEPAN 6. In the result, the appeal is Partly allowed for statistical purposes.”
Now from going through the above finding of ld.CIT(A) and the available record and the contentions made by ld. Counsel for the assessee we observe that out of TDS of ₹45,28,441 sum of ₹35,22,412 has been deducted on the salary income received by the assessee. Now Section 5A has no application on the salary income earned by such individual. Therefore, the assessee deserves to get the benefit of TDS of ₹35,22,412 deducted on salary income On the remaining amount of TDS at ₹10,36,269, admittedly, the income on which such TDS has been deducted has to be apportioned equally between assessee and his wife and the same been followed by the assessee and equal amount of income has been shown in each of their returns. Now the only point remains about the credit of TDS at ₹10,36,269. Assessee has claimed that the wife has not claimed 50% of TDS on ₹10,36,269 in her income tax return and has paid the due taxes calculated on the income offered. We observe that Rule 37BA refers to the credit for the tax deducted at source for the purpose of section 199 and the same reads as under :
“Credit for tax deducted at source for the purposes of section 199. 37BA. (1) Credit for tax deducted at source and paid to the Central Government in accordance with the provisions of Chapter XVII, shall be given to the person to whom payment has been made or credit has been given (hereinafter referred to as deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorised by such authority.
(2) (i) Where under any provisions of the Act, the whole or any part of the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit for the whole or any part of the tax deducted at source, as the case may be, shall be given to the other person and not to the deductee :
Provided that the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax referred to in sub-rule (1).
(ii) The declaration filed by the deductee under clause (i) shall contain the name, address, permanent account number of the person to whom credit is to be given, payment or credit in relation to which credit is to be given and reasons for giving credit to such person.
(iii) The deductor shall issue the certificate for deduction of tax at source in the name of the person in whose name credit is shown in the information relating to deduction of tax referred to in sub-rule (1) and shall keep the declaration in his safe custody.
(3) (i) Credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable.
(ii) Where tax has been deducted at source and paid to the Central Government and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax.
[(3A) Notwithstanding anything contained in sub-rule (1), sub-rule (2) or sub-rule (3), for the purposes of section 194N, credit for tax deducted at source shall be given to the person from whose account tax is deducted and paid to the Central Government account for the assessment year relevant to the previous year in which such tax deduction is made.] (4) Credit for tax deducted at source and paid to the account of the Central Government shall be granted on the basis of— (i) the information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorised by such authority; and (ii) the information in the return of income in respect of the claim for the credit, subject to verification in accordance with the risk management strategy formulated by the Board from time to time.”
From perusal of the above section, we find that there is no reference about the tax credit to be given to the persons who are governed by the Portuguese Civil Code, 1860 and fall under section 5A of the Act and therefore application of Rule 37BA by the CPC is not in accordance with law in the instant case.
Under these given facts and circumstances, we are of the considered view that since the TDS deducted at ₹10,36,269 on the income other than the income under the head salary is reflecting under the name and PAN of the assessee and Rule 37BA is not applicable on the assessee who is governed by Section 5A of the Act, the credit of TDS of ₹10,36,269 should be given to the assessee. Thus, ld. AO is directed to give the total tax credit for TDS claimed by the assessee at ₹45,28,441 which is shown in the income tax return. Grounds of appeal raised by the assessee are allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on this 11th day of December, 2025.