Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI & SHRI PARESH M. JOSHI
आदेश/ O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by order of first appeal dated 05.12.2024 passed by learned Commissioner of Income-Tax (Appeals)-Addl./JCIT(A)-3, Mumbai [“CIT(A)”] which in turn arises out of intimation of assessment dated 02.03.2023 passed by learned DDIT, CPC, Bengaluru [“AO”] u/s 143(1) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2022-23, the assessee has filed this appeal on following grounds:
“1. That on the facts and in the circumstances of the case and in law, the Ld. JCIT(A) erred in upholding the action of the Assessing Officer (CPC) denying credit of TDS of Rs. 14,59,120/- deducted in the hands of the spouse of the appellant, citing non-compliance of rule 37BA(2), when the entire capital gain/loss on sale of residential apartment was offered in the hands of the appellant, and hence was rightly entitled to Page 1 of 18 AY 2022-23 the credit of entire Tax Deducted at Source, including that of his spouse. That, the intimation passed u/s 143(1) is bad in law, patently wrong and the Assessing Officer (CPC) may be directed to give balance credit of TDS of Rs. 14,59,120/- being TDS deducted of spouse, to the appellant.
That the appellant craves leave to add, to alter, amend, modify, substitute, delete and/or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises.” The issue in present case relates to giving credit of TDS of Rs. 2.
14,59,120/- claimed by assessee in the return of income but not allowed by AO in aforesaid intimation u/s 143(1). The Ld. AR explained all facts of case in the open court with reference to various documents filed in Paper-Book.
The facts narrated by Ld. AR are neatly submitted by him in Written- Synopsis; hence the same is scanned and re-produced below:
Page 2 of 18 Page 3 of 18 Page 4 of 18 Page 5 of 18 Page 6 of 18 Page 7 of 18 Page 8 of 18
Page 9 of 18 consideration of Rs. 1,22,00,000/-. The buyer deducted a total TDS of Rs.
29,18,240/- u/s 195 with break-up of Rs. 14,59,120/- in the name of assessee [50%] and Rs. 14,59,120/- in the name of assessee’s wife ‘Smt.
Naina Parekh’ [50%]. The buyer did so because the sold property was registered in joint names of assessee and his wife. The assessee, however, declared entire 100% sale consideration of Rs. 1,22,00,000/- and resultant gain in his return. The assessee also declared 100% rental income of Rs. 2,31,000/- earned from impugned property (before the date of sale) in his return. The assessee also claimed credit of 100% TDS of Rs. 29,18,240/-.
The assessee’s wife neither declared capital gain nor rental income from impugned property nor claimed credit of TDS also. While processing assessee’s return u/s 143(1), the AO though assessed 100% of capital gain and rental income in assessee’s hands as declared in assessee’s return yet he did not allow credit of 100% TDS of Rs. 29,18,240/- to assessee. The AO allowed credit of Rs. 14,59,120/- only as reflected in Form No. 26AS of assessee and denied the credit of TDS of Rs. 14,59,120/- appearing in Form No. 26AS of assessee’ wife. During first-appeal, the CIT(A) has also upheld AO’s order. Therefore, the assessee is contending for giving credit of TDS of Rs. 14,59,120/- appearing in Form No. 26AS of assessee’s wife.
Page 10 of 18 perused the case-record.
5. At first, Ld. AR for assessee carried us to various documents filed in Paper-Book to show that the sold property was fully owned by assessee individually; 100% investment was made by assessee and 100% rental income from property was offered, year-to-year, in assessee’s individual returns and rightly so assessed by department. Even during current year also, the assessee has offered 100% rental income (earned before date of sale) and capital gain in his return and the AO has rightly assessed the same in assessee’s hands. However, the name of assessee’s wife was included/added in registered-deed for the matter of practical convenience only. The documents referred by Ld. AR in open court are as under:
Paper-Book Document Pages Documents of assessee 1-4 Return of AY 2022-23 under consideration in which the assessee declared 100% capital gain and 100% rental income from impugned property. 69-71 Return of AY 2018-19 in which the assessee declared 100% rental income of Rs. 3,09,000/- from impugned property. 73-76 Return of AY 2019-20 in which the assessee declared 100% rental income of Rs. 3,99,120/- from impugned property. 78-81 Return of AY 2020-21 in which the assessee declared 100% rental income of Rs. 4,08,885/- from impugned property.
83-86 Return of AY 2021-22 in which the assessee declared 100% rental income of Rs. 5,04,000/- from impugned property. 72 Balance-Sheet as on 31.03.2018 containing entire investment of Rs. 1,14,81,240/- made by assessee 77 Balance-Sheet as on 31.03.2019 containing entire investment of Rs. 1,14,81,240/- made by assessee 82 Balance-Sheet as on 31.03.2020 containing entire investment of Rs. 1,14,81,240/- made by assessee 87 Balance-Sheet as on 31.03.2021 containing entire investment of Rs. 1,14,81,240/- made by assessee Documents of assessee’s wife Smt. Naina Parekh
88 to 111 Copies of yearwise returns and yearwise Balance-Sheets to show that neither the investment in property was made by her nor the rental income from property was declared by her.
6. Ld. AR thereafter invited our attention to sub-rule (2)(i) of Rule 37BA of Income-tax Rules, 1962 reading as under:
Rule 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:
Page 12 of 18 AY 2022-23 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.” [emphasis supplied] 7. Ld. AR submitted that the sub-rule 2(i) of Rule 37BA clearly prescribes that where the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee (i.e.
“assessee” in present case), credit for the tax deducted at source shall be given to the other person (i.e. “assessee” in present case) and not to the deductee (i.e. assessee’s wife”). He submitted that the CIT(A) has rejected assessee’s claim on the basis of proviso to sub-rule 2(i) but that proviso prescribes a mere procedure only and cannot obstruct the substantive provision of sub-rule 2(i). He relied upon decision of ITAT, Pune in – Anil Ratanlal Bohora Vs. ACIT, Circle-1, Nashik, the relevant paras are re-produced below:
“3. Succinctly, the facts of the case are that the assessee filed return declaring total income of Rs.8,42,68,650/-. An Intimation was issued u/s.143(1) of the Act disallowing, inter alia, credit for tax deducted at source amounting to Rs.2,80,456/- on interest income. According to the CPC, Form No.26AS did not contain/contained partial amount of TDS with respect to TAN mentioned in schedule TDS 1/TDS 2/TCS. The assessee appealed against the Intimation issued u/s 143(1) submitting before the ld. CIT(A) that he gifted certain amount to his wife, out of which she made deposits with State Bank of India.
Page 13 of 18 AY 2022-23 As per Form no. 26AS, she earned total interest income of Rs.39,26,260/- with deduction of tax at source amounting to Rs.2,94,474/-. Since the deposit was made out of the gift made by him, the assessee included proportionate interest income in his total income u/s.64and also claimed credit for proportionate tax deducted at source. The ld. CIT(A) observed that the provisions of Rule 37BA(2) were not complied with and as a result, the assessee was not entitled to the credit for deduction of tax at source. This has brought the assessee before the Tribunal.
We have heard both the sides and gone through the relevant material on record. It is undisputed that the assessee gifted certain amount to his wife, who, in turn, made deposits of such sum with State Bank of India. Total interest income of Rs.39.26 lakh enured in her hands, which included interest income of Rs.37,42,048/- earned from deposits made with the amount gifted by the assessee. Considering the provisions of section 64, the assessee suo motu included such interest income of Rs.37.42 lakh in his total income and claimed credit for the proportionate tax deducted at source at Rs.2,80,656/-, which got denied by the authorities on the ground that the mandate of Rule 37BA was not fulfilled.
Section 199(1) of the Act, with the marginal note `Credit for tax deducted', provides through sub-section (1) that the amount of tax deducted at source on the amount of income shall be treated as payment of tax on behalf of deductee. Sub-section (3) of section 199 is relevant for our purpose, whose material part states that: `The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary, including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and sub- section (2) ....'. Thus it is overt that sub-section (3) recognises that where the income on which tax was deducted at source in the hands of 'A', is actually chargeable to tax in the hands of 'B', credit for tax deducted at source on such income shall be allowed to 'B'. The relevant rule is 37BA with a caption "Credit for tax deducted at source for the purposes of section 199". Sub-rule (1) provides that credit for tax deducted at source shall be given to the person to whom payment has been made or credit has been given. Sub-rule (2) is significant for our purpose, whose relevant part states as under:
“(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).
Page 14 of 18 AY 2022-23 (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.”
A careful perusal of sub-rule (2) indicates that where the income, on which tax has been deducted at source, is assessable in the hands of a person other than deductee, then credit for the proportionate tax deducted at source shall be given to such other person and not the deductee. The proviso to sub-rule (2) provides for deductee filing a declaration with the deductor giving particulars of the other person to whom credit is to be given. On receipt of such declaration, the deductor shall issue certificate for the deduction of tax at source in the name of such other person. The crux of section 199 read with Rule 37BA(2) is that if the income, on which tax has been deducted at source, is chargeable to tax in the hands of the recipient, then credit for such tax will be allowed to such recipient. If, however, the income is fully or partly chargeable to tax in the hands of some other person because of the operation of any provision, like section 64 in the extant case, the proportionate credit for tax deducted at source should be allowed to such other person who is chargeable to tax in respect of such income, notwithstanding the fact that he is not the recipient of income. It is with a view to regularise the allowing of credit for tax deducted at source to the person other than recipient of income, that the proviso to Rule 37BA(2) has been enshrined necessitating the furnishing of particulars of such other person by the recipient for enabling the deductor to issue TDS certificate in the name of the other person. The proviso to Rule 37BA(2) is just a procedural aspect of giving effect to the mandate of section 199 for allowing credit to the other person in whose hands the income is chargeable to tax. The entire purpose of this exercise of allowing credit to the other person is to ensure that the benefit of tax deducted at source is availed once and that too, by the right person, who is chargeable to tax in respect of such income. It is just to streamline the procedure for giving effect to this intent and rule out the possibility of taking any inappropriate credit for the amount of tax deducted at source, firstly, by the recipient who is not chargeable to tax and secondly, by the person who is rightly chargeable to tax in respect of such income, that the procedural provision has been put in place in Rule 37BA(2). One needs to draw a line of distinction between substantive provision [section 199 read with Rule 37BA(2) without proviso] and the procedural provision [proviso to Rule 37BA(2)]. Non- compliance of a procedural provision, which is otherwise directory in nature, cannot disturb the writ of a substantive provision.
Adverting to the facts of the extant case, it is seen that out of total interest income credited to assessee's wife as per Form No.26AS amounting to Page 15 of 18 AY 2022-23 Rs.39.26 lakh, she included interest from SBI in her total income to the extent of Rs.1,84,212/-. The assessee included the remaining interest of Rs.37.42 lakh in his income because of the applicability of section 64 of the Act. The assesse and his wife claimed proportionate tax credit, which totals up to Rs.2,94,474/-. This deciphers that the total interest income received by the assessee's wife got taxed partly in her own assessment and partly in the assessment of her husband, the assessee in question, as per the mandate of section 64. The benefit of TDS has also been claimed accordingly. Merely because the assessee's wife did not furnish declaration to the bank in terms of proviso to Rule 37BA(2), the amount of tax deducted at source, which is otherwise with the Department, cannot be allowed to remain with it eternally without allowing any corresponding credit to the person who has been subjected to tax in respect of such income. As the substantive provision of section 199 talks of granting credit for tax deducted at source to the other person, who is lawfully taxable in respect of such income, we are satisfied that the matching credit for tax deducted at source must also be allowed to him. In view of the fact that the tax of Rs.2,80,656/- has actually been deducted at source on the interest income of Rs.37.42 lakh, we hold that the credit for such TDS should be allowed to the assessee, who has been subjected to tax in respect of such income. This ground is allowed.”
[emphasis supplied]
At last, Ld. AR also assured in open court that the assessee’s wife has not claimed any credit or refund of TDS of Rs. 14,59,120/- reflected in her Form No. 26AS. With these submissions, Ld. AR closed his arguments and requested bench to direct the AO to allow credit to assessee.
Ld. DR for revenue though dutifully supported the orders of lower- authorities but could not controvert the factual submissions narrated by Ld. AR as discussed above or the decision of ITAT, Pune cited above.
We have considered rival submissions of both sides and carefully perused the orders of lower-authorities as also the facts of case in the light of legal provisions and the judicial precedent cited before us. The Ld. AR has successfully demonstrated by referring to various documents held on record
Page 16 of 18 was included for the sake of convenience. From the documents, it is also ascertainable that the rental incomes have been offered in assessee’s year- to-year returns after purchase of property and the department has assessed the same. Further, 100% investment in property was also made by assessee. Even during current year, the assessee has disclosed 100% rental income and full amount of sale proceed/resultant capital gain of property in his return which is assessed by revenue. Thus, on these facts, the case of assessee is fully covered by the decision of ITAT, Pune cited above. Respectfully following the same, we agree that the credit of TDS of Rs.
14,59,120/- deducted by buyer in the name of assessee’s wife must be allowed to assessee. Accordingly, we direct the AO to allow credit of same to assessee. However, before allowing such credit, the AO may verify that the credit or refund of impugned TDS has not been given to assessee’s wife and that the double credit of same TDS is not given in any manner.
Resultantly, this appeal is allowed for statistical purpose.
Order pronounced in open court on 30/09/2025