SUBAIDA ABDURAHIMAN,KOZHIKODE vs. ITO, WARD-1(3), CALICUT

The brief facts of the case are that the assessee is a owner of the property situated at Cherootty Road, Calicut and rented out the said property to one Mr. Abdul Shameem for a monthly rent of Rs. 1,00,000/-. The said tenant deducted the TDS at 10% while making the monthly rental payment. The balance rent of Rs. 90,000/- was paid by the tenant by cheque for which the assessee had issued proper receipts in which the deduction of tax at 10% was also mentioned by the assessee. The assessee shown the rental income in the return and also shown the TDS amount deducted by the tenant and filed its return of income. The said return was processed u/s. 143(1) of the Act and an intimation was generated on 12/10/2023 in which a demand of Rs. 1,20,000/- was made. In the intimation, in table B, it was mentioned that mismatch between tax credits claimed and allowed and the reasons for the said mismatch was mentioned as form 26AS does not contain amount of TDS /TCS with respect to the TAN mentioned in Schedule TDS-1/TDS – 2 /TCS. As seen from the intimation, the exact amount of TDS deducted by the tenant tallies with the demand now raised and at that time only, the assessee came to know that the tenant had not remitted the TDS amount deducted. The assessee challenged the said intimation before the Ld.CIT(A) and contended that the tenant had deducted the TDS amount while making the rental payment and also furnished the details of the said tenant. The assessee also relied on the section 205 of the Act and also relied on the judgment of the Hon’ble Delhi High Court reported in (2024) 336 CTR 634 (Delhi) in the case of PCIT vs. Jasjit Singh and also enclosed the receipts issued by the assessee to show that the tenant had paid the balance rental amount after deducting the TDS. The Ld.CIT(A) had not accepted the case of the assessee since the deductor had not remitted the tax amount deducted to the Central Government. As against the said order of the Ld.CIT(A), the assessee is in appeal before this Tribunal with the following grounds of appeal: Tax effect relating to Grounds of Appeal each Ground of appeal (see note below) The order of the learned CIT(A) is opposed to law 1 and facts of the case. The learned CIT(A) went wrong in rejecting the claim 2 of the appellant by relying on irrelevant material. 1,20,000/- Although the appellant quoted Section 205, the learned CIT(A) summarily rejected the application of 3 205 without justification by merely stating in para 6.6 that "The provisions of S.205 of the Act are not related to allowing TDS to the appellant."

At the time of hearing, the Ld.AR submitted that the order of the Ld.CIT(A) is against section 205 of the Act which was considered by the Hon’ble Delhi High Court in a number of judgments reported in (2024) 336 CTR 634 (Delhi) in the case of PCIT vs. Jasjit Singh, 462 ITR 141 (Delhi) in the case of BDR Finvest Pvt. Ltd. vs. DCIT and 333 CTR 129 (Delhi) in the case of Incredible Unique Buildcon Pvt. Ltd. vs. ITO and enclosed the copies of the same and prayed to allow the appeal.

The Ld.AR also filed a written submission and a paper book enclosing the copies of the receipts issued by the assessee for the rent received. The Ld.DR relied on the orders of the lower authorities and prayed to dismiss the appeal.

We have heard the arguments of both sides and perused the materials available on record.

We have perused the receipts given by the Ld.AR and it is a fact that invariably in all the receipts issued by the assessee towards the rental payments, the assessee had mentioned the cheque number, name of the bank and the period for which the rent has been received and also mentioned the fact that this amount is after deducting the TDS at 10% i.e. Rs. 10,000/-. These receipts were also produced before the Ld.CIT(A) and the assessee also relied on the Division Bench judgment of the Hon’ble Delhi High Court cited (supra) and also furnished the details about the tenant along with the TAN Number. The Ld.CIT(A) mainly relied on the provision 199 and rule 37BA of the rules and rejected the claim of the assessee. The Ld.CIT(A) has also given a finding that “the case law quoted by the appellant differs on facts and circumstances and it is not applicable in her case”.

We have perused the judgments relied on by the Ld.AR and in all the judgments, the Hon’ble Delhi High Court had dealt with the similar situations and gave a clear finding that once the payer / deductor, who acts as an agent of the Central Government, has retained money towards tax (though not deposited with the Government), credit for the same cannot be denied, having regard to the consequences and the modes available for recovering the said amount from the payer / deductor. We find that the above finding given by the Hon’ble Delhi High Court is exactly on similar facts and circumstances but in spite of that, the Ld.CIT(A) had not considered the same and said that the judgment is on different set of facts and circumstances.

We have also gone through the next judgment relied on by the Ld.AR reported in 462 ITR 141 (Delhi) which was cited supra in which the Division Bench also hold that “no recovery towards tax deducted at source can be made towards the petitioner i.e., the deductee, in view of the provisions of section 205 of the Act”. The Division Bench further held that even though the TDS amount was not reflected in form 26AS, the department cannot make any demand on the assessee for the failure of the deductor to deposit the tax amount collected by him to the Central Government. The Division Bench of the Hon’ble Delhi High Court also relied on the instructions issued by the CBDT dated 01/06/2015 reported in (2015) 374 ITR Statute 34 which clearly pointed out that the deductee / assessee cannot be called upon to pay tax, which has been deducted at source from his income.

We have also perused the another judgment relied by the Ld.AR reported in 337 CTR 129 (Delhi) wherein the Hon’ble High Court had held that “the revenue cannot recover the deficit tax at source from the assessee, which was deducted and pocketed by CAL and they cannot also refuse to grant credit for the same. The rationale being what the revenue cannot do directly, it is impermissible for it to reach the same end indirectly”.

In all the judgements cited supra, the Hon’ble High Court had clearly pointed out that the assessee cannot be proceeded for the recovery of the tax dues when the deductor had deducted the tax but not paid to the Central Government. In the present case, we find from the documents submitted by the assessee, the tenant had deducted the tax while making the rental payments but failed to deposit the same into the Central Government. Before the Ld.CIT(A) as well as before this Tribunal, the assessee had given the details of the deductor but the Ld.CIT(A) had not taken any steps to ascertain the facts based on the details furnished by the assessee. We are of the view that the Ld.CIT(A) could have sought for a remand report from the AO through which the genuineness of the claim of the assessee could have been verified. On the other hand, the Ld.CIT(A) could have remitted the issue to the AO to verify the genuineness of the claim and if the claim of the assessee is found correct, then the AO could have desisted from collecting the tax due from the assessee. On the face of the documents submitted by the assessee, we are able to visualise that there is some reasonables in the submissions made by the assessee. Therefore the matter requires further verification. In the event of verification, if the AO found that the claim made by the assessee is genuine, then naturally, the judgments relied on by the Ld.AR would apply to the facts of the case and in that event, the assessee is not liable to pay the tax as demanded by the authorities.

In view of the above said facts and circumstances, we are inclined to set aside the orders of the lower authorities and remit the issue to the jurisdictional assessing officer for making proper enquiry about the claim made by the assessee and to find out whether the tenant had deducted the tax while making the payment of rent but not paid the same to the department. On enquiry, if the AO is found that it is a fact that the tenant had deducted the tax but not remitted the same to the Central Government, then appropriate proceedings should be initiated against the tenant. We also made it clear that the assessee is eligible to take into his credit the tax amount deducted by the tenant and in that event, there would not be any liability as demanded by the department.

In the result, the appeal filed by the assessee stands allowed for statistical purposes.