2014 (9) TMI 1076 - AT - Income Tax

Credit of TDS denied - Whether the amended Rule as amended by Amendment Rules 2009 is a beneficial provision mitigating the hardship of the assessee and in turn the same can be declared as retrospective and will apply to all pending matters - Held that - The provisions of section 199(1) of the Act the credit for tax deduction could be given to the person from whose income tax has been deducted. The Rule as amended by the Amendment Rules 2009 w.e.f. 01.04.2009 makes it abundantly clear that the credit will be given based on the information by deductor. The proviso to sub-rule (2) of Rule 37BA of the Rules mitigates the hardship faced by assessee for claiming credit of TDS whereby deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of other person in the information relating to deduction of tax as referred to in sub-rule (1) of Rule 37BA of the Rules. In such provisions of law the assessee should have been allowed credit for TDS in the given set of facts and circumstances of the case. Similar issue was dealt in the case of Allied Motors Pvt. Ltd. Vs. CIT ( 1997 (3) TMI 9 - SUPREME Court ) wherein it has been held that the provisions of the first proviso which has newly been inserted by the Finance Act 1987 with effect from 1st April 1998 to section 43B is remedial in nature designed to eliminate unintended consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation and is of clarificatory nature and therefore has to be treated as retrospective with effect from 1st April 1984 the date on which section 43B has newly been inserted by the Finance Act 1983. Similarly here also the Rule was inserted by the Amendment Rules 2009 to remove the hardship faced by assessees and to give true meaning to the provision of section 199 of the Act. In such circumstances I direct the AO to allow the credit of TDS after verifying declaration to be filed by deductee in term of proviso to sub-rule (2) of Rule 37BA of the Rules. - Decided in favour of assessee.

Summary

Issues:
- Disallowance of credit of TDS at Rs. 1,48,078
- Interpretation of Rule 37BA of the Income Tax Rules
- Applicability of amended Rule mitigating hardship faced by the assessee

Analysis:

Issue 1: Disallowance of TDS Credit
The appeal pertains to the disallowance of credit for Tax Deducted at Source (TDS) at Rs. 1,48,078 by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The dispute arose from TDS certificates issued in the name of a partnership firm in which the assessee was a former partner, but which had been converted into the proprietorship of the assessee. The AO disallowed the credit, citing the absence of Rule 37BA of the Income Tax Rules at the relevant time. The CIT(A) concurred with the AO's decision, emphasizing the requirement for credit based on information provided by the deductor. However, the Tribunal found this to be a technical breach due to the deductors' error in mentioning the wrong PAN, and ruled in favor of the assessee, allowing the TDS credit.

Issue 2: Interpretation of Rule 37BA
The crux of the matter lay in the interpretation of Rule 37BA of the Income Tax Rules, specifically regarding the provision for giving credit for TDS to the person from whose income tax was deducted. The Tribunal highlighted the amended Rule introduced in 2009, emphasizing the need for the deductee to file a declaration with the deductor for credit allocation. The Tribunal reasoned that the amended Rule aimed to mitigate hardships faced by taxpayers and should be applied retrospectively to benefit the assessee. Drawing parallels to previous judicial decisions, the Tribunal directed the AO to allow the TDS credit, considering the remedial and clarificatory nature of the amendment.

Issue 3: Applicability of Amended Rule
The Tribunal extensively deliberated on the applicability of the amended Rule, which was introduced to address challenges faced by taxpayers in claiming TDS credits. Citing the principle of mitigating undue hardships for assessees, the Tribunal deemed the amended Rule to be beneficial and retrospective in nature. By invoking judicial precedents emphasizing the retrospective application of remedial provisions, the Tribunal concluded that the amended Rule should be applied to the case at hand. Consequently, the Tribunal allowed the appeal, directing the AO to grant the TDS credit after verifying the requisite declaration as per the proviso to sub-rule (2) of Rule 37BA of the Income Tax Rules.

In conclusion, the Tribunal's decision favored the assessee by allowing the credit for TDS, highlighting the significance of the amended Rule 37BA in alleviating hardships faced by taxpayers and emphasizing its retrospective applicability to provide relief in cases of technical breaches or errors by deductors.