2016 (8) TMI 823 - HC - Income Tax

TDS credit - Entitlement to benefit of tax deducted at source - TDS belong to co-owners - entire rent realized by the assessee including the amount belonged to co-owners - Held that - The assessee is undoubtedly an owner of the property but he is not an absolute owner. His ownership is restricted to a certain percentage of the right in the property. The assessee has collected the rent payable with respect to the property in its entirety and thereafter has passed on the rent including the amount deducted on account of the tax to the other co-owners. There is, as such, no reason why the assessee should not be entitled to enjoy the benefit of tax deducted at source. Mr. Agarwal did not dispute that the assessee has paid the share of the co-owners including the share in the amount of tax deducted at source. In the facts of the case, we find no merit in the submission advanced by Mr.Agarwal. The question is, therefore, answered in the affirmative and against the revenue.

Summary

Issues:
Challenge to judgment of Income Tax Appellate Tribunal dismissing revenue's appeal for assessment year 2005-06 - Deletion of rental income not returned as income due to sale of portion to companies - Entitlement to benefit of tax deducted at source when rent belonged partially to assessee.

Analysis:
The High Court of Calcutta addressed the challenge against the judgment of the Income Tax Appellate Tribunal, which dismissed the revenue's appeal for the assessment year 2005-06. The primary issue revolved around the deletion of rental income amounting to ?74,22,427 not returned as income by the assessee due to the sale of a portion of the property to three companies. The question of law raised was whether the Tribunal was correct in deleting this addition. The appellant's advocate initially chose not to press this question and instead raised another issue regarding the entitlement of the assessee to the benefit of tax deducted at source when the rent realized belonged partially to the assessee.

The facts revealed from the assessment order indicated that the total rent received by the assessee was ?1,07,69,778, out of which TDS of ?5,59,807 was claimed. However, the profit and loss account showed only ?33,47,351 as rental income. The assessee claimed that a portion of the building was sold to three companies, leading to this discrepancy. The assessing officer's computation showed a credit of ?5,69,782 for tax deducted by the tenants. The appellant argued that if the rent did not entirely belong to the assessee, the benefit of tax deducted at source could not be claimed in full. In contrast, the respondent contended that the assessee had paid the share of co-owners, including the tax deducted, justifying the entitlement to the tax benefit.

The court examined Section 199(1) of the Income Tax Act, 1961, which specifies that deductions made and paid to the government are treated as tax payment on behalf of the individual from whose income the deduction was made. The court found that although the assessee was not the absolute owner of the property, having a restricted ownership, the rent was collected entirely and then shared with co-owners, including the tax amount. Consequently, the court held that the assessee was entitled to enjoy the benefit of tax deducted at source. Dismissing the appeal, the court ruled in favor of the assessee, emphasizing that the tax liability on the entire rental income was not avoidable if the benefit of tax deduction was claimed entirely. The court also noted and condoned a delay of 35 days in the appeal hearing process.