2025 (1) TMI 1401 - AT - Income Tax

Claim of the TCS credit - income of his minor child was clubbed with his own income - HELD THAT - Since no other mechanism has been provided to allow such TCS credit in the Act till the said amendment which took effect only from 1st day of January 2025 therefore such claim of the assessee cannot be entertained. In our opinion since the income of the minor child was clubbed with the income of the assessee the corresponding TCS collected in the hands of the minor also should be allowed and due credit should be given in the hands of the assessee. Revenue cannot be allowed to retain the tax deducted at source or tax collected at source without credit being available to anybody. In our opinion if the credit of tax is not allowed to the assessee then credit of TCS cannot be taken by anybody. Memorandum explaining the provisions in the Finance Bill 2024 regarding the credit of tax collected to be given to the persons other than the collectee is applicable from 1st day of January 2025 and since so other mechanism has been provided to allow such TCS in the Act till the amendment which took place effective only from 1st day of January 2025 and therefore such claim of the assessee cannot be entertained is concerned the same in our opinion cannot deprive the assessee from his legitimate claim of TDS / TCS the income of which has already been offered to tax. Therefore such amendment in our opinion should be held as retrospective in nature and not to the detriment of the assessee against a legitimate claim. We find in the case of Allied Motors (P) Ltd. 1997 (3) TMI 9 - SUPREME COURT has held that a proviso which is inserted to remedy unintended consequences and to made the provision workable a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. It has further been held that it is well settled that if a statute curative or merely declaratory of the previous law retrospective operation is generally intended. In fact the amendment would not serve its object in such a situation unless it is construed as retrospective . We hold that depriving the assessee of due credit for TCS in the hands of the minor child whose income has already been clubbed in the hands of the assessee will cause undue hardship to the assessee for non-provision of any other mechanism by the Board. We therefore set aside the order of the Addl./JCIT(A) and direct the AO to give due credit of TDS / TCS of the minor child in the hands of the assessee. The grounds raised by the assessee are accordingly allowed.

Summary

The judgment from the Appellate Tribunal ITAT Pune addresses the appeal filed by the assessee against the order of the Additional/Joint Commissioner of Income Tax (Appeals), Chennai, concerning the assessment year 2024-25. The core issue revolves around the denial of Tax Collected at Source (TCS) credit for the amount collected in the name of the assessee's minor child, whose income was clubbed with that of the assessee.

1. ISSUES PRESENTED and CONSIDERED

The primary legal question considered in this case is whether the assessee is entitled to claim TCS credit for the amount collected in the name of his minor child, whose income has been clubbed with the assessee's income as per section 64(1A) of the Income Tax Act, 1961.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The relevant legal framework includes section 206C of the Income Tax Act, which deals with the collection of tax at source, and section 64(1A), which mandates the clubbing of a minor child's income with that of the parent. The Finance Bill 2024 proposed an amendment to section 206C, effective from January 1, 2025, to allow TCS credit to persons other than the collectee, provided the income is clubbed as per section 64(1A).

Court's Interpretation and Reasoning

The Tribunal noted that the assessee had included the minor child's income in his return, as required by section 64(1A). The Tribunal found that denying the TCS credit to the assessee would result in undue hardship, as the income had already been taxed in the assessee's hands. The Tribunal emphasized that the Revenue should not retain tax collected without allowing credit to any party.

Key Evidence and Findings

The assessee's return of income included the minor child's income, and the TCS was collected in the child's name. The Tribunal considered the Finance Bill 2024 and related notifications, which indicated an intention to allow TCS credit in such cases from January 2025. The Tribunal also reviewed precedents, including decisions from the Supreme Court, which supported the retrospective application of curative amendments.

Application of Law to Facts

Applying the law, the Tribunal concluded that since the minor child's income was clubbed with the assessee's income, the TCS credit should also be allowed to the assessee. The Tribunal held that the amendment should be considered retrospective to prevent undue hardship and ensure a reasonable interpretation of the law.

Treatment of Competing Arguments

The Tribunal considered the Revenue's argument that the amendment was prospective and thus not applicable to the current assessment year. However, the Tribunal rejected this view, citing the need for a retrospective interpretation to address the unintended consequences and ensure fairness.

Conclusions

The Tribunal concluded that the assessee should be granted the TCS credit for the amount collected in the minor child's name, as the income had been clubbed with the assessee's income. The Tribunal set aside the order of the Additional/Joint Commissioner of Income Tax (Appeals) and directed the Assessing Officer to grant the TCS credit.

3. SIGNIFICANT HOLDINGS

The Tribunal held that denying TCS credit to the assessee, whose minor child's income was clubbed with his own, would cause undue hardship. The Tribunal emphasized that the Revenue should not retain tax collected without providing credit to any party. The Tribunal found that the amendment to section 206C should be applied retrospectively to ensure fairness and prevent unintended consequences.

Core Principles Established

The judgment establishes the principle that amendments intended to remedy unintended consequences or omissions should be applied retrospectively to ensure a reasonable interpretation of the law. It also underscores that tax credits should be granted where the income has been duly taxed, to prevent undue hardship to taxpayers.

Final Determinations on Each Issue

The Tribunal determined that the assessee is entitled to the TCS credit for the amount collected in the minor child's name, as the income was clubbed with the assessee's income. The appeal filed by the assessee was allowed, and the Assessing Officer was directed to grant the TCS credit.