2017 (7) TMI 819 - HC - Income Tax

Deduction of tax at source made by petitioner HUF - Held that - In the present case the petitioner could have applied to RBI in terms of subrule 2 of Rule 37BA and completed the procedure envisaged therein. However one can gather that there is no dearth of power with the department to grant credit of tax deducted at source in such a genuine case. We are not suggesting that the requirements of sub-rule 2 are not to be followed before such benefit can be granted. Invariably in all cases such procedure would have to be completed before a person can rightfully claim credit of tax deducted at source where the TDS certificate shows the name and PAN of some other person. In the present case however many years have passed since the event arose. The facts are not seriously in dispute. The HUF has already offered the entire income to tax. The department has also accepted such declaration and taxed the HUF. In view of such special facts and circumstances we direct the department to give credit of the said sum of 5, 42, 800/- to the petitioner HUF deducted by way of tax at source upon Shri Naresh Bhavanji Shah filing an affidavit before the department that the sum invested by the RBI does not belong to him the income is also not his and that he has not claimed any credit of the tax deducted at source on such income for the said assessment year.

Summary

Issues:
Challenging order under Section 264 of the Income Tax Act, 1961 regarding TDS credit due to PAN mismatch.

Analysis:
The petitioner, an HUF, invested funds in RBI taxable bonds under the name of its Karta, leading to TDS certificates in Karta's name with a different PAN. The department denied TDS credit due to PAN mismatch. The petitioner argued for credit as the income was offered and taxed, avoiding double taxation. The department contended revision powers don't allow credit to a different PAN holder.

The court acknowledged the funds' source as HUF's, but the investment was in Karta's name, causing TDS certificates with Karta's PAN. Detailed provisions in Chapter XVIIB of the Act govern TDS, emphasizing PAN matching for proper credit allocation. Section 199 treats TDS as tax payment for the income source, with rules for credit allocation. Rule 37BA allows credit to another if income is assessable in their hands, with specific conditions.

In this case, the court directed the department to grant TDS credit to the HUF for the sum deducted, subject to an affidavit from the Karta disclaiming ownership and credit for the income. Acknowledging the unique circumstances, the court balanced procedural requirements with the equitable outcome, ensuring rightful credit allocation without double taxation.

Overall, the judgment clarifies the importance of PAN matching for TDS credit, while also demonstrating the court's authority to direct credit allocation in genuine cases to prevent unjust outcomes.