2023 (3) TMI 548 - AT - Income Tax

Credit of TDS - TDS on rental income from property and dividend income - AO did not allow credit of the TDS in respect of dividend income offered to tax under the head income from other sources - HELD THAT - In the instant case, the assessee has offered the income following the accrual system. As far as rental income is concerned, if tax has been deducted and deposited in subsequent year, the assessee should be allowed credit of same in the year under consideration of tax which has been deducted subsequently. Assessee could not be allowed the benefit of the interest on refund which arise if any on account of credit of tax deducted and deposit in the subsequent assessment year. We accordingly set aside the finding of the Ld. CIT(A) on the issue-in-dispute and direct AO to verify the amount of tax deducted and deposited in respect of income from rental property which has been shown by the assessee in the year under consideration and allow the credit as directed above. TDS credit in respect of dividend income assessee is directed to furnish TDS certificate issued by the deductor and the Ld. Assessing Officer is directed to allow the credit of the said TDS after due verification. The Assessing Officer cannot simply decline the credit of TDS and he is bound to verify TDS certificate issue in accordance with provisions of law. Further, the Assessing Officer is also directed to verify if any relief has already been granted in the rectification application filed by the assessee. If so then further benefit of TDS credit may not be allowed. In view of the our direction above, the grounds of appeal of the assessee are accordingly allowed for statistical purposes.

Summary

Issues Involved:
1. Restriction of TDS credit for rental income.
2. Non-grant of TDS credit for dividend income.
3. Application of Section 199 of the Income Tax Act, 1961.
4. Application of Section 205 of the Income Tax Act, 1961.

Detailed Analysis:

1. Restriction of TDS Credit for Rental Income:
The assessee claimed TDS credit of Rs. 1,78,032 in respect of rental income from Navbharat Chambers. The Assessing Officer (AO) restricted this credit to Rs. 1,63,196. The assessee argued that the rental income for February and March, received in April 2022, had TDS deducted in April 2022, reflected in Form 26AS for the subsequent assessment year. The Tribunal noted that the assessee follows the accrual system and declared the income in the year under consideration. The Tribunal directed the AO to verify the TDS deducted and deposited in the subsequent year and allow the credit in the year under consideration, without allowing interest on any refund arising from this adjustment.

2. Non-Grant of TDS Credit for Dividend Income:
The assessee claimed TDS credit of Rs. 64,458 for dividend income from Tata Steel Ltd. The AO did not allow this credit, as the TDS was deducted at 20% under Section 206AA due to non-provision of PAN, and it did not appear in Form 26AS. The Tribunal directed the AO to allow the TDS credit upon verification of the TDS certificate issued by Tata Steel Ltd., emphasizing that the AO must verify the TDS certificate and cannot simply decline the credit.

3. Application of Section 199 of the Income Tax Act, 1961:
Section 199 deals with the credit of tax deducted. The Tribunal referred to Rule 37BA, which allows TDS credit based on the information furnished by the deductor and the claim in the return of income. The Tribunal emphasized that credit should be given for the year in which the corresponding income is assessable. The assessee must produce the TDS certificate and show that the income subjected to TDS is disclosed in the return of the relevant assessment year.

4. Application of Section 205 of the Income Tax Act, 1961:
The assessee argued that tax on the rent and dividend had already been deducted at source, and under Section 205, they cannot be called upon to pay tax on such income again. The Tribunal acknowledged this argument and directed the AO to ensure that the credit for TDS is appropriately granted, preventing any double taxation on the same income.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, directing the AO to verify the TDS credits and grant them accordingly. For rental income, the AO must verify the TDS deducted in the subsequent year and allow the credit in the year under consideration. For dividend income, the AO must verify the TDS certificate and grant the credit. The Tribunal emphasized compliance with Sections 199 and 205 of the Income Tax Act, ensuring that the assessee receives due credit for taxes deducted at source. The Tribunal's decision ensures that the Department cannot deny TDS credit where the tax has been deducted and deposited, aligning with the principles of the Income Tax Act and judicial precedents.