2023 (6) TMI 80 - AT - Income Tax

Short grant of TDS credit - CPC has denied the TDS credit on the ground that amount is not reflected in 26AS - whether credit of TDS can be allowed to the assessee, i.e., Late Russi Dinshaw Bahadurji having offered the income and have been taxed on the same for the TDS amount - conditions provided in Rule 37BA - in the case of the Trust, nil return was filed and no TDS credit has been filed - HELD THAT - Deduction is allowed for the amount paid to the Treasury of Central Government which shall be treated as payment of tax on behalf of the person from whose income, the deduction was made where the TDS was deducted on income which has been shown and offered to tax by the assessee, Late Russi Dinshaw Bahadurji even though TDS has been deducted in the case of Deed of Settlement / Trust. There is no provision of Section 199(1) that deduction cannot be allowed on the payment of tax who has offered the income. Rule 37BA which has been framed by the CBDT in terms of section 199(3) provides credit for tax deducted at source for the purpose of Section 199. Here it is a case, the present assessee which is in appeal before us has offered income on which TDS has been deducted and it is not able to receive the credit despite the PAN on which TDS has been deducted has not shown in the return of income and is clearly stated that no credit for TDS is being taken as the income belongs to the assessee and credit should be given there. Thus, in these circumstances, the strict conditions provided in Rule 37BA especially the forms prescribed under the Rules has to be read in the spirit of provision of Section 199(1) which in our opinion should prevail upon the forms and the conditions provided in the Rules. Rules and forms issued should not frustrate the main provisions of the Act, but we are not laying any proposition that the conditions of Rules are not to be adhered to, but when there such pressing circumstances and Revenue is aware that TDS credit is being claimed under right hands and original deductee is not claiming any TDS and has given declaration that it has neither shown the income nor it will claim in future, then there should be a mechanism to resolve the issues or Revenue should direct the deductor to comply with it. Accordingly assessee should be given credit of TDS amount u/s.199(1) and accordingly, the ground raised by the assessee is allowed.

Summary

Issues Involved:
1. Denial of TDS credit of Rs. 1,15,010/-.
2. Compliance with Rule 37BA(3).
3. Application of Section 199 of the Income Tax Act.

Summary:

1. Denial of TDS credit of Rs. 1,15,010/-:
The assessee filed an appeal against the order dated 30/05/2022 by NFAC, Delhi, regarding the denial of TDS credit of Rs. 1,15,010/- for the A.Y. 2021-22. The assessee declared a total income of Rs. 1,06,74,950/- and claimed TDS of Rs. 7,53,318/-, including Rs. 1,15,109/- from the Deed of Settlement for K D Bahadurji. The return was processed u/s 143(1) by CPC, Bengaluru, raising a demand of Rs. 1,15,010/- due to short credit.

2. Compliance with Rule 37BA(3):
The Commissioner of Income Tax (Appeals) upheld the short grant of TDS credit, noting the absence of a declaration under Rule 37BA(2). The rule requires the deductee to file a declaration with the deductor, which was not done in this case. The CIT(A) emphasized that credit for tax deducted must be accorded strictly in conformity with Section 199 and Rule 37BA, which was not followed here.

3. Application of Section 199 of the Income Tax Act:
The Tribunal examined whether the credit of TDS amounting to Rs. 1,15,109/- could be allowed to the assessee, Late Russi Dinshaw Bahadurji, who had offered the income and been taxed on it. The Tribunal noted that the income belonged to the Deed of Settlement/Trust but was included in the assessee's return. It was also noted that the trust filed a nil return and did not claim TDS credit. The Tribunal highlighted the practical difficulties in complying with Rule 37BA(2) due to the death of Mr. Russi D. Bahadurji and the pending probate application.

Conclusion:
The Tribunal concluded that the assessee should be given credit for the TDS amount of Rs. 1,15,109/- under Section 199(1), considering the unique circumstances and the fact that the original deductee did not claim the TDS. The appeal was allowed, and the order pronounced on 27th April 2023.