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TMI Blog2024 (10) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... rors when assessing a taxpayer s entitlement to TDS credit. Section 205 protects the taxpayer from being asked to pay tax again if tax has already been deducted at source. This principle supports the argument that TDS credit, once deducted, should not be denied based on procedural failures, particularly those not attributable to the taxpayer. Rule 37BA of the Income Tax Rules provides for the mechanism of TDS credit, intending to ensure that the credit is given to the person who offers the income for taxation. The primary objective of this rule is to align TDS credit with the person who is the beneficial owner of the income. In this case, the assessee is the rightful owner of the income from Vedanta ADRs, and despite procedural errors by Citibank NA, the assessee has fulfilled the substantive requirements by declaring the income in its tax return. Denying credit due to procedural lapses by third parties contradicts the rule s purpose. From revenue perspective, allowing TDS credit to the assessee where the corresponding income has been offered does not result in any revenue loss to the exchequer. The tax has been deducted and accounted for; it is merely the credit that has been proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso relied on some judicial precedents. 4. During the course of appellate proceedings, the CIT(A) issued multiple notices to the AO for submission of a report in ITNS-51; however, no report was furnished by the AO, and the appeal was disposed of based on the material available on record. The CIT(A) observed that the assessee had offered the income arising from the redemption of ADRs to tax in India and had claimed TDS credit based on the tax withheld by Citibank NA. However, the CIT(A) emphasized that the TDS credit was not reflected in Form 26AS due to non-compliance with Rule 37BA, which mandates specific procedures for crediting TDS when income is assessable in the hands of a person other than the deductee. The CIT(A) highlighted that the tax was deducted in the name of Credit Suisse AG, the broker through which the ADRs were held, and not directly in the name of the assessee. Since the assessee was only the beneficial owner, the CIT(A) held that credit for TDS could only be allowed if the assessee complied with the procedural requirements, including filing declarations with the deductor and ensuring that the deductor reports the tax deduction in the name of the assessee. 4.1. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horised Representative (AR) of the assessee explained the facts and circumstances and stated that the assessee made formal correspondence with Credit Suisse AG and Citibank NA for to transfer the TDS credit in its name, citing its status as the real and end beneficial owner of the ADRs and placed on records the copies of the said correspondence. The AR placed an application to admit, this correspondence as additional evidence before us. The DR did not object to admission of this as additional evidence and placed reliance on the order of CIT(A). The AR also placed reliance on some judicial precedents justifying the admission of additional evidence. 6. We have heard the parties and perused the material available on records including additional evidence submitted by the assessee before us. The assessee, a foreign company and non-resident in India, had invested in ADRs of Vedanta Ltd. from FY 2012-13 to 2016-17. In November 2021, Vedanta Ltd. announced the redemption of these ADRs, and Citibank NA was appointed as the depository to manage the redemption process as per SEBI guidelines. Upon redemption, Vedanta Ltd. withheld tax amounting to Rs. 57,28,565 (equivalent to USD 76,493) since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compliance with procedural requirements under Rule 37BA. It demonstrates that the assessee had taken proactive steps to ensure the transfer of TDS credit but faced procedural delays beyond its control. The evidence is crucial in establishing the bona fide actions of the assessee and directly impacts the determination of TDS credit entitlement, which is central to the appeal. The evidence submitted goes to the root of the matter, clarifying that the assessee was not negligent or non-compliant but was actively pursuing the transfer of TDS credit. This information was not furnished earlier due to the assessee's belief that, since the income was correctly offered to tax, the TDS credit would naturally follow. The documents are relevant as they demonstrate the procedural compliance required by Rule 37BA and counter the findings of the CIT(A) that the assessee failed to take appropriate actions. 6.3. The CIT(A) relied on the decision in the case of Prasad Raghoba Naik v. Assistant Director of Income-tax, CPC [2023] 146 Taxmann.com 471 (Panaji - ITAT) to support the denial of TDS credit to the assessee. This decision involved specific facts and legal principles that distinguish it fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit was incorrectly attributed under the category without PAN or in the name of the broker, Credit Suisse AG, rather than the assessee, M/s. Testec Asia Limited. This misattribution led to the TDS credit not reflecting in the assessee s Form 26AS, which is a procedural issue outside the control of the assessee. Upon obtaining a PAN, the assessee actively engaged with Citibank NA and Credit Suisse AG to correct the TDS attribution. The assessee submitted its PAN and requested that the credit be transferred correctly to its account. Despite continuous communication and submission of necessary documents, including confirmations, these procedural corrections were not completed in time to reflect in the assessee s Form 26AS at the stage of assessment, highlighting that the delay was not due to any lack of effort on the assessee s part. 6.6. It is a well-established principle of natural justice that a taxpayer should not suffer due to procedural lapses caused by third parties, especially when the taxpayer has acted in good faith and made all reasonable efforts to rectify the situation. It is consistently held on many judicial forums that the substance of compliance namely, offering i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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