2023 (1) TMI 427 - AT - Income Tax

Commission income of deceased taxed to legal heirs, not estate; TDS credit denied. AO to re-open assessment.

Hari Shankar Singhania Estate Versus JCIT, Special Range-18 New Delhi.

The Tribunal held that commission income earned by Late Shri Hari Shankar Singhania should be taxed in the hands of his legal heirs for AY 2013-14, not ... Credit of TDS - income earned by Late assessee for services rendered by him to the two companies before his death - such income includible in his return filed by the legal representative for AY 2013-14 which admittedly has not been done and thus escaped assessment? - Assessee has claimed TDS in respect of the impugned commission income which is not its income and not declared in its return for AY 2014-15 - credit for TDS should go the person in whose hands the income is rightfully and finally assessed to tax - HELD THAT:- AO/CIT(A) both held that the impugned commission income on which tax has been deducted at source is taxable in the hands of Late Shri Hari Shankar Singhania as represented by his legal heirs and that the legal heirs of Late Shri Hari Shankar Singhania are liable to furnish the return of income and are also liable to pay taxes in respect of the income of Late Shri Hari Shankar Singhania. We agree. However, as stated earlier, the impugned commission income has escaped assessment as in the return of income filed by the legal representative of Late Shri Hari Shankar Singhania on 27.09.2013 for AY 2013-14, the said commission income has not been declared. Thus we are of the opinion that in the interest of justice, it would be fair and just if we direct the Ld. AO to re-open the assessment of Late Shri Hari Shankar Singhania (Individual) for AY 2013-14 to bring to tax the impugned commission income and allow the credit of TDS. In so far as the assessee, Hari Shankar Singhania Estate is concerned, it shall abide by the procedure laid down under section 199 of the Act r.w. Rule 37BA(2)(i) of the Income Tax Rules, 1962 as amended by the Income Tax (Eight amendment) Rules, 2011 to enable the Ld. AO to give credit of TDS in the hands of Late Shri Hari Shankar Singhania (Individual) in AY 2013-14. Issues Involved:1. Credit for Tax Deducted at Source (TDS) on commission income.2. Taxability of commission income in the hands of the deceased or his estate.3. Jurisdiction of CIT(A) in directing remedial action.Detailed Analysis:1. Credit for Tax Deducted at Source (TDS) on commission income:The primary issue revolves around whether the assessee, Hari Shankar Singhania Estate, is entitled to claim credit for TDS of Rs. 15,00,000/- on commission income of Rs. 1,50,00,000/- which was not declared in its return for AY 2014-15. The Ld. AO disallowed the TDS credit since the corresponding commission income was not shown in the return. The CIT(A) upheld this decision, referencing Rule 37BA of the Income Tax Rules, 1962, which stipulates that credit for TDS should be given to the person in whose hands the income is assessable. The Tribunal agreed with this interpretation, noting that the tax deducted at source should be credited to the person in whose hands the income is rightfully assessed.2. Taxability of commission income in the hands of the deceased or his estate:The commission income of Rs. 1,50,00,000/- was for services rendered by Late Shri Hari Shankar Singhania before his death on 22.02.2013. The AO and CIT(A) held that this income should be taxable in the hands of the deceased, represented by his legal heirs, and not in the hands of the estate. The Tribunal concurred, emphasizing that the income earned by the deceased for services rendered before his death should be included in his return filed by the legal representative for AY 2013-14. However, this income was not declared in the return filed for AY 2013-14, leading to its escape from assessment.3. Jurisdiction of CIT(A) in directing remedial action:The assessee contended that the CIT(A) overstepped his jurisdiction by directing the AO to take appropriate remedial action. The Tribunal acknowledged this argument but modified the direction of the CIT(A). It directed the AO to re-open the assessment of Late Shri Hari Shankar Singhania for AY 2013-14 to bring the commission income of Rs. 1,50,00,000/- to tax and allow the credit of TDS of Rs. 15,00,000/-. The estate should follow the procedure under section 199 of the Act read with Rule 37BA(2)(i) to enable the AO to give credit for the TDS in the hands of the deceased for AY 2013-14.Conclusion:The Tribunal's decision clarified that the commission income earned by Late Shri Hari Shankar Singhania should be taxed in the hands of his legal heirs for AY 2013-14 and not in the hands of the estate. Consequently, the estate is not entitled to claim the TDS credit for the commission income. The Tribunal directed the AO to re-open the assessment for AY 2013-14 to include the commission income and allow the corresponding TDS credit, ensuring compliance with section 199 of the Act and Rule 37BA(2)(i). The appeal of the assessee was partly allowed for statistical purposes.