TDS credit on Form 26AS when related income taxed in associate entity's hands: 143(1) denial reversed

TDS credit was denied in processing u/s 143(1) on the ground that the corresponding income was not offered in the assessee's hands in the relevant year. The ITAT held that, although s.199 generally links TDS credit to the year of assessability of the related income, credit cannot be refused where the assessee's Form 26AS reflects the TDS and the related income has been offered to tax by an associated entity, provided there is no double claim. Relying on the principle underlying Rule 37BA and HC authority recognising that TDS credit need not invariably remain with the deductee, the ITAT directed the AO to allow TDS credit after verifying that the associated entity taxed the income and has not claimed the same TDS; appeal allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1) Whether TDS credit appearing in the assessee's Form 26AS can be allowed to the assessee under section 199 where the corresponding income was offered to tax by a sister concern, provided such sister concern has not claimed the same TDS credit.

2) Whether, in the above circumstances, the appellate direction should be to allow the TDS credit (subject to verification of taxation of corresponding income and non-claim of TDS by the sister concern) rather than leaving the matter open-ended.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Allowability of TDS credit to the assessee when corresponding income is offered by a sister concern

Legal framework (as discussed by the Court): The Tribunal considered section 199 of the Income-tax Act, 1961 while examining whether credit for tax deducted at source must necessarily be confined to the person who offers the corresponding income to tax in the same year. The Tribunal also relied on and applied the reasoning adopted in the decision it followed, including the principle that the Revenue cannot retain TDS without credit being available to anybody, and that procedural technicalities should not hamper substantive justice in granting legitimate credit.

Interpretation and reasoning: The Tribunal found that the assessee had claimed TDS credit of Rs. 39,30,206/- reflected in its Form 26AS, while the corresponding receipts were stated to have been declared as income by the assessee's sister concern. The Tribunal framed the core question as whether, under section 199, TDS credit must match the assessee's own assessable income for the year, and whether credit can be extended to the claimant where the income is assessed in the hands of a sister concern. Applying the reasoning it expressly adopted from the followed decision, the Tribunal accepted that where (i) the sister concern has offered the corresponding income to tax, and (ii) the sister concern has not availed or claimed the same TDS credit, denial of credit to the assessee would result in unjust retention of tax deducted at source and would be a mere technical objection. The Tribunal treated this approach as squarely applicable to the facts before it.

Conclusion: The Tribunal held that the assessee is entitled to credit of the TDS appearing in its Form 26AS, subject to verification that the corresponding income was offered to tax by the sister concern in A.Y. 2017-18 and that the sister concern has not claimed the corresponding TDS credit.

Issue 2: Nature of appellate relief-direction to grant TDS credit subject to verification

Legal framework (as discussed by the Court): The Tribunal confined the relief to granting credit after factual verification of (a) offering of corresponding income to tax by the sister concern in the relevant year, and (b) non-claim of the same TDS by that sister concern.

Interpretation and reasoning: Having concluded on the legal entitlement in principle, the Tribunal considered it necessary to protect against double credit and therefore directed verification of the two decisive factual conditions. The Tribunal did not treat the matter as requiring fresh adjudication on the legal issue; rather, it issued a specific direction consistent with its legal finding while requiring verification limited to the relevant factual aspects.

Conclusion: The Tribunal directed the Assessing Officer to allow the TDS credit after verifying that the corresponding income was offered to tax by the sister concern in A.Y. 2017-18 and that the sister concern has not claimed the same TDS credit; on this basis, the assessee's appeal was allowed.

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