2024 (7) TMI 1729 - AT - Income Tax

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. ... TDS credit - CPC has disallowed the claim u/s 143(1) on the ground that corresponding income for which TDS is being claimed has not been offered for tax in the current year - whether u/s 199 for claiming credit of any TDS deducted and deposited to the government, such credit should match/relate to the assessee's corresponding income which is assessable in the year when the TDS credit is claimed? HELD THAT:- In the instant case the credit for TDS is being claimed by the assessee and the corresponding income is being offered by its sister concern. Whether in such a situation credit for TDS can be extended to the person claiming the TDS. We find that the assessee has relied upon catena of decisions including the decision of Relcom [2015 (11) TMI 284 - DELHI HIGH COURT] provisions of Rule 37BA of the Income Tax Rules, 1962, which envisions grant of TDS credit to entities other than the deductee (herein, M/s REPL). We must clarify that we are not oblivious of the fact that Rule 37BA is not directly applicable in the facts of this case. The reliance placed on Rule 37BA is merely to demonstrate that in not all circumstances is TDS credit given to the deductee - the revenue’s contention that the assessee, instead of claiming the entire TDS amount, ought to have sought a correction of the vendor’s mistake, would unnecessarily prolong the entire process of seeking refund based on TDS credit. We therefore hold that he assessee is entitled to the credit of the TDS mentioned in Form 26AS issued to it. We accordingly direct the Assessing Officer to allow credit of TDS after verification of the assessee’s claim that the corresponding income has been offered to tax by the sister concern of the assessee in A.Y 2017-18 and the said sister concern has not claimed the corresponding TDS in its own hand. Appeal of the assessee is allowed. 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.