ITAT allows TDS credit for AOP, overturns AO's rectification order

The ITAT set aside the Dy. CIT(A)'s order and directed the AO to allow credit for TDS in the hands of the assessee, an AOP. The ITAT held that the AO was not justified in rectifying the order under s. 154 as the issue of credit for TDS in the case of jointly owned property was debatable. Consequently, the appeal was granted in favor of the assessee, and all grounds of the appeal were allowed.

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Issues:
1. Whether the Dy. CIT(A) was justified in confirming the order of the AO under s. 154 and not allowing credit for tax deducted at source.

Analysis:
The appeal arose from the order of the Dy. CIT(A) for the assessment year 1995-96. The main issue raised was regarding the confirmation of the AO's order under s. 154 and the denial of credit for tax deducted at source. The assessee, an AOP, had filed a return declaring nil income as the rental income was to be assessed in the hands of co-owners, not the AOP. The AO initially processed the return, brought the income from the property into the AOP's hands, and raised a tax demand. Upon rectification under s. 154, a refund was granted to the AOP. However, a subsequent show-cause notice proposed to withdraw the refund, stating that credit for TDS should be allowed to individual co-owners, not the AOP.

Subsequently, the Dy. CIT(A) upheld the AO's order, emphasizing that the TDS was deducted in respect of the co-owners, not the AOP, and credit should be given to the persons from whose income the deduction was made. The Dy. CIT(A) concluded that the AOP was not entitled to the credit for TDS. Dissatisfied, the assessee appealed to the ITAT.

During the appeal before the ITAT, the counsel for the assessee argued that the credit for TDS should be allowed in the hands of the AOP as the tax was deducted at source from the AOP. The Departmental Representative, on the other hand, contended that credit should be given to the co-owners, not the AOP, as the property income was taxed in their hands. The ITAT carefully examined the provisions of s. 199, which required credit for TDS to be allowed in the hands of the co-owners of the property. However, prior to an amendment in 1997, it was unclear whether credit in the case of property jointly owned could be allowed to individuals or the owner of the property.

The ITAT noted that the issue was debatable, and as per the Supreme Court's judgment, a decision on a debatable point of law is not a mistake apparent from the record. Considering the two possible views, the ITAT concluded that the AO was not justified in rectifying the order under s. 154. Therefore, the ITAT set aside the Dy. CIT(A)'s order and directed the AO to allow credit for TDS in the hands of the assessee. Consequently, all grounds of the assessee's appeal were allowed, and the appeal was granted in favor of the assessee.

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