2025 (8) TMI 597 - AT - Income Tax

Assessee Entitled to TDS Credit on Property Sale Despite Spouse's Non-Compliance with Rule 37BA(2)

The ITAT Delhi held that the assessee is entitled to credit for TDS deducted on the sale consideration of a property registered in the wife's name, as the ... Denial of TDS credit - TDS deducted on the sales consideration of the property sold during the year which was in the name of the wife of the assessee HELD THAT:- Substantive provisions contained in Section 199 of the Act read with rule 37BA(2), provides that TDS, paid to the Government, shall be treated as payment of tax on behalf of the person who is owner of the property and from whose income the deduction was made. In the instant case, the income/loss from the sale of the said property was offered by the assessee and accepted by the Revenue, therefore, the assessee is entitled to the credit of TDS deducted on the sale of the said property. Merely because the Rule 37BA is not adhered to by the wife, the assessee can not be denied the benefit of TDS on income which he had declared. We are also of the view that the proviso to rule 37BA (2) is just a procedural aspect of giving effect to the mandate of section 199 for allowing the credit to the other person in whose hands the income is chargeable to tax. We further find that the wife of the assessee has not claimed any such TDS credit in her own ITR for this AY concerned. We therefore, are of the considered view that the assessee is entitled to the credit of TDS and the same be allowed in the hands of the assessee. We accordingly direct the AO to grant TDS benefit to the assessee. Ground 1 is allowed. 1. ISSUES PRESENTED and CONSIDEREDWhether the credit of TDS deducted under section 194-IA on the sale consideration of a property held in the name of the assessee's wife can be allowed to the assessee who has offered the capital gain/loss from the sale of that property in his own income under section 64 of the Income-tax Act, 1961, even if the procedural compliance under Rule 37BA of the Income Tax Rules is not completed by the owner of the property (the wife).Whether the procedural requirement under Rule 37BA can override the substantive provisions of section 199 regarding the entitlement to TDS credit.Whether TDS credit can be denied to the assessee when the income from the property is accepted by the Revenue in his hands, but the TDS was deducted in the name of the wife who has not claimed the credit in her return.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Entitlement to TDS Credit under Section 199 when Income is Offered by a Person Other Than the Deductee on Whose Name TDS is DeductedRelevant Legal Framework and Precedents:- Section 199(1) of the Income-tax Act provides that any TDS deducted and paid to the government shall be treated as payment of tax on behalf of the person from whose income the deduction was made or the owner of the property, as the case may be.- Rule 37BA(2) of the Income Tax Rules provides procedural provisions for claiming credit of TDS deducted on sale of immovable property in the hands of the person in whose hands the income is chargeable to tax.- Precedent: Decision of coordinate bench in Anil Ratanlal Bohra v. ACIT, which held that the substantive provision of section 199 granting credit to the person taxable on the income cannot be overridden by the procedural provisions of Rule 37BA.Court's Interpretation and Reasoning:- The Court observed that section 199 is a substantive provision that mandates treating the TDS deducted as payment of tax on behalf of the person who is the owner of the property or whose income is subject to deduction.- The procedural requirement under Rule 37BA is intended to give effect to section 199 but cannot override the substantive right to claim credit of TDS.- In the instant case, the income (capital loss) from sale of the property was offered and accepted in the hands of the assessee under section 64, despite the property being in the name of the wife.- Since the assessee declared the income and the Revenue accepted it, the assessee is entitled to claim the credit of TDS deducted on the sale consideration.Key Evidence and Findings:- The property was purchased by the assessee using his funds and home loan, and income from renting the property was clubbed in the assessee's income under section 64.- The capital loss on sale of the property was computed and offered by the assessee in his return.- TDS of Rs. 56,000 was deducted under section 194-IA in the name of the wife but not claimed by her in her return.- The Revenue did not dispute that the income was rightly offered by the assessee and accepted by them.Application of Law to Facts:- Since the assessee is the person taxable on the capital gain/loss from the property sale, the TDS deducted on the sale consideration must be treated as tax paid on his behalf under section 199.- The procedural non-compliance by the wife under Rule 37BA does not disentitle the assessee from claiming the TDS credit.Treatment of Competing Arguments:- The Revenue argued that since the property was in the wife's name and she did not declare the income or claim TDS credit, the assessee cannot claim the TDS credit.- The Court rejected this argument on the ground that substantive law (section 199) and the accepted income declaration in the assessee's hands prevail over procedural lapses by the wife.Conclusion:- The assessee is entitled to the credit of TDS of Rs. 56,000 deducted on the sale of the property, notwithstanding the fact that the property was in the wife's name and Rule 37BA formalities were not completed by her.Issue 2: Effect of Procedural Compliance under Rule 37BA on Grant of TDS CreditRelevant Legal Framework and Precedents:- Rule 37BA(2) prescribes the procedure for the person in whose hands income is taxable to claim credit of TDS deducted on immovable property sale.- The proviso to Rule 37BA(2) is procedural in nature and does not affect substantive rights under section 199.- The coordinate bench decision in Anil Ratanlal Bohra v. ACIT emphasized that procedural provisions cannot override substantive provisions granting TDS credit.Court's Interpretation and Reasoning:- The Court held that Rule 37BA is a procedural provision designed to implement section 199 and facilitate credit of TDS to the correct person.- Non-compliance with Rule 37BA by the owner of the property (wife) cannot deny the person who has declared the income (assessee) the benefit of TDS credit.Application of Law to Facts:- The wife did not claim TDS credit in her return and did not comply with Rule 37BA.- The assessee declared the income and claimed TDS credit.- The Court found no legal basis to deny TDS credit to the assessee due to procedural non-compliance by the wife.Conclusion:- Procedural non-compliance under Rule 37BA by the property owner does not preclude the assessee from claiming TDS credit when income is rightly declared and accepted in his hands.Issue 3: Application of Section 64 for Clubbing of Income and Its Impact on TDS CreditRelevant Legal Framework:- Section 64 of the Income-tax Act provides for clubbing of income of spouse in specified circumstances.Court's Interpretation and Reasoning:- The Court noted that the income from the property held in the wife's name was clubbed in the hands of the assessee under section 64.- The capital loss on sale of the property was also computed and declared by the assessee accordingly.Application of Law to Facts:- Since the income was clubbed and offered by the assessee, he is the person liable to tax on such income.- Consequently, the TDS deducted on sale consideration should be credited to the assessee.Conclusion:- Clubbing of income under section 64 justifies allowing TDS credit to the assessee, even though the property was in the wife's name.