2025 (9) TMI 1110 - AT - Income Tax

TDS credit upheld where taxpayer taxed income despite TDS mistakenly deposited against deceased spouse's PAN under Rule 37BA

ITAT DELHI - AT allowed the appeal, holding that TDS credit cannot be denied where the assessee has offered the underlying income to tax and the amount ... Disallowing TDS credit - Such TDS has been deducted out of the dividend income which has been duly offered to tax in the return of income filed by the appellant - appellant’s husband died who had invested in mutual funds - HELD THAT:- As decided in Smt. Vijay Luxmi Gupta Vs. ITO [2021 (3) TMI 1105 - ITAT ALLAHABAD] held TDS on the said income even if deposited in the PAN of the deceased husband of the assessee due to inadvertence or mistake, it would not lead to denial of the claim of credit to the assessee, who has offered the said income to tax. Rule 37BA of Income Tax rules, 1962 also provides the credit of tax deducted at source and paid to the Central Government, if the income on which tax is deducted at source and paid to the Government is offered to tax by the assessee and the deposit is made in the name of other person. In the case of in hand, there is no dispute that the contract/commission receipts on which the TDS was deducted by the deductor and deposited in the PAN of the deceased husband of the assessee was assessed in the hand of the assessee. Therefore, merely because the amount of TDS was deposited under the PAN of the deceased husband of the assessee, TDS credit cannot be denied to the assessee when the said receipt was assessed as income in the hand of the assessee. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether credit for tax deducted at source (TDS) can be allowed to the taxpayer who has offered the underlying income to tax where the TDS is reflected in Form 26AS/has been deposited under the PAN of the taxpayer's deceased spouse and not in the taxpayer's name. 2. Whether Rule 37BA of the Income-tax Rules (including its post-amendment text) permits granting TDS credit to the person in whose hands the income is assessable notwithstanding that the TDS certificate/entry is in the name of another (including a deceased person) and where the deductee has not filed a return. 3. Whether denial of TDS credit on the ground that the TDS appears in the deductee's PAN (deceased spouse) is justified when the income has been assessed in the claimant's hands; and whether precedent authorities dealing with similar factual matrices are applicable. ISSUE-WISE DETAILED ANALYSIS Issue 1: Entitlement to TDS credit where TDS stands in name of deceased spouse but income is offered to tax by claimant Legal framework: Sections governing deduction/credit of tax at source (notably section 199) read with Rule 37BA prescribe the mechanism and basis for granting credit for tax deducted at source to a person whose income is assessable and on whose behalf tax is treated as paid. Precedent treatment: The Tribunal followed higher-court authority holding that where the income shown in TDS certificates is assessed in the hands of a person, credit cannot be denied merely because the certificate or Form 26AS reflects the PAN of another (including a deceased person). Prior Tribunal decisions addressing analogous co-ownership/joint venture facts have allowed credit to the person assessed where certificates exist in that person's name. Interpretation and reasoning: The Tribunal reasoned that entitlement to TDS credit depends on whether the income has been offered to tax and assessed in the claimant's hands. The mere fact that the TDS was reflected against the deceased spouse's PAN does not change the substantive entitlement where the income legally belongs to, or has been included in, the claimant's taxable income (including by operation of transmission/claim as legal heir and clubbing provisions where applicable). The Tribunal relied on Rule 37BA and subsequent amendment which broadened the scope to allow credit to the person in whose hands the income is assessable, eliminating the earlier restrictive enumeration. Ratio vs. Obiter: Ratio - where the income is assessed in the claimant's hands, TDS credit must be allowed even if the TDS entry/certificate is in the name of another (including a deceased person). Obiter - factual observations on the administrative position of Form 26AS/processing at CPC that do not alter the legal entitlement. Conclusions: TDS credit of Rs.43,981/- (pertaining to dividend income transmitted/offered to tax by the claimant) is to be allowed despite being reflected under the deceased spouse's PAN; denial on that ground is unjustified. Issue 2: Applicability and effect of Rule 37BA (pre- and post-amendment) in determining credit where deductee differs from person assessed Legal framework: Rule 37BA (framed under section 199(3)) governs credit for tax deducted at source, providing that credit is to be given on the basis of information furnished by the deductor and, as amended, expressly permits credit to the person in whose hands the income is assessable even if the tax was deducted in the name of the deductee. Precedent treatment: The Tribunal followed the reasoning of the High Court which construed the amended Rule 37BA as broadening entitlement to credit beyond the four specified situations in the pre-amendment text, thereby enabling credit to the actual payee where the income is assessable in that payee's hands. Interpretation and reasoning: The Tribunal noted that the amendment to Rule 37BA removes the earlier limitation to certain categories and provides for credit to 'the other person' where the income on which tax was deducted is assessable in a person other than the deductee. Therefore, the legislative and rule framework supports allowing credit to the person who has included the income in his/her return and been assessed accordingly. The rule contemplates administrative data (deductor's information and return claim) and verification under the Board's risk management strategy but does not preclude substantive credit where the legal incidence of tax lies on the claimant. Ratio vs. Obiter: Ratio - amended Rule 37BA authorizes giving credit to the person in whose hands the income is assessable irrespective of the name in which tax was deducted; this supports allowing credit to the claimant. Obiter - references to specific procedural safeguards (declaration, deductor's reporting, and verification processes) as desirable administrative steps. Conclusions: Rule 37BA, as amended, supports grant of TDS credit to the person in whose hands the income is assessable; administrative entries in the deductee's PAN do not override substantive entitlement under the rule. Issue 3: Effect of non-filing of return by the deductee (deceased spouse) and interplay with grant of credit to claimant Legal framework: Rule 37BA(4) lists documentary bases for granting credit (deductor's information and return claim) and section 199 contemplates rules for giving credit to persons other than the deductee. The statutory scheme aims to avoid double credit and to allocate credit where liability is substantively incurred. Precedent treatment: Authorities relied upon by the Tribunal (including the High Court and coordinate Tribunal) held that where the deductee (or the person in whose name certificate stands) has not filed return/claimed credit, credit should be given to the party who has assessed the income, provided certificates are not doubted and income is included in that party's return. Interpretation and reasoning: The Tribunal observed that administrative non-compliance by the deductee (such as failure to file return) cannot be a ground to deny credit to the rightful assessee who has declared and been assessed on the income. Denial would produce anomalous results - neither party getting credit while the tax was in fact deposited - and would be contrary to the object of Rule 37BA. Where the TDS certificates are genuine and the income is included in the claimant's return, credit should be permitted notwithstanding the deductee's inaction. Ratio vs. Obiter: Ratio - absence of a return filed by the deductee (including a deceased person) does not prevent granting TDS credit to the person in whose hands the income is assessable when certificates are not impeached. Obiter - comments on potential administrative verification steps by the tax authorities. Conclusions: Non-filing by the deductee/deceased spouse does not justify denial of TDS credit to the claimant who has offered the income to tax and produced unchallenged TDS certificates; the assessing/processing orders to the contrary are liable to be set aside. Cross-references and Final Determination By applying the legal framework (section 199 and Rule 37BA), following and relying on prior High Court and Tribunal decisions construing Rule 37BA expansively, and by analogue to cases where TDS certificates in another's name were allowed to be credited to the assessee who declared the income, the Tribunal concluded that the withholding tax credit must be allowed to the appellant. Consequently, the orders denying credit were quashed and the claim for TDS credit was allowed.