Relevant Provisions:

Section 199 of the Income Tax Act, 1961 - Credit for tax deducted.

Facts of the Case:

The assessee held several equity shares of limited companies from which dividend income was received. Officer declined to give credit of TDS from dividend income to the assessee on the ground that the shares belonged to the firm and accordingly held that that the firm is entitled to the credit of the TDS amount.

Issue:

To whom the credit of TDS is to be given

Held:

Honorable HC found that despite the shares belong to the firm but dividend is taxable in the hands of assessee (partner) and therefore, the partner is eligible to avail the credit of TDS, not the firm. 

(Full text of judgment - visit 2008 -TMI - 3708 - BOMBAY HIGH COURT)

Credit of TDS on dividends follows taxability in the partner's hands, not the firm holding the shares. Credit under the TDS provision is matched to the person in whose hands the dividend is assessable. Where dividends from shares assigned to a firm are taxable in the hands of an individual partner, the individual partner is entitled to claim the TDS credit rather than the firm that holds the shares.