AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 356
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....h 2019, it had taken over the hospital business previously conducted by a partnership firm, namely Upasani Super Speciality Hospital. Consequent to this takeover, all receipts and income were duly accounted for in the books of the assessee company and were offered to tax in its return of income. 4. During the relevant previous year, certain insurance companies, while making payments, inadvertently deducted TDS in the name and PAN of the erstwhile partnership firm, notwithstanding the fact that the assessee had furnished complete documentation reflecting its own PAN. The income corresponding to these deductions was, however, recorded in the books of the assessee company and offered to tax by it. The partnership firm, though still in existence, neither carried on any business activity nor offered any income to tax, and, in its return, specifically disclosed that it had not claimed such TDS credit, acknowledging that the same pertained to the assessee company. 5. In its return of income, the assessee claimed TDS credit of Rs.9,88,132/-. However, while processing the return under Section 143(1), the Centralised Processing Centre disallowed the claim on the ground that such credit....
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....sult in double taxation of the same income, a result neither sanctioned by law nor by equity. 11. The learned AR further relied on judicial precedents. Particular reliance was placed on the decision of the Hon'ble Delhi High Court in Court on Its Own Motion v. CIT (352 ITR 273), wherein it was held that once tax has been deducted and deposited with the exchequer, denial of credit to the assessee whose income has been taxed, merely because of a mismatch or fault of the deductor, amounts to unjust harassment. The Court observed that the Assessing Officer has ample powers under Sections 133 and 154 to verify the claim and issue notice to the deductor, and genuine taxpayers cannot be left remediless for no fault of theirs. 12. Reliance was also placed on the order of the Coordinate Bench in DCIT v. Reliance Infrastructure Ltd. (ITA Nos. 233 & 234/Mum/2023), where it was held that harmonious construction of Section 199 and Rule 37BA makes it clear that the legislative intent is not to deny credit where the income is assessable in the hands of a person other than the deductee. Rather, the intention is to ensure that credit of TDS follows the income and is given to the person in who....
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.... reporting the TDS against the wrong PAN. 17. Section 199(1) of the Act provides in unequivocal terms that any deduction of tax at source paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made. The emphasis is clearly on the "person from whose income" the tax was deducted. In the present case, the income has been taxed in the hands of the assessee company, and therefore, the corresponding TDS must, in principle, be treated as payment on its behalf. 18. Rule 37BA of the Income-tax Rules, 1962, further elaborates the procedure for granting such credit. Sub-rule (2) thereof contemplates a situation where the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee. In such cases, the Rule mandates that credit shall be given to the other person and not to the deductee, subject to compliance with procedural formalities of furnishing declarations and reporting by the deductor. The spirit of the provision, however, is unmistakable TDS credit must follow the income, so that the person in whose hands income is assessed to tax is not deprived of the corres....
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....ductee, the credit shall be given to such person, provided that necessary declaration is made and reported. The Tribunal held that the true legislative intent is to ensure that credit of TDS follows the income, not the formality of the PAN against which deduction was reported. The authorities were thus directed to adopt a purposive construction and not to deny credit merely because of procedural lapses or omissions by the deductor. 22. The Tribunal, in Reliance Infrastructure (supra), further held that a harmonious reading of Section 199 and Rule 37BA makes it clear that the intention was never to deny TDS credit where the income is already taxed in the hands of another person. The purpose of the Rule is to avoid double taxation and ensure that the tax deducted is appropriately given credit against the person's liability whose income is actually taxed. Therefore, insistence on rigid compliance with reporting formalities, when the substance of the matter is clear, would defeat both equity and legislative intent. 23. Applying these principles to the facts before us, the position becomes crystal clear. The income in question has been taxed in the hands of the assessee company; t....