2025 (5) TMI 1484 - AT - Income Tax

Non providing the credit of entire TDS on sale of property - property being jointly owned by many legal heirs - CPC accepted the returned income but allowed the claim of TDS credit only to the proportion of capital gain offered by the assessee - HELD THAT - It is an undisputed fact that the entire sale consideration was deposited into the bank account of the assessee and the TDS was deducted and reflected in her name alone. This arrangement was in consequence of the buyer s condition and the deduction of TDS was appropriately made u/s 194-IA of the Act. The assessee in turn discharged the capital gains tax liability in full not only for herself but also on behalf of the other legal heirs followed by appropriate distribution of the net proceeds. The advance tax payments were made by the co-owners towards their respective shares clearly evidencing that the income has been duly offered to tax in accordance with their respective ownership ratios. Rule 37BA(2) r/w section 199 of the Act while governing the apportionment of TDS credit also mandates that the credit shall be given to the person in whose name the deduction is made provided the income is assessed accordingly. In the instant case the revenue has not disputed the correctness of income offered or the tax paid by the other legal heirs. Denial of full TDS credit to the assessee merely on technical grounds especially when she bore the initial tax burden and complied in substance with the law cannot be sustained. Appeal of the assessee is allowed.

The core legal issue considered by the Tribunal is whether the assessee is entitled to claim credit for the entire amount of tax deducted at source (TDS) on the sale of an inherited property, despite the property being jointly owned by multiple legal heirs and the TDS certificate being issued solely in the assessee's name.

Another related issue is the interpretation and application of section 199 of the Income Tax Act read with Rule 37BA(2) regarding the apportionment of TDS credit among co-owners when TDS has been deducted in the name of one person but the income is assessable among multiple persons in specified shares.

Additionally, the Tribunal considered whether the assessee's payment of advance tax on behalf of other legal heirs and the distribution of net sale proceeds among them affects the entitlement to claim full TDS credit.

Issue-wise detailed analysis:

1. Entitlement to full TDS credit when TDS is deducted in the name of one co-owner but income is assessable jointly

Relevant legal framework and precedents: Section 199 of the Income Tax Act governs the credit of TDS to the deductee. Rule 37BA(2) provides that when income is jointly owned by multiple persons but TDS is deducted in the name of one person, the credit of TDS shall be apportioned in accordance with the ownership ratio, and the deductee must file a declaration with the deductor for issuing TDS certificates in the name of the correct deductees.

Court's interpretation and reasoning: The Tribunal noted that the entire sale consideration was deposited into the assessee's bank account as per the buyer's condition, and the TDS was deducted and reflected only in her name. The assessee computed capital gains and paid advance tax not only for herself but also on behalf of the other legal heirs in proportion to their shares. The Tribunal emphasized that Rule 37BA(2) mandates apportionment of TDS credit when the TDS certificate is issued incorrectly, but also requires that the income be offered to tax by the person claiming the credit.

Key evidence and findings: The assessee's bank account received the full sale consideration; TDS was deducted under section 194-IA in her name; advance tax payments were made by co-owners for their respective shares; the income was offered to tax by all legal heirs in accordance with their inheritance ratio; the revenue did not dispute the correctness of income offered or tax paid by other heirs.

Application of law to facts: Although Rule 37BA(2) and section 199 provide for apportionment of TDS credit, the Tribunal found that the assessee bore the initial tax burden and complied with the law substantively. Since the other legal heirs paid their share of tax and income was offered accordingly, denying full TDS credit to the assessee on mere technical grounds was not justified.

Treatment of competing arguments: The revenue argued that TDS credit should be apportioned among co-owners as per ownership ratio, supporting the orders below. The assessee contended that since the entire consideration and TDS were in her name, and she paid tax on behalf of others, full credit should be allowed. The Tribunal sided with the assessee, emphasizing substance over form and compliance with tax liability.

Conclusions: The Tribunal held that the assessee is entitled to claim credit for the entire TDS amount deducted on the sale consideration, notwithstanding the joint ownership and Rule 37BA(2), because the income was offered to tax by all co-owners and the assessee discharged the tax liability on behalf of all.

Significant holdings:

"Rule 37BA(2) read with section 199 of the Act, while governing the apportionment of TDS credit, also mandates that the credit shall be given to the person in whose name the deduction is made, provided the income is assessed accordingly. In the instant case, the revenue has not disputed the correctness of income offered or the tax paid by the other legal heirs. In such a scenario, the denial of full TDS credit to the assessee merely on technical grounds, especially when she bore the initial tax burden and complied in substance with the law, cannot be sustained."

Core principles established include that where TDS is deducted in the name of one co-owner but the income is jointly owned and offered to tax by all co-owners, and the deductee has paid tax on behalf of others, the full TDS credit should be allowed to the deductee, overriding the strict application of Rule 37BA(2) requiring apportionment and separate TDS certificates.

Final determination was to set aside the order of the CIT(A) and direct the department to allow the credit for the entire TDS amount as claimed by the assessee, thereby allowing the appeal.

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