2025 (5) TMI 1657 - AT - Income Tax

Denial of TDS credit - CIT (A) observed that since TDS was done in the hands of his spouse credit can be allowed in the hands of the spouse only - assessee submitted that there are three owners who have received the rental income and TDS was deducted and credited in the name of the assessee s wife - HELD THAT - Rental income received by the assessee along with spouse and children they are equally distributed. The same was declared in their respective return of income and also claimed the respective TDS. The deductor has deducted the TDS and deposited in the name of the first person mentioned in the joint rental Agreement. Accordingly all the TDS are being deducted in the hands of the first person i.e. assessee s wife and it is brought to my notice that assessee s wife has declared the rental income and has also claimed the TDS to the extent the rental income declared by her. Similarly the assessee has declared the rental income and also claimed the relevant TDS which was denied by the AO. In AY 2019-20 the claim of the assessee was already allowed by NFAC and the relevant order is already placed on record. Therefore it is settled proposition. Direct the AO to allow the same and direct him to allow the relevant tax credit to the assessee. Assessee appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the delay of 264 days in filing the appeal before the Commissioner of Income Tax (Appeals) was rightly condoned in the interest of natural justice;

(b) Whether the Assessing Officer and the Commissioner of Income Tax (Appeals) were justified in denying the assessee the credit of Tax Deducted at Source (TDS) amounting to Rs. 34,456/- which was deducted in the hands of the assessee's spouse but claimed by the assessee in respect of rental income from jointly owned house property;

(c) Whether the denial of TDS credit to the assessee was in accordance with the provisions of section 199 of the Income Tax Act, 1961 read with Rule 37BA of the Income Tax Rules, 1962;

(d) Whether the principle of consistency in tax treatment, as the identical claim was allowed in the preceding assessment year, was duly considered and applied;

(e) Whether the adjustment and demand raised in the intimation under section 143(1) of the Act were made without jurisdiction and contrary to principles of natural justice due to lack of opportunity and reasons;

(f) Whether the issues involved were debatable and contentious, thereby requiring a more detailed examination rather than summary adjustment under section 143(1).

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Condonation of Delay in Filing Appeal

The delay of 264 days in filing the appeal before the Commissioner of Income Tax (Appeals) was condoned by the Ld. CIT(A) on the basis of principles of natural justice. Although the detailed reasoning on this point is not elaborated in the order, the Tribunal did not find any infirmity in this exercise of discretion. This indicates the Tribunal's acceptance that procedural delays, when justified, can be excused to ensure substantive justice.

Issue (b) and (c): Denial of TDS Credit to the Assessee

Relevant Legal Framework and Precedents: Section 199 of the Income Tax Act, 1961, and Rule 37BA of the Income Tax Rules, 1962, govern the credit of TDS. Section 199 mandates that the credit of TDS shall be given to the person in whose name the tax has been deducted and deposited. Rule 37BA provides for the mechanism to allow credit of TDS to the person entitled to the income, even if the tax was deducted in the name of another person, subject to certain conditions.

Court's Interpretation and Reasoning: The Commissioner of Income Tax (Appeals) held that since the TDS was deducted and credited in the name of the assessee's spouse, the credit could only be allowed to the spouse. The assessee's claim for credit of TDS in his own hands was denied. The CIT(A) suggested that the spouse could file a rectification application to claim the credit.

The assessee challenged this reasoning, contending that the rental income was jointly owned and declared by all co-owners (assessee, spouse, and children) in their respective returns and that TDS credit should be allowed proportionately as per their shares. The assessee relied on the statutory provisions, particularly section 199 read with Rule 37BA, which allow credit of TDS to the person entitled to the income irrespective of the name in which TDS is deducted, provided the necessary proof is furnished.

Key Evidence and Findings: The assessee produced a detailed chart showing the ownership shares, rental income declared by each owner, and TDS claimed. It was established that the entire TDS was deducted in the name of the spouse, who was the first person named in the joint rental agreement, and credited to her account. The assessee and other co-owners declared their respective shares of rental income and claimed corresponding TDS credit. The assessee also placed on record an appellate order for the preceding assessment year (AY 2019-20) where the identical claim was allowed by the National Faceless Appeal Centre (NFAC), Delhi.

Application of Law to Facts: The Tribunal observed that although the deductor deposited the entire TDS in the name of the spouse, the rental income was jointly owned and declared by all co-owners in their respective returns. The statutory provisions allow credit of TDS to the person entitled to the income even if the tax was deducted in the name of another person, subject to proof. The Tribunal found that the assessee had furnished adequate evidence, including the joint ownership details, rental income declarations, and Form 26AS showing TDS deductions.

Treatment of Competing Arguments: The Revenue's representative conceded that the findings in the preceding assessment year (AY 2019-20) were applicable and agreed that the Assessing Officer should be directed accordingly. The Revenue did not dispute the factual matrix of joint ownership and declaration of income by all co-owners but relied on the technicality that TDS was deducted in the spouse's name.

Conclusions: The Tribunal concluded that the denial of TDS credit to the assessee was not in accordance with law. The Tribunal directed the Assessing Officer to allow the TDS credit to the assessee as per the findings in the preceding year and the statutory provisions of section 199 read with Rule 37BA.

Issue (d): Principle of Consistency

The assessee argued that the identical claim was allowed in the preceding assessment year and that the denial in the current year violated the principle of consistency. The Tribunal noted the prior appellate order allowing the claim in AY 2019-20 and held that the issue was settled. This reinforced the principle that once a claim is allowed on identical facts and circumstances, it should not be denied arbitrarily in subsequent years.

Issue (e): Jurisdiction and Natural Justice in Adjustments under Section 143(1)

The assessee contended that the adjustments made in the intimation under section 143(1) were without jurisdiction, lacked reasons, and were made without granting opportunity, thus vitiating the intimation. The Tribunal observed that the issues raised were debatable and contentious and that summary adjustments under section 143(1) should be made carefully. The Tribunal implicitly recognized the need for adherence to principles of natural justice and proper jurisdictional limits in summary proceedings.

Issue (f): Debatable and Contentious Nature of Issues

The Tribunal acknowledged that the issues relating to TDS credit on jointly owned property income, especially where TDS is deducted in the name of one co-owner, are debatable and contentious. The Tribunal's decision to allow the appeal and direct the Assessing Officer to grant credit accordingly reflects the necessity for a detailed examination rather than summary rejection.

3. SIGNIFICANT HOLDINGS

The Tribunal's significant legal conclusions and principles established include:

"The rental income received by the assessee along with spouse and children, they are equally distributed. The same was declared in their respective return of income and also claimed the respective TDS. The deductor has deducted the TDS and deposited in the name of the first person mentioned in the joint rental Agreement. Accordingly, all the TDS are being deducted in the hands of the first person i.e. assessee's wife and it is brought to my notice that assessee's wife has declared the rental income and has also claimed the TDS to the extent the rental income declared by her. Similarly, the assessee has declared the rental income and also claimed the relevant TDS which was denied by the AO."

"I observed that in AY 2019-20, the claim of the assessee was already allowed by NFAC and the relevant order is already placed on record. Therefore, it is settled proposition. I direct the AO to allow the same and direct him to allow the relevant tax credit to the assessee."

The Tribunal thus established the core principle that TDS credit can be allowed to the person entitled to the income even if TDS is deducted in the name of another co-owner, provided the income and TDS are declared and claimed appropriately by the respective owners.

Finally, the Tribunal allowed the appeal, setting aside the denial of TDS credit and directing the Assessing Officer to grant the credit consistent with the earlier year's decision and statutory provisions, thereby reinforcing the principles of equity, consistency, and statutory compliance in tax credit claims.

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