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2025 (5) TMI 869 - AT - Income TaxTDS credit claimed in the return of income only on the basis that the same did not appear in the 26AS of the Appellant - Income from the trust being included and taxed in the assessee s return - HELD THAT - Admittedly the income of the trust has been clubbed in the hands of the assessee and the department has accepted and taxed this income in the hands of the assessee. Hence the assessee is entitled to claim credit for the TDS deducted on this income Return of trust could not be filed due to technical difficulties as the pop-up on the screen advised the trust as under Under this scenario filing of ITR 5 is not required. The share of income should be reflected in the personal return of income. Print out of relevant screenshot showing the above message from the department has also been filed by the assessee. Under these circumstances there is no reason why the assessee should not be given credit for the TDS relevant to the income of the trust which has been clubbed in the hands of the assessee. We therefore direct the jurisdictional AO to allow the credit to the assessee in respect of TDS on the income of the trust which has been taxed in the hands of the assessee. Appeals of the assessee are allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in these appeals for Assessment Years 2021-22 and 2022-23 are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Entitlement to TDS Credit on Income from Trust Taxed in Assessee's Hands under Section 161(1) Relevant legal framework and precedents: Section 161(1) of the Income-tax Act provides that where income of a person is included in the total income of another person (such as a beneficiary of a trust), the latter is liable to pay tax on such income. Section 199 of the Act and Rule 37BA govern the credit of TDS to the person liable to pay tax on the income. Court's interpretation and reasoning: The Tribunal noted that the income of the trust was fully included and taxed in the hands of the assessee as the sole beneficiary, in accordance with section 161(1). The Tribunal observed that since the income was offered to tax by the assessee, the corresponding TDS credit should be allowed to the assessee irrespective of whether the TDS was deducted in the name of the trust. Key evidence and findings: The assessee submitted that the trust was created for the sole benefit of the assessee and that the income from trust assets was included in the assessee's return. The department accepted and taxed this income in the assessee's hands. The trust's inability to file its return in AY 2021-22 due to technical difficulties was supported by a departmental communication stating that filing ITR 5 was not required and the income should be reflected in the personal return. Application of law to facts: The Tribunal applied the provisions of section 161(1) to conclude that the income of the trust is taxable in the hands of the assessee. Consequently, under section 199 and Rule 37BA, the TDS credit corresponding to this income should be granted to the assessee. Treatment of competing arguments: The Revenue argued that TDS credit cannot be allowed as the TDS did not appear in the assessee's Form 26AS. The Tribunal rejected this argument, emphasizing that the income was taxed in the assessee's hands and that the absence of TDS in Form 26AS of the assessee was due to the trust's non-filing or technical issues, not a denial of credit entitlement. Conclusions: The Tribunal held that the assessee is entitled to TDS credit on income from the trust taxed in his hands under section 161(1), notwithstanding the TDS not appearing in the assessee's Form 26AS. Issue 2: Validity of CPC's Denial of TDS Credit Solely Based on Form 26AS Relevant legal framework and precedents: Form 26AS is a statement of tax deducted at source and tax collected at source, which serves as a primary document for TDS credit. However, the law does not restrict TDS credit strictly to entries in Form 26AS if other evidence supports the claim. Court's interpretation and reasoning: The Tribunal acknowledged that CPC denied TDS credit because the TDS amount did not appear in the assessee's Form 26AS. However, the Tribunal noted that this approach was overly rigid, especially in cases involving income from trusts where the income is taxed in the beneficiary's hands under section 161(1). Key evidence and findings: The Tribunal considered the assessee's submission and documentary evidence showing that the income and TDS relating to the trust were offered to tax and that the trust's return was either not filed or filed showing nil income and no TDS claim. The Tribunal also noted the rectification order u/s 154 granting partial TDS credit, indicating recognition of the issue. Application of law to facts: The Tribunal applied a purposive interpretation of the provisions, holding that the absence of TDS in Form 26AS of the assessee should not preclude granting credit where the income is taxed in the assessee's hands and TDS is deducted on the trust's income. Treatment of competing arguments: The Revenue's reliance on Form 26AS as the sole determinant for TDS credit was rejected. The Tribunal emphasized that the substantive right to credit arises from the taxability of income and deduction of TDS, not merely from the mechanical presence of entries in Form 26AS. Conclusions: The Tribunal concluded that CPC's denial of TDS credit solely on the ground of absence in Form 26AS was not justified, and the assessee should be granted credit for the TDS deducted on trust income taxed in his hands. Issue 3: Applicability of Section 199 and Rule 37BA for Granting TDS Credit Relevant legal framework and precedents: Section 199 of the Act provides for credit of TDS to the person liable to pay tax on the income, while Rule 37BA specifies the procedure for claiming such credit when income is included in the hands of another person under section 161(1). Court's interpretation and reasoning: The Tribunal held that since the income of the trust is included in the assessee's total income under section 161(1), the provisions of section 199 read with Rule 37BA apply to allow the assessee to claim credit for the TDS deducted on the trust's income. Key evidence and findings: The assessee's claim was supported by the trust deed, showing the assessee as the sole beneficiary, and the inclusion of trust income in the assessee's return. The trust's non-claim of TDS credit in its return further confirmed that the credit rightly belongs to the assessee. Application of law to facts: The Tribunal applied the statutory provisions to hold that the TDS credit should follow the tax liability, which in this case rests with the assessee as the beneficiary. Treatment of competing arguments: The Revenue's argument that TDS credit should be denied because the trust did not claim it was rejected as inconsistent with the statutory scheme that allows credit to the person taxed on the income. Conclusions: The Tribunal concluded that section 199 and Rule 37BA mandate granting TDS credit to the assessee on the trust income included in his hands. Issue 4: Effect of Rectification Order and CIT(A)'s Direction on TDS Credit Relevant legal framework and precedents: Rectification under section 154 allows correction of mistakes apparent from the record. CIT(A)'s role includes directing the Assessing Officer to verify claims and grant relief as per law. Court's interpretation and reasoning: The Tribunal noted that the CPC had granted partial TDS credit of Rs. 16,724/- after rectification under section 154, acknowledging some merit in the assessee's claim. The CIT(A) directed the AO to verify and allow TDS credit as per the provisions of the Act. Key evidence and findings: The partial rectification and CIT(A)'s directions indicated recognition that the assessee's claim for TDS credit had validity and needed to be granted after due verification. Application of law to facts: The Tribunal found no reason to deny the full TDS credit claimed, given the acceptance of income inclusion and the rectification order. Treatment of competing arguments: The Revenue did not dispute the rectification or CIT(A)'s directions but maintained denial of credit based on Form 26AS, which the Tribunal rejected. Conclusions: The Tribunal upheld the CIT(A)'s direction and ordered the AO to grant the full TDS credit claimed by the assessee. 3. SIGNIFICANT HOLDINGS The Tribunal established the following core principles and final determinations:
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