RECOMMENDATION TO AMEND THE PROVISIONS OF RULE 37BA TO OBVIATE THE HARDSHIPS ARISING IN RELATION TO CLAIMING OF CREDIT FOR TAX DEDUCTED U/S. 199

Section 199 read with rule 37BA deal with the provisions in regard to granting credit for tax deducted. However, there are a number of situations, where in actual practice, it becomes extremely difficult or at times, even virtually impossible for the person entitled to claim credit for tax so deducted.

To obviate hardships in three such situations, which have come to be represented before the Committee, it is proposed to amend the relevant provisions of Rule 37BA, as suggested hereinafter:

a) Rule 37BA(2) currently provides that, “where under any provisions of the Act, the whole or any part of the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit for the whole or any part of the tax deducted at source, as the case may be, shall be given to the other person and not to the deductee.” This is however, subject to the Proviso under this rule which prescribes that, “the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax.” In many cases, even where the deductee has filed a declaration, the deductor does not report the tax deduction as requested, as a result of which neither the deductee, nor the person in whose hands the relevant income is assessable is entitled to claim credit.

b)  Section 206AA(1) and (6) provide for tax deduction by the deductor at a higher rate, where PAN has not been furnished or where the PAN provided is invalid. Even where the deductee obtains and reports his correct PAN to the deductor at a later stage, the deductor is not inclined to correct the statement of tax deducted, as a result of which no one gets entitled to claim credit for such TDS, which remains in the Government Treasury in Suspense account.

c)  Under Section 200(3), the deductor of tax is required to report the details of tax deduction in the statement prescribed for such purpose. The Proviso under this sub-section also authorizes the deductor to file a correction statement for rectification of any mistake in respect of the information so submitted. However, in many cases because of negligence on part of the deductor resulting in a mistake, on account of which the deductee is unable to seek correct credit or where even after the deductee has requested the deductor to correct the same, he does not do so, there should be a suitable mechanism under which the deductee can claim relief.

The Committee is of the view that is all such situations, the deductee, who is legitimately entitled to claim credit of tax deducted u/s. 199, cannot be left high and dry. With a view to overcome the hardships faced by deductees under the above situations, the Committee recommends that in all such cases, the concerned deductee should be allowed to report the correct information in this regard to a designated authority, in a prescribed form that may be devised by CBDT which can be submitted before the due date of filing of return of income, as applicable in his case under section 139(1). On the basis of such reporting by the deductee, a suitable mechanism for granting credit for tax deducted in all such cases should be worked out by the CBDT.

2.  In view of the above, the Committee recommends the following amendments to Rule 37BA, which contains relevant provisions for granting credit for tax deducted at source for the purposes of section 199:

Credit for tax deducted at source for the purposes of section 199

37BA. (1) Credit for tax deducted at source and paid to the Central Government in accordance with the provisions of Chapter XVII, shall be given to the person to whom payment has been made or credit has been given (hereinafter referred to as deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorised by such authority.

(2) (I) Where under any provisions of the Act, the whole or any part of the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit for the whole or any part of the tax deducted at source, as the case may be, shall be given to the other person and not to the deductee:

Provided that the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax referred to in sub-rule (1).

(II) The forms to be filed by the deductee under clause (I) shall contain the name, address, permanent account number of the person to whom credit is to be given, payment or credit in relation to which credit is to be given and reasons for giving credit to such person.

Sub Rules (2A), (28) and (2C) proposed to be added w.e.f. 1.7.2016

(2A)   Where in a case referred to in sub-rule (2) above, the deductor has not reported such information in respect of the tax deduction in the name of such other person, the concerned deductee may report such information relating to deduction of tax referred to in sub-rule (1) in the prescribed form and verified in the prescribed manner to the income tax authority or the person authorised by such authority before the due date of filing of return of income, as applicable in his case under section 139(1).

Provided that upon such reporting by the deductee, the credit for the whole or any part of such tax deducted at source, as the case may be, shall be given to the other person and not to the deductee subject to due verification of his claim.

(2B)      Where tax has been deducted at source in the case of a deductee under the provisions of sub-section (1) or sub-section (6) of section 206AA and where the deductor has not reported the permanent account number of the deductee in respect of such tax deducted at source, the concerned deductee may report such information relating to deduction of tax referred to in sub-rule (1) in the prescribed form and verified in the prescribed manner to the income tax authority or the person authorised by such authority before the due date of filing of return of income, as applicable in his case under section 139(1).

Provided that upon such reporting by the deductee, the credit for the whole or any part of such tax deducted at source, as the case may be, shall be given to the deductee subject to due verification of his claim.

(2C) Where tax has been deducted at source in the case of a deductee and where the deductee points out that the deductor has committed any mistake in the reporting of such tax deduction under section 200(3), the concerned deductee may report the correct information in this regard in the prescribed form and verified in the prescribed manner to the income tax authority or the person authorised by such authority before the due date of filing of return of income, as applicable in his case under section 139(1).

Provided that upon such reporting by the deductee, the credit for such tax deducted at source, as the case may be, shall be given to the deductee subject to due verification of his claim.

(3)     (i) Credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable.

(ii) Where tax has been deducted at source and paid to the Central Government and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax.

(4)    Credit for tax deducted at source and paid to the account of the Central Government shall be granted on the basis of—

(i)    the information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorised by such authority;

(ii)  the information in the return of income in respect of the claim for the credit; and

(iii) the information as reported by the deductee to the income-tax authority or the person authorised by such authority; in accordance with the provisions of sub-rules (2A) to (2C) of this rule,

subject to verification in accordance with the risk management strategy formulated by the Board from time to time.

Source- ​Draft Report of Justice R.V. Easwar (Retd) Committee to Simplify the provisions of Income-tax Act, 1961

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