Gerald Sequeira Vs ITO (ITAT Bangalore)
Bengaluru ITAT: TDS Credit Cannot Be Claimed by One Entity When Corresponding Income Is Taxed in Another; Firm Directed to Seek Credit Through Rectification
The Bengaluru Bench of the ITAT held that TDS credit cannot be allowed to an individual assessee where the corresponding income has been offered to tax by a partnership firm, even if the tax was mistakenly deducted under the individual’s PAN. The Tribunal observed that credit for tax deducted at source must ordinarily follow the taxation of the corresponding income, and one entity cannot claim TDS credit in respect of income assessed in the hands of another entity.
In the present case, the assessee had converted his proprietary concern into a partnership firm. Although the business thereafter belonged to the firm, certain long-standing clients continued to deduct TDS under the assessee’s individual PAN instead of the firm’s PAN. Consequently, the TDS appeared in the individual’s Form 26AS, while the corresponding receipts were offered to tax by the partnership firm. The Tribunal upheld the denial of TDS credit to the individual, holding that section 199 and Rule 37BA do not permit a person to claim TDS credit without offering the related income to tax.
However, to ensure that the Revenue does not unjustly retain the benefit of tax already deducted, the Tribunal directed the assessee to file a rectification application under section 154 in the name of the partnership firm. The Assessing Officer was directed to verify whether the firm had offered the corresponding income to tax and, if so, grant the TDS credit to the partnership firm in accordance with law. Thus, while rejecting the individual’s claim, the Tribunal ensured that the TDS credit reaches the entity legally entitled to it. The appeals were allowed for statistical purposes.
Cases Discussed
