TDS credited can be claimed on Unrealised Rent / Bad Debts

1. Facts are not in dispute that the assessee has disclosed rental income but claimed deduction of unrealized rent under section 23(1) read with rule 4 of the Rules. I find that the Unrealized rent is deduction which is claimed u/s 23(1) of the Act, read with Rule 4 of the Rules, from the total rental income offered during the year. The unrealized rent is not an exempt income. As the total rental income (including unrealized rent) is duly offered to tax under the head ‘Income from House Property‘, corresponding TDS credit needs to be allowed. There similar instances, where although the deduction is allowed with respect to total income offered during the year, still the claim of TDS with respect to such deduction claim is duly allowable under the Act i.e. TDS credit is allowed on deduction of Income under u/s 80IA, 8oIB, 80IC of the act, etc and also TDS credit is allowed on bad debts claimed u/s 36(1 )(vii) of the Act. Accordingly I am of the view that that the Unrealized rent is duly offered to tax by the assessee at first instance, and then the same is claimed as deduction from Rental Income u/s 23(1) of the Act r.w. Rule 4 of the rules. I also find that that the TDS amount, which corresponds to claim of unrealized rent is duly offered to tax the entire Amount of TDS (of Rs. 5,86,412/-, including TDS on rent) as Rental income for the year by the assessee u/s 198 of the Act which reads as under: –

“Section 198. All sums deducted in accordance with the foregoing provisions of this Chapter shall, for the purpose of computing the income of an assessee, be deemed to be income received.”

In this regard, Ld Counsel refered to Section 199 of the Act r.w. Rule 37BA for claim of TDS credit, which reads as under:-

Credit for tax deducted

“Section 199. (1) Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or of the depositor or of the owner of property or of the unit-holder, or of the shareholder, as the case may be.

(2) Any sum referred to in sub-section (IA) of section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of/ax has been made.

(3) The Board may, for the purpose of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules: as may be necessary, in including the rules for the purpose of giving credit to a person other than those referred to in sub-section (1) and sub section (2) and also the assessment for which such credit may be given.’

“Rule 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 in conic-tax authority or the person authorised by such authority.

(2) if,) Where under any provisions of the Act, the whole or any part of 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 pan 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 of/jet person in the information relating to deduction of tax referred to in sub-rule (1).

(ii) The declaration filed 19 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

(iii) The deductor shall issue the certificate for deduction of tax at count in the name of the person in whose name credit is shown in the information relating to deduction of tax referred to in sub-rule (I) and shall keep the declaration in his safe custody

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 fount 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 duductor to the income tax authority or the person authorized by such authority; and (ii) the information in the return of income in respect of the claim for the credit, subject to verification in accordance with the risk management strategy formulated by the Board from time to time.

The assessee duly fulfills all the conditions as laid down in section 198 r.ws. 199 r.w. Rule 378A of the Act. I find that TDS had been deducted and paid to the Central Government by the deductee and Payment/ Credit of Rent Income has been included in the accounts of the assessee. The deductor had duly filed requisite TDS returns as per Rules and also issued TDS certificate to the assessee and the same was furnished to the AO. Amount of TDS claimed, corresponding to claim of unrealized rent, is duly offered to tax as income of the assessee, in view of section 198 of the Act and also assessed by the AO.