TDS credit when income assessable in the hands of a person other than deductee – deviation from prescribed procedure.

 TDS credit when income assessable in the hands of a person other than deductee – deviation from prescribed procedure.  Compliances
Jul 292021
 

Facts:

  • The assessee, a HUF, invested the funds belonging to the HUF in RBI taxable bonds. The details of such investments and assessment for the relevant year can be tabulated as below:
Details of the assessment year 2012-13 Income shown Tax on income
Net income (incl. income from above investments) Rs.30,50,120/- Rs.7,90,045/-
TDS

TDS on income earned on above investment                = Rs. 5,42,800/-

TDS on other income of HUF                                           = Rs 2,40,835/-

   Rs.7,83,635/-
TDS disallowed TDS due to PAN mismatch Rs. 5,42,800/-

 

  • Inadvertently the above investment is made in the name of the Karta of the HUF and he was not described as the Karta of the HUF.
  • The Permanent Account Number (PAN) given to RBI also was that of Karta in a personal capacity and not that of the HUF.
  • The RBI while deducting tax at source amounting to Rs. 5.42 lakhs on the interest income of such bonds issued TDS certificates in the name of Karta carrying his PAN and not in the PAN of HUF.
  • The return filed by Karta in his individual capacity showed a total TDS of Rs.30,42,697/- but he did not claim the benefit of the said TDS of Rs.5,42,800/- and resultantly claimed TDS only of Rs.24,99,897/- (i.e. Rs 30,42,697/- fewer Rs 5,42,800/-).

 

  • The Assessing Officer while processing the return of the assessee for the assessment year 2012-13 under section 143(1) did not grant the weightage of TDS of Rs. 5.42 lakhs to assess HUF, since the PAN did not match.
  • The assessee also filed a revision petition before the Commissioner stating that the income in relation to which TDS was made was that of the assessee-HUF. The HUF had filed a return and offered such income to tax. Such return had been accepted by the Assessing Officer and the income had been duly taxed. Also, Karta of the HUF, in his personal capacity had filed a separate return in which such TDS was not claimed.
  • The Commissioner rejected the revision petition holding that on account of the mismatch of PAN reflected in the TDS certificate and that of the assessee, the credit could not be granted.

Analysis of Facts:

The provision of section 199(1) dealing with credit of TDS/TDS to the assessee is given below:

“  42199. (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 the property or of the unit-holder, or of the shareholder, as the case may be….”

Thus, the above facts can be analyzed as under:

  1. Income belongs to HUS is undisputed: The source of the funds which came to be invested with the RBI was that of the HUF. The interest income, therefore, would belong to the HUF. At the same time, TDS was deducted under the PAN of Karta as investments were made in the name of Karta, and the PAN of Karta was given in his individual capacity.
  2. Owns of department: The anxiety of the department, therefore, to ensure proper matching of the PAN in the TDS certificate as compared to the PAN of the assessee who claims the benefit of such tax deducted at source.
  3. Analysis of section 199 in light of the above facts: As per Section 199(1) any TDS would be treated as payment of tax on behalf of the person from whose income the deduction was made. Subsection 3 the same permits a deviation authorizing CBDT to make rules in respect of:
    1. Giving credit of TDS or
    2. The year during which the credit of such tax deducted at source should be granted.
  4. The obligation of Karta as per the above provision: The petitioner could have applied to RBI in terms of sub-rule 2 of Rule 37BA and completed the procedure envisaged therein. That is,
    1. Deductee, Karta, files a declaration
    2. Deductor reports the tax deduction in the name of the other person, i.e. HUF, to income tax authorities
    3. Declaration shall contain
  • Name of the person to whom credit is to be given,
  • Address of the person to whom credit is to be given,
  • 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 a person
  1. Power of department: There is no dearth of power with the department to grant credit of tax deducted at source in such a genuine case like given above.

 

Conclusion:

In view of such special facts and circumstances, the high court directs the department to give credit of the said sum of Rs.5,42,800/- to the petitioner HUF deducted by way of tax at source upon Shri Naresh Bhavanji Shah filing an affidavit before the department that the sum invested by the RBI does not belong to him, the income is also not his and that he has not claimed any credit of the tax deducted at source on such income for the said assessment year.