TDS Credit Follows Legal Ownership & Registered Deeds; Unregistered Family Arrangement Rejected

Issue

Whether an assessee can claim credit for Tax Deducted at Source (TDS) on the sale of a property based on an unregistered family arrangement, when the registered sale deed and the TDS certificates are in the names of his wife and son.

Facts

The Transaction: The assessee (Jerambhai Ratnabhai Patel), along with his wife and son, sold a property comprising residential and commercial units.
The Documents: The registered sale deed and the agreement for sale identified only the wife and son as the legal owners and signatories.
The Deduction: Consequently, the purchaser deducted TDS in the names of the wife and son (the legal owners).
The Claim: The assessee claimed exclusive rights over two units (Ground and First Floor) based on a family arrangement dated 12.09.2014. He filed his return offering the capital gains from these units and claimed the corresponding TDS credit (via refund), arguing that the income belonged to him.
The Rejection: The Central Processing Unit (CPU) and subsequently the CIT(A) denied the TDS credit to the assessee because his name did not appear in the TDS certificates or the sale deed.

Held (ITAT Ahmedabad)

Unregistered vs. Registered: The Tribunal noted that the family arrangement was unregistered. It held that an unregistered internal document cannot override a public registered document (Sale Deed) for tax purposes. Since the sale deed and agreement were executed solely by the wife and son, they are the legal owners in the eyes of the law.
Rule 37BA Strictness: Under Rule 37BA of the Income-tax Rules, TDS credit is generally given to the “deductee.” Credit can be transferred to another person only if the income is assessable in that other person’s hands. However, the assessee failed to prove legally that the income was assessable in his hands because the unregistered arrangement did not validly transfer the title to him.
Relief Mechanism: While the assessee was denied the credit, the Tribunal recognized that the tax had been deducted. To prevent double taxation or loss of credit, it directed the Revenue to grant the TDS credit to the respective parties (Wife and Son) after due verification. They were granted liberty to file revised returns to claim this credit.
Outcome: The appeal was decided in favour of the Revenue (regarding the assessee’s personal claim), but with a remedial direction for his family members.

Key Takeaways

Documentation is Key: For tax purposes, “Registered Title Deeds” almost always trump “Unregistered Family MOUs.” If you plan to split capital gains among family members differently than the title deed suggests, ensure your family settlement is registered and reflected in the sale documents before the sale.
Rule 37BA Declaration: If you want TDS credit to be transferred to another person (e.g., from a joint owner to a real beneficiary), you must file a declaration with the deductor (buyer) before they file their TDS return. This ensures the TDS certificate (Form 16B) is generated in the correct person’s name.
Rectification: If you made a mistake, the correct legal owners (Wife/Son) should offer the income and claim the TDS. If the income is clubbed (e.g., clubbing of income provisions), the TDS credit follows the income.

IN THE ITAT AHMEDABAD BENCH ‘D’

Jerambhai Ratnabhai Patel

Central Processing Unit^*

Ms. Suchitra Kamble, Judicial Member
and Narendra Prasad Sinha, Accountant Member

IT Appeal No. 1531 (Ahd) of 2024
[Assessment year 2022-23]

JANUARY 9, 2026

Vijay H Patel, A.R. for the Appellant. Rameshwar P Meena, Sr. DR for the Respondent.

ORDER

Suchitra Kamble, Judicial Member.- This is an appeal filed against the order dated 29-062024 passed by Commissioner of Income Tax (Appeals), (Addl./JCIT)-1, Ludhiana for assessment year 2022-23 by the Assessee.

2. The grounds of appeal are as under:-

“1. Whether the Ld. CIT(A) was right in upholding the order dated 02.01.2023 passed u/s 143(1) of the Income Tax Act, 1961?

2. Whether the Ld. CIT(A) is right in law and on facts in disallowing the credit of Tax Deducted at Source to the tune of Rs. 9,82,156/- lying to the credit of the Appellant?

3. Whether the Ld. CIT(A) was right in law and on facts in denying the refund of TDS along with interest accrued thereon to the Appellant.

3. The Assessee along with his wife Smt. Vimlaben Jerambhai Patel and his son Shri. Darshanbhai Jerambhai Patel sold immovable property situated at Omkar Complex, Bhavanagar, Gujarat. The said immovable property is 4 stories building which consists of two residential units and 4 commercial units. Particular of Unit Type of property Legal ownership as per registered sale deed was that :

Unit No. 401 and 402 at 4^th Floor residential Smt. Vimlaben Jerambhai Patel and Shri. Darshanbhai Jerambhai Patel with equal share, Smt. Vimblaben Jerambhai Patel Unit No. 301 at 3^rd Floor Commercial.

II.

Smt. Vimblaben Jerambhai Patel Unit No. 201 at 2^nd Floor Commercial, Smt. Vimblaben Jerambhai Patel Unit No. 101 at 1^st Floor commercial, (III) Assessee’s Unit at Ground Floor commercial with equal share that of Smt. Vimblaben Jerambhai Patel and Darshanbhai Jerambhai Patel.

3.1. After taking into account of the family arrangement with Assessee’s wife and his son, the Assessee filed Return of Income u/s 139(1) as revised income dated on 23.07.2022 declaring total income at Rs. 5,40,311/-incorporating capital gain arising from sale of Unit at Ground Floor and Unit No. 101 at First Floor and claiming the refund amount of Rs. 11,544. The same was processed u/s 143(1) of the Act, determining total income at Rs. 5,40,311/- and refund due of Rs. 11,960/-.

3.2. Purchaser of the building has deducted Tax at Source in the hands of Smt. Vimlaben Jerambhai Patel and Shri. Darshanbhai Jerambhai Patel being legal owners of the building and party to the agreement for sale. In order to claim TDS Credit in the hands of the assessee, as assessee has shown capital gain arising from sale of units of his ownership, he filed revised Return of Income on 07.12.2022 declaring total income of Rs. 5,40,311/- and claiming the refund amount of Rs. 9,93,710/- after considering TDS Credit of Rs. 9,82,156 pertaining to Unit at Ground Floor and Unit No. 101 at First Floor, in View of Section 199 of the Act read with Rule 37BA of the Act. The same was processed u/s 143(1) of the Act, determining total income at Rs. 5,40,311/- and refund due of Rs. 11,960/-. The Assessee once again filed revised Return of Income on 30.12.2022 without modifying total income and claiming refund amount of Rs. 9,93,710/-.

3.3. The CPC, while processing the return, disallowed the TDS Credit of Rs.9,82,156/- pertaining to unit at Ground Floor and Unit No. 101 at First Floor in the hands of the Assessee.

4. Being Aggrieved by the Intimation Order dated 02.01.2023 u/s 143(1), the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.

5. The Ld. A.R. submitted that since the assessee has entered into an agreement which is a family arrangement with his wife and his son for construction of floors on the underlying plot of the specified property on 12^th September, 2014, It was specifically mentioned that the assessee has exclusive right, title and interest in the Ground and First Floor of the building. The Ld. A.R. Submitted that the assessee has therefore, filed the revised Return thereby showing capital gain arising from sale of Units of his ownership to Ground Floor and Unit No. 101 at First Floor and considered TDS Credit of Rs. 9,82,156 and thus claimed refund. But, the CPC as well as CIT(A) has totally ignored the same and disallowed the TDS Credit.

6. The Ld. D.R. submitted that the assessee was not a party to the agreement for sale as the owner of the land and the property situated was owned by assessee’s wife and son. Therefore, the CIT(A) as well as the Assessing Officer has rightly disallowed the TDS Credit.

7. We have heard both the parties and perused all the relevant material available on the record. It is pertinent to note that the family arrangement dated 12^th September 2014 was not registered. In fact, the same has categorically mentioned that the assessee will not have right, title or interest in the land except as permitted by the Assessee wife and his son. The agreement for sale was in the name of the assessee’s wife and assessee’s son and there was no authority given to the assessee being a confirming party in the sale agreement for sale of property. Thus, as per the facts on record, the Assessee’s claim that of TDS deduction should be credited in the Assessee’s account, will not come into the picture as the family arrangement has not reflected in the final agreement for sale, while the signatory parties are only assessee’s wife and assessee’s son. The purchaser of the building have deducted TDS in the hands of Smt. Vimlaben Jerambhai Patel and Shri. Darshanbhai Jerambhai Patel. Therefore, we direct the Revenue that the credit for TDS should be given to the respective parties i.e., wife and son of assessee after verifying the TDS Credit. For this purpose they may revise their return after obtaining due approval of the competent authority u/s 119(2)(b) of the Act. The Assessee will not be entitled for the TDS Credit or the refund more than Rs. 11,960/- for the reason as discussed earlier. Thus, the Assessing Officer in the case of Assessee’s wife and Assessee’s son should consider the claim of TDS Credit in their hands and grant the same after necessary verification. The appeal of the assessee is dismissed with the direction hereinabove.

8. In the result, the appeal of the assessee is dismissed.