TDS Credit for Legal Heirs: Overcoming Procedural Hurdles under Rule 37BA

This ruling for AY 2019-20 provides essential relief for legal heirs who often face technical rejections when claiming tax credits belonging to a deceased family member. The ITAT (Income Tax Appellate Tribunal) emphasized that substance must prevail over form in the transition of tax liabilities and credits from a deceased person to their heir.

The Legal Conflict: CPC Automation vs. Rule 37BA

The Procedural Barrier:

Under Rule 37BA, if income is reportable by a person other than the one whose name appears in the TDS certificate (e.g., a legal heir reporting a deceased person’s income), the “deductor” is technically supposed to issue a revised TDS statement reflecting the claimant’s PAN.

The Reality:

The Centralized Processing Cell (CPC) automatically matches TDS claims against the PAN mentioned in Form 26AS. If the TDS is mapped to the deceased’s PAN but the income is reported in the legal heir’s return, the system triggers a mismatch and denies the credit.

Facts of the Case

The Scenario: An individual (the assessee), acting as the legal heir of her deceased husband, included the interest income earned by her late husband in her own Income Tax Return.
The Claim: She claimed the corresponding TDS credit that had been deducted against her husband’s PAN.
The Rejection: The CPC denied the credit during processing under Section 143(1). Subsequent rectification applications under Section 154 were also rejected because the TDS didn’t appear in her Form 26AS.
CIT(A) Stance: The first appellate authority suggested that the assessee should go back to the deductor (the bank/entity) and ask them to revise their TDS returns for 2018-19—a task that is practically impossible years after the fact.

The Decision: Practicality and Justice Over Procedures

The Tribunal ruled in favour of the assessee, directing the Department to grant the TDS credit:

Income-Credit Linkage: Since the assessee had already “offered the income to tax” in her return, the tax deducted on that very income must follow the income. Denying the credit would lead to double taxation (paying tax on income without getting the benefit of the tax already paid).
Feasibility of Revision: The Court acknowledged that requiring a legal heir to approach deductors to revise statements for an old assessment year (AY 2019-20) is not feasible and creates undue hardship.
Legal Heir Rights: As a legal heir, the assessee steps into the shoes of the deceased. If the income is hers to report, the credit is hers to claim.
Direction to CPC: The Tribunal ordered the CPC to manually/specifically grant the TDS credit and revise the tax demand accordingly.

Key Takeaways for Legal Heirs

Reporting Income: When filing a return as a legal heir, ensure you report the deceased’s income from the date of death until the end of the financial year.
The “Declaration” Strategy: Ideally, under Rule 37BA(2), a legal heir should provide a declaration to the deductor at the time of deduction to have the TDS mapped to their own PAN. However, as this case proves, if that step was missed, you can still fight for the credit in court.
Section 154 is Valid: If your TDS is rejected for a mismatch related to a deceased person, file a rectification under Section 154 and cite this case. If the AO/CPC remains rigid, the ITAT is likely to grant relief based on the “feasibility” argument.

Summary of the Rule 37BA (2) Requirement

The Rule: TDS credit shall be granted to the person in whose hands the income is assessable.
The Mismatch: Common in cases of joint properties, deceased persons, or trust beneficiaries.
The Solution: Courts consistently hold that if the tax has reached the government and the income is reported, the credit cannot be denied on technicalities.

IN THE ITAT CHANDIGARH BENCH ‘B’

Ms. Aarti Gupta

Income-tax Officer^*

Laliet Kumar, Judicial Member
and Manoj Kumar Aggarwal, Accountant Member

IT Appeal No. 1612 (CHANDI) OF 2025
[Assessment year 2019-20]

MARCH 9, 2026

T.N. Singla, (CA) – Ld. AR for the Appellant. Vivek Vardhan, (Addl. CIT) – Ld. Sr. DR for the Respondent.

ORDER

Manoj Kumar Aggarwal, Accountant Member. – Aforesaid appeal by assessee for Assessment Year (AY) 2019-20 arises out of an order of learned Addl. / Joint Commissioner of Income Tax (Appeals)-9, Mumbai [CIT(A)] dated 11-10-2025 in the matter of an rectification intimation issued by CPC U/S 154 on 04-03-2021. The sole grievance of the assessee is denial of TDS Credit for Rs.52,913/-. Having heard rival submissions, the appeal is disposed-off as under.

2. The assessee is a legal heir of her deceased husband Shri Vinod Kumar Gupta. The assessee’s husband earned interest income of Rs.5,23,957/- during this year on which impugned TDS of Rs.52,913/-was deducted by the payer. The assessee, as a legal heir of her husband, offered the interest income on behalf of her husband in her income tax return and accordingly, the assessee claimed credit of corresponding TDS. The credit was denied by CPC while processing the return u/s 143(1) on 24-01-2020. The assessee filed rectification on 17-02-2020 which is still pending. The assessee had filed revised return of income which was processed u/s 143(1) on 16-04-2020 against which another rectification was filed by the assessee on 22-022021. This rectification was rejected by CPC on 04-03-2021 on the ground that TDS claim related to deceased person and there was no return of income for deceased PAN. Aggrieved by rejection of rectification, the assessee preferred further appeal.

3. The Ld. CIT(A) observed that TDS claimed in the return of income was not reflected in Form 26AS against the PAN of the assessee. The TDS was deducted and reported by the deductor against the PAN of the deceased assessee. As per Rule 37BA, the TDS credit would be given to the person in whose name it is reported by the deductor in the TDS statement. Since TDS was reported against the PAN of the deceased whereas the return of income was filed under the PAN of legal heir, thereby using the PAN of the legal heir, there was a mismatch in the system. The TDS credit could be allowed to legal heir only if the deductor revises the TDS statement to reflect the PAN of the legal heir which was not done. Therefore, the appeal of the assessee was dismissed against which the assessee is in further appeal before us.

4. The undisputed fact is that the assessee is a legal heir of her deceased husband. The interest income earned by the deceased husband has been offered by her in the capacity of a legal heir. The denial of TDS credit is merely on technical grounds. Once the income has been offered to tax, corresponding TDS credit would also be available to the assessee since accepting a part of the transaction cannot be held to be justified. Requiring the legal heir to approach the deductor to revise TDS statements, at this stage, may not be feasible / possible considering the fact that the TDS statement pertain to AY 2019-20. Therefore, we direct CPC to grant impugned TDS credit to the assessee and revise the tax demand.

5. The appeal stand allowed.