Full TDS Credit Must Be Allowed to Co-Owner If Other Co-Owners Claim No Credit

ORDER

Sunil Kumar Singh, Judicial Member. – This appeal is directed against the impugned order dated 02.02.2026 passed in appeal No NFAC/2019-20/10439271 by the ld. Commissioner of Income Tax/ NFAC(Delhi) (hereinafter referred to as the “CIT(A) u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for the A.Y. 2020-21, wherein ld CIT(A) has confirmed the assessment order, disallowing the credit of TDS to the extent of Rs. 2,70,833/-.

2. (i) The brief facts state that assessee filed his return of income for A.Y. 2020-21 on 03.02.2021, declaring total income of Rs. 22,08,660/-. As per the information available in insight portal under e-verification scheme, the case was marked as a high risk case. The revenue found mismatch of Rs. 27,08,333/- in respect of rent received and Rs. 20,79,791/- in respect of the purchase of motor vehicle. The case was reopened u/s 147 of the Act by issuance of notice u/s 148 dated 26.03.2024, which remained unresponded by the assessee. Notice u/s 142(1) and reminder noticed dated 11.11.2024, 20.12.2024 and 30.12.2024 were issued by the assessment unit seeking details in respect of the aforesaid mismatch.

(ii) Assessee submitted before the Assessing Officer, copy of rented property’s lease deed dated 05.02.2020 executed between the assessee Shri Tejpratap Yadav, his mother Smt. Mradula Yadav and sister Smt. Deepali Yadav as co-owners/landlord and land ladies of the property with the tenant State Bank of India, Karhal, Dist- Mainpuri (U.P) for the duration from 26.09.2014 to 25.09.2024. Apart from the PAN no. of the assessee, the PAN No. of co-sharers/ assessee’s mother Smt. Mradula Yadav and Smt. Deepali Yadav were also mentioned over the sale deed and the rent was payable to all the three lessors jointly by the lessee Bank (SBI). The appellant assessee along with aforesaid two co-owners received rental income of Rs. 40,62,500/-from the lessee State Bank of India in their joint bank account. Assessee, further explained the source of purchase of vehicle. The assessing officer was satisfied with assessee’s submissions and observed that the assessee had sufficient means to purchase the said motor vehicle. The receipt of rent of Rs. 40,62,500/- by the assessee in the joint bank account was also accepted and the assessment was completed on the returned income only.

(iii). The assessing officer, however, found that according to Form 26AS, though the whole TDS of Rs. 4,06,250/- was deducted by lessee/SBI under the PAN of the appellant assessee only, the appellant reported only one-third of the rent received from SBI, the assessing officer, therefore, held that the assessee was entitled to proportionate (1/3^rd) TDS of Rs. 1,35,417/- only as against whole TDS of Rs. 4,06,250/-, vide assessment order dated 14.02.2025 passed u/s 147/144/144B of the Act.

3. Aggrieved, assessee preferred an appeal against the assessment order but could not convince the first appellate authority, who sustained the action of the assessing officer.

4. Appellant assessee has filed this second appeal on the following grounds:-

“1 . Because the Honble CIT Appeal failed to appreciate that the assessment order was bad in law and facts.

2. Because the Honble CIT Appeal failed to appreciate that part disallowance of TDS credit amounting to Rs.270833/- in the hands of the appellant was not justified in law & on facts.

3. Because the Honble CIT Appeal failed to appreciate that credit for full amount of TDS deducted on appellants Pan should not have been disallowed in his hands on technical ground alone, when co-owners of joint property having declared their share of rental income, had not claimed and having undertaken not to claim, their share of tds.

4. Because the appellant craves leave for adding, deleting, modifying any ground of appeal at any stage in this appeal.”

Additional legal grounds- admitted in view of law laid down by Hon’ble Supreme Court in National Thermal Power Co. Ltd. v. CIT [1998]  229 ITR 383 (SC):-

“1- Because, in the present case the ld CIT (A) grossly erred in upholding the reassessment proceedings initiated by the ld AO. Pertinent to note that no addition was made by the ld AO while passing impugned order under section 147/144 of the Income Tax Act and the returned income was accepted by the ld AO. In other words the ld AO came to a conclusion that income as per alleged information did not escape assessment. In such a situation nothing survive. Consequently entire order is liable to be quashed. The Id AO does not have jurisdiction to assess any other income or to restrict the amount of TDS in such a case. The Id AO arbitrarily restricted the amount of TDS to 1/3 of total TDS deducted out of the income of the Appellant, which is totally incorrect.

2- Because, on the facts and circumstances of the case the Ld. CIT(A) has grossly erred in law and on facts in upholding the validity of reassessment proceedings, ignoring the fact that no income had escaped assessment. Provisions of section 147 were wrongly invoked. Entire reassessment proceedings are liable to be quashed.

3- BECAUSE, upon the facts and in overall circumstances of the case the Id CIT (A) failed to appreciate that the approval under section 151 of the Act was granted by the specified authority on totally incorrect facts. Since no addition was made by the Id AO, this itself prove that the initiation of the reassessment proceedings was void-ab-initio, patently illegal and bad in law and thus entire proceedings are liable to be quashed.

4- WITHOUT prejudice to above, the Id CIT(A) erred in confirming the action of the Id AO of restricting the amount of TDS to 1/3rd on incorrect understanding of section 199 and Rule 37BA of the Income Tax Rules. Sub section (1) of section 199 categorically states that any deduction made in accordance with the provisions and paid to the Central Government shall be treated as tax on behalf of the person from whose income the deduction was made. In the present case entire amount of Tax of Rs. 406250.00 was deducted out of the Income of the Appellant, therefore as per provisions of section 199 he is eligible to get the benefit of the entire amount of tax deducted.

5. Because, on the facts and circumstances of the case the Ld. CIT(A) has erred in law and on facts in confirming the order passed by the Ld. AO, despite the admitted failure on the part of the Ld. AO to issue mandatory statutory Notice under section 143(2) of the Act. However while making assessment, the ld AO taken into consideration the total Income as per original Income tax return filed by the Appellant. Non issuance of such notice renders the assessment proceedings void-ab-initio and without jurisdiction, and therefore liable to be set aside.”

5. Perused the records and heard ld representative for the appellant assessee and ld Sr DR for the respondent revenue.

6. The main point for determination under appeal is as to whether ld CIT(A) has erred in confirming the part disallowance of TDS credit amounting to Rs. 2,70,833/- in contravention of section 199(1) of the Act, without appreciating the fact that the entire TDS amounting to Rs. 4,06,250/- was deducted against assessee’s PAN only and the two coowners did not claim their share of TDS in their ITRs for the year under consideration?

7. Ld representative for the assessee has submitted that the returned income of assessee has been accepted by revenue. As regards disallowance of 2/3^rd TDS, the appellant assessee along with his mother and sister rented their property to the State Bank of India, Karhal Branch, Dist-Mainpuri. The rental receipts are reflected in the joint account of 3 co-owners in joint saving bank account no. 39113561325 maintained with SBI, Karhal. The assessee/ co-owners have shown their share of rent 1/3^rd each as income from the house property in their ITRs for the year under consideration. The bank had inadvertently deducted and posted entire TDS of Rs. 4,06,250/- solely against the PAN of the assessee only. During the assessment proceedings, the assessee had enclosed a letter issued by the Bank Branch Manager, stating that the lease agreement was with the 3 coowners and due to inadvertent mistake of the bank, the TDS of Rs. 4,06,250/- was posted solely on the PAN of the assessee. It was further submitted that both the co-owners did not claim TDS in their respective ITRs. Assessee also submitted an affidavit on behalf of and signed by the other two co-owners in this regard and also submitted the copies of their ITRs for the year under consideration, but the revenue authority have arbitrarily disallowed assessee’s rightful claim u/s 199(1) of the Act. Prayed to allow the credit of the remaining amount of TDS paid by the assessee.

8. Ld Sr DR for the respondent revenue has supported the impugned order.

9. It is worth mentioning relevant law applicable to the facts of the case in hand. Section 199 of the Act, under the head “Credit for tax deducted” reads as under:

“Credit for tax deducted.

10. Rule 37BA of Income Tax Rules, 1962, under the head “Credit for tax deducted at source for the purposes of section 199”, reads as under:

“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 income-tax authority or the person authorised by such authority.

(2) [(i) Where under any provisions of the Act, the whole or any part of the 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 part 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 other person in the information relating to deduction of tax referred to in sub-rule (1).]

(ii) The declaration filed by the deductee under clause (1) 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 person.

(iii) The deductor shall issue the certificate for deduction of tax at source 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 (1) and shall keep the declaration in his safe custody.

(3) xxxxxxxxxxx

(3A) xxxxxxxxxxx

(4) xxxxxxxxxxx”

11. There are certain undisputed facts. These facts are that the whole TDS of Rs. 4,06,250/- was deducted against the PAN of the assessee. Assessee with two co-owners i.e. his mother Smt. Mradula Yadav and his sister Smt. Deepali Yadav received the rental income in their joint bank account. The assessee and the two co-owners have shown their respective 1/3^rd share as income from the house property in their ITRs for the relevant A.Y. 2020-21. According to the lease agreement dated 26.09.2014, which is part of assessee’s paper book from page 27 to 43, the details of the PAN Nos. of the assessee and the two co-owners are expressly mentioned over it. The tenant Bank (SBI), inadvertently posted the entire TDS of Rs. 4,06,250/- solely against the PAN of assessee instead of showing the proportional (1/3^rd) i.e. Rs. 1,35,417/- of the three co-sharers as mentioned by Assessing Officer at page 5 of assessment order. The two co-owners have not claimed their 1/3^rd share against the PAN of TDS in their ITRs for the year under consideration.

12. We notice that the revenue has declined the credit of whole TDS to assessee/deductee by quoting section 199 of the Act and Rule 37BA of the Income Tax Rules. Rule 37BA prescribes for the “credit for tax deducted at source for the purposes of section 199” of the Act. Section 199 provides that the credit for tax deducted at source shall be given to the deductee etc. However, rule 37BA(2)(i) prescribes that if the income on which TDS is assessable in the hands of a person other than the deductee, credit of TDS shall be given to the other person and not the deductee subject to the condition mentioned in proviso to rule 37BA(2)(i), where the deductor reports the TDS in the name of other person on the basis of declaration filed by the deductee who is the assessee in the present case and no such declaration was filed on behalf of assessee before deductor. The question of compliance of condition contained in 37BA(ii) & (iii) does not arise in respect of the particulars of name, address, PAN etc. of the other two persons to whom the credit was to be given. In such a case, the other persons (two co-sharers) cannot be given credit of their 2/3^rd share out of whole TDS deducted against the PAN of the assessee.

13. A careful reading of rule 37BA(2)(i) quoted above shows that this prescription has been made in respect of the credit for TDS for the purposes of section 199 and in a situation when the income was assessable in the hands of a person other than deductee (here the two co-sharers) and aforesaid conditions are fulfilled by submitting required declaration to be filed by deductee. In the instant case, the other two co-owners have not claimed the proportionate TDS in their ITRs, which was undisputedly deducted against the PAN No. of the assessee. The two co-owners also submitted affidavit in support of assessee’s claim of whole TDS even during the assessment proceedings. In such a scenario, the remaining 2/3^rd share out of whole TDS could not be credited to them (co-sharers).

14. We observe that any rule of procedure is only a tool for justice and if necessary can be moulded to decide the real controversy. Procedural laws provide for natural ways of doing things and do not bar even for adoption of additional procedure as and when the situation may demand. There has to be a human approach in following the prescribed procedure to serve the ends of justice and it should not be applied in such manner to kill the right/ duty of any party. It is well settled law that the object of prescribing procedure is to advance the cause of justice. Justice is the goal of jurisprudence. Procedural law is not to be tyrant but a servant not an obstruction but an aid to justice. A procedural prescription is the hand maid and not the mistress, lubricant, not a resistance in the administration of justice. Technical justice cannot substitute substantial justice.

15. According to the impugned order, if the credit of whole TDS paid by assessee is declined, the result would be that the remaining proportionate 2/3^rd of amount of two co-sharers to the extent of Rs. 2,70,833/- would be permanently retained by the department, which could never be the spirit and intention of law. The revenue cannot be allowed to retain the tax deducted at source without its credit to someone. In the present case, when the co-sharers support that the credit of whole TDS be given to assessee and they, having made no claim of proportionate TDS in their ITRs for the year under consideration, the assessee would become entitled for the credit of whole TDS deducted against his PAN. The main point is thus, determined in positive in favour of the appellant assessee and against the revenue. The impugned orders are, thus, unsustainable. The appeal is liable to be allowed. Other factual and legal grounds raised by the assessee are not required to be adjudicated and are left open.

16. In the result, the appeal of the assessee is allowed. Impugned orders are set aside. The assessing officer is directed to give credit of the whole TDS of Rs. 4,06,250/- as against Rs. 1,35,417/- to assessee.