TDS Credit Must Be Allowed to Deductee Reflected in Form 26AS Absent Rule 37BA Declaration

ORDER

Rakesh Mishra, Accountant Member.– This appeal filed by the assessee is against the order of the Addl/JCIT(A)-2, Lucknow [hereinafter referred to as Ld. ‘Addl/JCIT(A)’] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2020-21 dated 27.03.2026.

2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:

“1. That the order passed by the Learned ADDL/JCIT (A)-2 LUCKNOW is bad in law, arbitrary, unjust, and passed without properly appreciating the facts and circumstances of the case.

2. That on the facts and in the circumstances of the case, the Learned ADDL/JCIT (A)-2 LUCKNOW erred in law and on facts in upholding the denial of TDS credit amounting to Rs. 79,330/- deducted by State Bank of India and appearing in the appellant’s Form 26AS, despite the fact that the tax had been deducted in the name and PAN of the appellant.

3. That the Learned ADDL/JCIT (A)-2 LUCKNOW failed to appreciate that Rule 37BA(1) of the Income Tax Rules, 1962 specifically provides that credit for tax deducted at source shall be given to the person to whom payment has been made or credit has been given, i.e., the deductee, and admittedly the appellant is the deductee in whose name the bank deducted tax and reported the same to the department.

4. That the Learned ADDL/JCIT (A)-2 LUCKNOW erred in invoking Rule 37BA(2) of the Income Tax Rules without appreciating that the proviso to Rule 37BA(2)(i) was admittedly never complied with and, in fact, there exists no prescribed mechanism, declaration form, utility, or banking procedure enabling the assessee or the deductor bank to file such declaration or report TDS in the name of another person in cases of clubbing under section 64.

5. That in absence of compliance with the mandatory proviso to Rule 37BA(2)(i), the said sub-rule had no applicability whatsoever and consequently the matter remained governed solely by Rule 37BA(1), under which the appellant alone was legally entitled to the TDS credit.

6. That the Learned ADDL/JCIT (A)-2 LUCKNOW failed to appreciate that Rule 37BA(2) is merely an enabling provision permitting transfer of TDS credit upon fulfilment of prescribed conditions and cannot be interpreted as a disabling provision authorising denial of TDS credit to the deductee when such conditions were never fulfilled.

7. For that the denial of TDS credit appearing in Form 26AS while simultaneously accepting that tax had in fact been deducted and deposited to the credit of the Central Government results in manifest double prejudice and unjust enrichment of the Revenue and is contrary to the scheme of section 199 of the Act; and further, the Learned ADDL/JCIT (A)-2 LUCKNOW failed to appreciate the settled principle that substance must prevail over form, particularly when the corresponding income has already been subjected to tax in the same assessment year and the denial of credit is based merely on procedural and technical considerations.

8. That the denial of TDS credit appearing in Form 26AS while simultaneously accepting that tax had in fact been deducted and deposited to the credit of the Central Government results in manifest double prejudice and unjust enrichment of the Revenue, which is contrary to the scheme of section 199 of the Act.

9. That the adjustment made while processing the return under section 143(1) by denying TDS credit involved highly debatable questions regarding interpretation of section 199, Rule 37BA and clubbing provisions under section 64 and therefore fell outside the permissible scope of prima facie adjustments under section 143(1) and rectification under section 154 of the Act.

10. That the Learned ADDL/JCIT (A)-2 LUCKNOW failed to appreciate that similar TDS credits had been allowed to the appellant consistently in earlier assessment years and therefore the impugned denial without any change in facts or law is arbitrary and unsustainable.

11. That the impugned order passed by the Learned ADDL/JCIT (A)-2 LUCKNOW is contrary to law, facts and principles of natural justice and is liable to be set aside.

12. The appellant craves leave to add, alter, amend, and/or withdraw any of the above grounds at or before the time of hearing.”

3. Brief facts of the case are that the assessee is a senior citizen and had income only from salary and bank interest. He had filed the return of income for AY 2020-21 on 16.11.2020 declaring the total income at Rs. 30,95,050/-. The return was subsequently processed, and a rectification application was filed by the assessee. The Assessing Officer (hereinafter referred to as Ld. ‘AO’) passed an order u/s 154 of the Act on 08.09.2023 disallowing the claim for TDS credit of Rs. 79,330/- relating to interest on fixed deposit held with State Bank of India. The Ld. AO also noted that the corresponding interest income was not offered to tax in the assessee’s return but was clubbed in the hands of his wife u/s 64 of the Act. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. Addl/JCIT(A), who observed that the assessee had failed to furnish the declaration and the deductor certificate mandated under Rule 37BA(2) of the Income Tax Rules, 1962, nor did he provide any proof regarding the corresponding income being declared in the spouse’s return. It was concluded that the provisions of section 199 of the Act and Rule 37BA of the IT Rules do not permit the granting of TDS credit when the corresponding income is assessed in the hands of the spouse without adhering to the prescribed procedural requirements. Accordingly, the Ld. Addl/JCIT(A) confirmed the action of the Ld. AO and dismissed the appeal of the assessee.

4. Aggrieved with the order of the Ld. Addl/JCIT(A), the assessee has filed the appeal before the Tribunal.

5. Rival contentions were heard and the submissions made have been examined. It would be apposite to refer to the provisions of subrule (1) and sub-rule (2) of Rule 37BA of the IT Rules, which has also been reproduced in the order of Ld. Addl/JCIT(A), and which is 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 (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 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.”

6. Thus, a perusal of sub-rule (1) shows that the credit for tax deducted at source and paid to the Central Government in accordance with the provision of Chapter XVII shall be given to the person to whom payment has been made or credit has been given (hereinafter referred to as the deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorized by such authority. Since the amount was being reflected in Form No. 26AS filed by the assessee, as per sub-rule (1), the assessee was entitled to claim the credit for the TDS. The Ld. Addl/JCIT(A) has referred to sub-rule (2) and has held that since the assessee himself stated that the corresponding income is assessed in the wife’s hands, TDS appearing in Form No. 26AS for that interest income is creditable in the hands of the spouse and the assessee’s contention on the ground of TDS credit not being supported by the provision of section 199 of the Act or rule 37BA of the IT Rules, the appeal was dismissed.

7. A perusal of the proviso to sub-clause (i) to sub-rule (2) of rule 37BA of the IT Rules shows that where under any provision 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. However, this is subject to the proviso 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). In the case before us, no such declaration as required under the proviso to clause (i) to sub rule (2) of rule 37BA of IT Rules appears to have been filed else the TDS would not have been reflected in Form No. 26AS relating to the assessee but instead would have been reflected in the Form No. 26AS relating to the spouse of the assessee, Smt. Sumita Dey (PAN-AJLPD4243J). Thus, since no such declaration was filed, the issue was to be governed by sub-rule (1) of rule 37BA of the IT Rules. As regards section 199 of the Act, the same relates to the credit being given in the year for the tax deducted and is reproduced as under:

“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 (1A) 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 tax has been made.

(3) The Board may, for the purposes 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, including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and subsection (2) and also the assessment year for which such credit may be given.”

8. As per sub-section (3) thereof, for the purpose of giving credit in respect of tax deducted or tax paid, the Board may make such rules as may be necessary, including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and sub-section (2) and also the assessment year for which such credit is to be given. The relevant rule is rule 37BA of the IT Rules as discussed above.

9. Thus, for the purposes of credit of TDS, the claim of the assessee was justified as the amount was figuring in Form No. 26AS of the assessee and since the credit was not given, it was a mistake apparent from record which was liable to be rectified. Sub-section (2) refers to the tax paid on behalf of the person in respect of whose income such payment of tax has been made. On the basis of the FD being in the name of the assessee, the TDS was treated as made on the income credited to the assessee being interest on FD. By virtue of section 64 of the Act, the income, however, was liable to be included in the hands of the spouse and the credit for TDS relating to such income could be given to the spouse only if the condition as stipulated in the proviso to clause (i) of sub-rule (2) of rule 37BA of the IT Rules was fulfilled, and as the same was not apparently done, as per sub-rule (i) the credit should have been given to the assessee. The Ld. Addl/JCIT(A) does not appear to have analysed the provision of section 199 of the Act and rule 37BA of the IT Rules in the right perspective. Therefore, the order of the Ld. Addl/JCIT(A) is set aside and the issue is remanded to the Ld. Addl/JCIT(A). However, since in Ground No. 2, the assessee is making the claim of TDS credit of Rs. 79,330/- deducted by the SBI and appearing in Form No. 26AS, while in page 3 of the order of the Ld. Addl/JCIT(A), the TDS of Rs. 67,112/- has been made on the interest of Rs. 6,71,096/- allowed by the State Bank of India, there being a discrepancy in the amount of claim, the order of the Ld. Addl/JCIT(A) is hereby set aside and the matter is remanded to the Ld. Addl/JCIT(A) to decide the issue as per the correct provisions of law as enunciated in the preceding paragraphs.

10. Thus, Ground Nos. 3, 4, 5 & 6 are allowed while Ground No. 2 is partly allowed for statistical purposes and other grounds of appeal are also partly allowed for statistical purposes.

11. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.