In the case of Anil Ratanlal Bohra v. Assistant Commissioner of Income Tax (ACIT), the issue at hand revolved around the denial of credit for Tax Deducted at Source (TDS) to the taxpayer due to the non-furnishing of a declaration by the deductee to the deductor as required by the proviso to Rule 37BA(2). The ITAT Pune heard the appeal and provided a significant ruling regarding the entitlement to such credit.
Mr. Anil Ratanlal Bohra, an individual taxpayer, filed his income tax return for the relevant assessment year, claiming credit for TDS of ₹2,80,456. This TDS amount was deducted by the State Bank of India from the interest earned on fixed deposits held by his wife with the same bank. The fixed deposits were funded by gifts from Mr. Bohra to his wife. As per Section 64 of the Income Tax Act, the income derived from these deposits was includible in Mr. Bohra’s total income.
The taxpayer duly included the income from the fixed deposits in his return and sought corresponding credit for the TDS. However, the Central Processing Center (CPC) intimation denied the credit on the grounds that the TDS amount was not reflected in Form No. 26AS of the taxpayer. Dissatisfied with this decision, Mr. Bohra filed an appeal to the Commissioner of Income Tax (Appeals) [CIT(A)].
The CIT(A) held that the provisions of Rule 37BA(2) were not complied with, resulting in the taxpayer being ineligible for the credit for TDS deduction. Aggrieved by this decision, Mr. Bohra further appealed to the Income Tax Appellate Tribunal (ITAT).
The ITAT carefully examined the relevant provisions of Section 199 and observed that sub-Rule (2) of Rule 37BA played a crucial role in deciding the appeal. According to the rule, if the income on which TDS has been deducted at source is assessable in the hands of a person other than the deductee, then the credit for the proportionate TDS deducted at source should be given to that other person, not the deductee.
The proviso to sub-rule (2) stipulates that the deductee must file a declaration with the deductor, providing particulars of the other person to whom the credit is to be given. Upon receiving such a declaration, the deductor is obligated to issue a TDS certificate in the name of that other person.
The essence of Section 199, read with Rule 37BA(2), is that if the income on which TDS has been deducted at source is chargeable to tax in the hands of the recipient, then the credit for such tax should be allowed to the recipient. However, if the income is fully or partly chargeable to tax in the hands of another person due to the operation of any provision, such as Section 64 in the present case, the proportionate credit for the TDS should be granted to that other person who is liable to pay tax on such income, even if they are not the recipient of the income.
The proviso to Rule 37BA(2) serves the purpose of regularizing the allowance of credit for TDS to a person other than the income recipient. It mandates the furnishing of particulars of the other person (the recipient) to enable the deductor to issue a TDS certificate in their name. It is important to distinguish between the substantive provision (Section 199 read with Rule 37BA(2) without the proviso) and the procedural provision (proviso to Rule 37BA(2)). Non-compliance with a procedural provision, which is typically directory in nature, cannot negate the essence of a substantive provision.
The ITAT held that the mere non-furnishing of the declaration by Mr. Bohra’s wife to the bank, as required by the proviso to Rule 37BA(2), should not be a reason to deny the credit for TDS. The TDS amount, which is already with the Department, should not be withheld indefinitely without allowing corresponding credit to the person who is liable to pay tax on the income. As the substantive provision of Section 199 grants credit for TDS to the person who is lawfully taxable in respect of the income, the ITAT ruled in favor of allowing the TDS credit to Mr. Bohra.
Suggestion to Taxpayers: This ruling provides valuable guidance to taxpayers regarding the entitlement to credit for TDS when the income is assessable in the hands of a person other than the deductee. It highlights the importance of understanding the substantive provisions of the Income Tax Act and the corresponding rules. Taxpayers should ensure compliance with procedural requirements, such as filing the necessary declarations, to facilitate the proper issuance of TDS certificates. By adhering to the relevant provisions, taxpayers can rightfully claim the credit for TDS and avoid unnecessary disputes. It is advisable to seek professional advice or consult with a tax expert to understand the intricacies of tax laws and their implications on individual cases.
