TDS Credit Cannot Be Denied on Mere Technicalities – ITAT’s Relief to Property Seller
Case: Baderunnisa vs. Deputy Director of Income-tax (CPC)
Citation: [2025] 174 taxmann.com 484 (Bangalore – Trib.)
Date: 05-05-2025
The Background
The assessee, along with her children, inherited a house property. In the relevant year, the property was sold, and the entire sale consideration was credited to the assessee’s bank account after deduction of TDS under section 194-IA.
When filing her return, the assessee claimed credit for the entire TDS amount visible in Form 26AS.
However, the Assessing Officer (AO) decided to allow TDS credit only in proportion to the capital gains offered by her, arguing that the property was co-owned with her children.
AO’s Reasoning
• The assessee had co-owners (her children).
• Only her share of the sale proceeds was taxable in her hands.
• Therefore, only the proportionate TDS should be credited to her account.
What the Law Says
• Section 199: TDS credit shall be given to the person from whose income the tax has been deducted.
• Rule 37BA: Where income is assessable in the hands of multiple persons, TDS credit shall be given in the same proportion as the income is assessable to each.
However – the law also recognizes substance over form. If the TDS has been deducted in one person’s name and that person has borne the tax burden, credit should not be mechanically denied.
ITAT’s Findings
• The entire sale considerationwas received in the assessee’s bank account, and the TDS was deducted against her PAN.
• She was the one who bore the initial tax burdensince TDS was deducted from her proceeds.
• The AO’s refusal was based purely on a technical readingwithout considering the practical realities.
• The ITAT emphasized that law should be applied in spirit, not just in mechanical form.
The Verdict
• Full TDS creditwas to be allowed to the assessee.
• Denial of credit on technical grounds when the assessee had substantively complied with the law was unjustified.
Practical Lessons for Taxpayers
1. Check Whose PAN Is Used in TDS Deduction
• If property is jointly owned, ensure that the TDS deduction is split appropriately or that co-owners claim proportionate credit.
2. Substance Over Form Matters
• Courts and tribunals often side with taxpayers when they have complied in spirit, even if there is a technical mismatch.
3. Keep Documentation Ready
• Bank statements, sale deeds, and Form 26AS entries are key to proving that you bore the tax burden.
4. Rule 37BA Compliance
• Ideally, inform the buyer to deduct TDS separately in each co-owner’s name to avoid future disputes.
Bottom Line:
If you’ve genuinely borne the tax burden and the TDS has been deducted in your name, the department can’t snatch away your rightful credit just because of a procedural quirk.
The copy of the order is as under:
