TDS credit allowed despite income not offered to tax. House was sold to wife who paid taxes due in her ITR. TDS on Rent allowed to husband

TDS credit allowed despite income not offered to tax. House was soldby the husband to the wife who paid taxes due in her ITR. ITAT allowed husband TDS on Rent deducted by bank.

ABCAUS Case Law Citation:
ABCAUS 1129 (2017) (02) ITAT

Assessment Year : 2009-10
Date/Month of Pronouncement: February, 2017

Brief Facts of the Case:
The appellant assessee was a resident individual assessee who had filed his return of income which was picked up for scrutiny assessment u/s 143(3). During the relevant assessment year, the assessee had received rental income from ICICI Bank and reflected the same under the head ‘income from other sources’.

However, he transferred the entire amount as ‘rent paid’ to his wife, who was the real owner of the property. This resulted into ‘Nil’ income being offered to tax from this source of income whereas the assessee had claimed TDS credit against the rental received.

It was explained that since 1999 the assessee sub-leased the property to ICICI Bank for 10 years. The assessee earned rental income from the property since then. However, the subsequently the property was sold by the real owner to assessee’s wife and as per agreement, the tenancy benefits of the property was also transferred in wife’s favour. Therefore, whatever rental income was being received by the assessee, the same was transferred to the wife as the owner of the property

However, the claim for TDS was not allowed by the Assessing Officer (AO) on the premises that no income was offered as rental income and the assessee was not the owner of the property.

Aggrieved, the assessee assailed the stand of AO before CIT(A) and explained his claim. However, not convinced, CIT(A) confirmed the view taken by the AO.

Contentions of the Appellant Assessee:
The assessee contended that it was not practical to change the arrangement with bank and introduce assessee’s wife as lessor of the property and therefore, the assessee continued to receive the rent from the bank and paid the same to the wife.

It was explained that due TDS was deducted on rental payment by the bank qua the assessee. The rental income has duly been reflected in the wife’s return of income and paid due taxes thereupon and as both assessee and his wife fall in the same tax bracket, the whole exercise was tax neutral and the assessee stood to gain nothing to undertake the transaction in this manner. It was only due to practical difficulties in substituting new lease agreement with the bank with wife as the true owner, which led to the present issue in hand.

The assessee’s wife had not claimed the TDS credit and the same has rightly been claimed by the assessee. The revenue in earlier years, accepted the TDS claim of the assessee in various 143(3) assessment and rule of consistency demands that similar view is taken in this year also on identical sets of facts.

Contention of the Respondent Revenue:
It was submitted that as no income had been offered to tax by the assessee and therefore, the benefit of TDS could not be given to him. TDS credit could be claimed only by that person to whom the income actually belonged and hence the lower authorities rightly denied the claim of the assessee.

Observations made by the Tribunal:
It was observed that both assessee and his wife fall in the same tax bracket. Further, the rental income received by assessee from the bank was duly reflected by the wife in her return of income and without claiming TDS credit in question and had paid due taxes thereupon.

It was noted that the property in question alongwith tenancy benefits was transferred by the owner in favour of assessee’s wife vide agreement for sale of shop in 2000.

Held:
TDS credit was rightly claimed by the assessee and the same was allowable to him.