TIRUMALA ESTATES,HYDERABAD V. INCOME TAX OFFICER, WARD-4(1), HYDERABAD

ITA 143/HYD/2024

AI Insights

The case involves Tirumala Estates, a firm engaged in real estate, which appealed against the order of the Commissioner of Income Tax (Appeals) that upheld the Assessing Officer's decision to restrict the firm's claim for a refund of TDS. The firm argued that the income from rent, which was taxed in the hands of its partners, was also subjected to TDS in the firm's name, leading to an unjust enrichment of the state. The Tribunal examined the legal provisions regarding TDS and the assessment of income from property, ultimately deciding that the TDS credit should be given to the partners, as they were the ones who reported the income in their individual tax returns.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 712437 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2022-2023
• Other Referred Cases: Phabiomal and Sons Vs. CIT, ITO, Lucknow Vs. Bachulal Kapoor, ITO Vs. C.H. Atchaiah
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside; Business income; TDS

Judgement Text

"आयकर अपीलीय न्यायाधिकरण में, हैदराबाद ‘ए’ बेंच, हैदराबाद IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A’ Bench, Hyderabad श्री मंजूनाथ जी, माननीय लेखा सदस्य एवं श्री रवीश सूद, माननीय न्याययक सदस्य SHRI G. MANJUNATHA, HON’BLE ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, HON’BLE JUDICIAL MEMBER आयकरअपीलसं./I.T.A.No.143/Hyd/2024 (निर्धारण वर्ा/ Assessment Year: 2022-23) Tirumala Estates, Hyderabad. PAN : AAAFT9809N Vs. Income Tax Officer, Ward – 4(1), Hyderabad. (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) करदाता का प्रतततितित्व/ Assessee Represented by : Shri Mohd. Afzal. राजस्व का प्रतततितित्व/ Department Represented by : Shri Gurpreet Singh, Sr.DR सुिवाई समाप्त होिे की ततति/ Date of Conclusion of Hearing : 17.07.2025 घोर्णध की तधरीख/ Date of Pronouncement : 30.07.2025 O R D E R प्रनत रवीश सूद, जे.एम./PER RAVISH SOOD, J.M. The present appeal filed by the assessee firm is directed against the order passed by the Addl/JCIT(Appeals)-9, Mumbai, dated 18.12.2023, which in turn arises from the intimation issued by the Printed from counselvise.com 2 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. Assessing Officer, CPC/Bengaluru under Section 143(1) of the Income Tax Act, 1961 (for short, “the Act”), dated 27.04.2023 for A.Y. 2022-23. The assessee firm has assailed the impugned order on the following grounds of appeal before us: “1. The order of the learned Commissioner of Income Tax (Appeals) is against the law, weight of evidence and probabilities of case. 2. The learned Commissioner erred in confirming the order of the CPC, wherein, an amount of Rs.20,57,372/- deducted u/s 194I of the IT Act, claiming the same as refund. 3. The learned Commissioner ought to have appreciated that the income from the rent is being assessed in the hands of partners as per the orders of the Hon’ble ITAT, whereas, the tax is being deducted in the name of firm, therefore, denying refund in the hands of firm when the income is assessed in the hands of partners, leads to unjustified enrichment of the state, as the tax is collected in the hands of firm and also the partners paid tax on the income offered from rent. 4. The appellant craves leave to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if it is considered necessary.” 2. Succinctly stated, the assessee firm had filed its return of income for the A.Y. 2022–23 on 05.11.2022, declaring a loss of Rs. 12,22,906/- and had raised a claim of refund of Rs. 20,57,372/- on account of Tax Deducted at Source (TDS). The A.O., CPC, Bangalore, while processing the return of income, however, granted credit for TDS of Rs. 49,187/- only, resulting in a refund of Rs. 50,660/-. Printed from counselvise.com 3 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. 3. Aggrieved the assessee assailed the intimation issued by the A.O./CPC under Section 143(1) of the Act, dated 27.04.2023, on the ground that he had erroneously restricted its claim of refund of Tax Deducted at Source (TDS) of Rs. 20,57,372 (principal amount) to an amount of Rs. 9,187/- (principal amount). However, the CIT(A) did not find favour with the claim of the assessee and upheld the withdrawal of its claim for refund of TDS by the A.O./CPC. For the sake of clarity, the observations of the CIT(A) are culled out as under: Printed from counselvise.com 4 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. Printed from counselvise.com 5 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. 4. The assessee firm being aggrieved with the order of CIT(A), has carried the matter in appeal before us. 5. We have heard the learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial Printed from counselvise.com 6 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. pronouncements that have been pressed into service by the Ld. AR to drive home his contentions. 6. Before adverting to the controversy involved in the present case, we deem it apposite to cull out the background of the case, as the same will have a strong bearing on the adjudication of the issue in hand, i.e., sustainability of the declining of the assessee's claim for refund by the A.O./CPC. 7. As is discernible from the record, the assessee firm, consisting of 12 partners, is engaged in the real estate business. The partners of the assessee firm had purchased several pieces of land in the years 1992, 1993 and 1994 in their individual names much before entering into a partnership as per Partnership Deed dated 28.12.1984. Thereafter, the assessee firm had started construction of a residential complex and sold away all the flats in the earlier years and thereafter, started construction of a commercial complex consisting of several shops in the year 1996, which was completed in the year 1998. Subsequently, the assessee firm was in receipt of rental income from shopping complex that was owned and let out by it to various tenants like Food World, Pantaloons etc. Apart from that, the assessee firm was in receipt of income by way of Printed from counselvise.com 7 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. maintenance charges that was collected by it from the tenants and was wholly spent for the said purpose, i.e., providing lift service, watch and ward, cleaning and lighting of common areas, maintenance of bore-well and water supply etc. Thereafter, the assessee firm claimed the maintenance charges collected from the tenants as its business income, against which it would raise a claim of deduction of certain expenses in its Profit and Loss account. Accordingly, the assessee firm, in its return of income for the preceding year, declared income from property and loss from the business of maintenance. The A.O., while framing the assessment in the case of the assessee firm for the A.Y. 2001–02 declined its claim for treating the maintenance receipts, as its “Business Income” and brought the same to tax under the head “Income from Other Sources.” On the other hand, the assessee firm continued with its claim that the maintenance charges were taxable in its hands under the head “Business Income.” 8. On appeal before the Tribunal, the assessee, by way of an additional ground of appeal, claimed that in case it was to be held that the maintenance receipts were not to be assessed as the business income of the assessee, then no association of persons Printed from counselvise.com 8 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. could be found in existence, and the income should be assessed in accordance with the provisions of Section 26 of the Act. 9. We find that the Tribunal in the case of the assessee firm for the A.Y. 2001–02 in ITA No.418/Hyd/2004, had held that the letting out of the building on rent and doing nothing more either during the financial year under consideration or in the subsequent financial year did not amount to carrying on any business. The Tribunal, after relying on the judgment of the Hon’ble High Court of Andhra Pradesh in the case of Phabiomal and Sons Vs. CIT (1986) 158 ITR 773 (AP), had observed that in the absence of any actual carrying on business, there was no valid partnership in the case of the assessee for the assessment year before them i.e., A.Y. 2001–02. Accordingly, the Tribunal concluded that going by the ratio decidendi of the Hon’ble High Court of Andhra Pradesh in the case of Phabiomal and Sons Vs. CIT (supra), the receipts were to be assessed as per Section 26 of the Act under the head “Income from House Property” in the hands of the partners in their capacity as that of respective co-owners. For the sake of clarity, the observations of the Tribunal in ITA No. 418/Hyd/2004 dated 02.06.2005 for A.Y. 2001–02 are culled out as under: Printed from counselvise.com 9 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. “7. Undoubtedly, the lower authorities are bound to give effect to the directions issued by the Tribunal and compute the income of the assessee in accordance thereof. Admittedly, the above said exercise has not been carried out by the lower authorities in accordance with the said above directions. Hence, we deem it appropriate to remand back the matter again to the file of the AO with the direction to give effect to the direction of the Tribunal reproduced hereinabove and pass the appropriate order in accordance thereof. We express our anguish to the continuous non-compliance of the order of the Tribunal. Let this issue be brought to the notice of the concerned authority. In the light of the above, the appeals of the assessee are allowed for statistical purposes.” (Emphasis supplied by us) 10. Thereafter, we find that the ITAT Hyderabad ‘A’ Bench, in ITA Nos. 1510, 1511, and 1512/Hyd/2016, dated 26.04.2017, while disposing of the appeals in the case of the assessee firm for the A.Ys. 2002–03, 2003–04, and 2004–05, had directed the A.O. to redo the assessment following the directions of the ITAT, Hyderabad, ‘B’ Bench in ITA No. 418/Hyd/2004, dated 02.06.2005, for the A.Y. 2001–02. Also, in A.Y. 2017–18 and A.Y 2018–19, similar directions were issued to follow the earlier orders. 11. Considering the rationale of the orders passed by the Tribunal for the A.Y. 2001–02 and subsequent years, the partners of the assessee firm filed their returns of income, admitting the income from the subject property falling to their share in the respective hands and paid taxes on the same. Printed from counselvise.com 10 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. 12. The assessee firm, following the directions given by the Tribunal in A.Y. 2001–02 and subsequent years, had filed its return of income admitting nil income, as the corresponding income, i.e., rental receipts on which Tax Deducted at Source (TDS) was offered in the hands of the respective partners. It was, thus, based on the aforesaid facts that the assessee firm, in its return of income, had raised a claim of refund of Rs. 20,57,372/- (supra), as the same was deducted in its name, as per Form No. 26AS, while for the corresponding income, as per the directions of the Tribunal, was disclosed/offered for tax by the respective partners in their individual hands. However, the assessee’s claim for credit of Tax Deducted at Source (TDS) was rejected by the A.O./CPC vide its intimation issued under Section 143(1) of the Act, dated 27.03.2023 for the reason that the corresponding income had not been accounted for by the assessee firm in its return of income. 13. Controversy involved in the present appeal boils down to the solitary aspect, i.e., the entitlement of the assessee firm for claim of refund of Tax Deducted at Source (TDS) of Rs.20,57,372/-, whereas the corresponding income had not been offered in its return of income, but based on the directions of the Tribunal in its Printed from counselvise.com 11 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. orders for the A.Y. 2001–02 and subsequent years, the subject income had been disclosed by the respective partners in their individual hands and offered for tax. 14. Admittedly, it is a matter of fact borne from the record that the Tribunal, while disposing of the appeal of the assessee firm for the A.Y. 2001–02 in ITA No. 418/Hyd/2004, dated 02.06.2005, had observed that as in the absence of any business, there was no valid partnership in the case of the assessee firm, therefore, the rental income was liable to be assessed in the hands of the respective partners, i.e., co-owners, under Section 26 of the Act. Also, we find that the aforesaid view taken by the Tribunal in ITA No.418/Hyd/2004, dated 02.06.2005, for A.Y.2001–02 had thereafter, subsequently been followed in the subsequent years. 15. Based on the aforesaid facts, we find that, as on date, the rental income from the subject property is to be assessed in the hands of the respective partners as per Section 26 of the Act. Accordingly, the partners of the assessee firm in the backdrop of the aforesaid directions of the Tribunal in ITA No.418/Hyd/2004 for A.Y. 2001–02 and for the subsequent years would be the “right person” to be assessed qua the subject income. Printed from counselvise.com 12 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. 16. We shall in the backdrop of the aforesaid facts, now deal with the controversy in hand, i.e., who will be entitled for the claim of credit of Tax Deducted at Source (TDS) on the aforesaid income, which as observed by us hereinabove, is liable to be brought to tax in the hands of the respective partners. 17. We shall, for resolving the aforesaid controversy, cull out the provisions of Section 199 of the Act, which contemplates how the credit for Tax Deducted at Source (TDS) is to be allowed, and reads as under: Credit for tax deducted. 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 sub-section (2) and also the assessment year for which such credit may be given. Also, it is relevant to cull out the provisions of Rule 37BA of Income Tax Rules, 1962, which has to be read along with the aforesaid Section 199 of the Act and provides as under : Printed from counselvise.com 13 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. Credit for tax deducted at source for the purposes of section 199. 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. (3) (i) Credit for tax deducted at source and paid to the Central Government, shall be given for the assessment year for which such income is assessable. (ii) Where tax has been deducted at source and paid to the Central Government and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax. (3A) [ Notwithstanding anything contained in sub-rule (1), sub-rule (2) or sub-rule (3), for the purposes of section 194N, credit for tax deducted at source shall be given to the person from whose account tax is deducted and paid to the Central Government account for the assessment year relevant to the previous year in which such tax deduction is made]. [Inserted by Notification No. 694(E), dated 27.9.2019 (w.e.f. 26.3.1962).] (4) Credit for tax deducted at source and paid to the account of the Central Government shall be granted on the basis of- Printed from counselvise.com 14 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. (i) the information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorised by such authority; and (ii) the information in the return of income in respect of the claim for the credit, subject to verification in accordance with the risk management strategy formulated by the Board from time to time. 18. On a perusal of Section 199 of the Act, it contemplates that any deduction of tax at Source (TDS) shall be treated as 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 the property or of the unit-holder or of he share holder, as the case may be. It takes us to Rule 37BA(2)(i) of the Income-tax Rules, 1962, which inter alia contemplates a situation, 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, then the credit for the whole or any part of the TDS, as the case may be, shall be given to such other person, and not to the deductee. However, Rule 37BA(2)(i) comes with rider in form of a “Proviso” which puts an obligation on the deductee to file a declaration with the deductor, who then reports the tax deduction in the name of the other person in the information in relation to the deduction of tax at source. Printed from counselvise.com 15 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. 19. To sum up, Section 199 of the Act contemplates that the credit of Tax Deducted at Source (TDS) inter alia, is allowed to the person from whose income the deduction was made. Although Rule 37BA(2)(i) contemplates a situation for allowing credit of TDS in a case where any part of the corresponding income is assessable in the hands of a person other than the deductee, but, as observed hereinabove, the same requires a declaration from the deductee along with the reporting by the deductor about the allowing of the credit of TDS in the hands of such other person. 20. As the income derived from the subject property in the present case before us, based on the order of the ITAT, Hyderabad, in the case of the assessee for the A.Y. 2001–02 in ITA No. 418/Hyd/2004 and for the subsequent years, is to be assessed in the hands of the respective partners, who are stated to have disclosed the subject income for the year under consideration in their respective returns of income, therefore, as per Section 199 of the Act, the credit of the corresponding Tax Deducted at Source (TDS), is to be treated as a payment of tax made for and on behalf of the said respective persons. As the tenants of the subject property had deducted the tax at source from the account of the assessee firm, but the Printed from counselvise.com 16 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. corresponding income is assessable in the hands of the aforementioned partners, i.e., co-owners, therefore, Rule 37BA(2)(i) comes to the aid of the assessee. However, we cannot remain oblivion of the fact that the pre-condition for triggering Rule 37BA(2)(i), i.e. allowing of credit of the TDS in the hands of a person other than the deductee, as contemplated in the “Proviso” to the said Rule i.e. furnishing of a declaration by the deductee with the deductor, who further reports the tax deduction in the name of the other person in the relating information to deduction of tax furnished with the income-tax authority or the person authorized by such authority, had not been satisfied in the present case before us, therefore, support cannot be drawn from the same. 21. We are of the firm conviction that, as per Section 199(1), which is a substantive provision of the Act, in unequivocal terms provides that the credit of Tax Deducted at Source (TDS) is to be allowed to the person from whose income the deduction was made, therefore, Rule 37BA, which is procedural in nature and sub-servient to give effect and aid the substantive provision cannot be allowed to come in the way of implementation of the aforesaid statutory provision. In other words, let us presume that an income, as in the case of Printed from counselvise.com 17 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. the assessee before us, is assessable in the hands of a person other than the deductee, but the deductor had deducted tax at source (TDS) in the hands of the deductee, then it cannot be presumed that if the pre-condition laid down under the “Proviso” to Rule 37BA(2)(i) is not satisfied, the other person, in whose hands the income is liable to be assessed, would be disentitled of his statutory right of credit of the amount of corresponding Tax deducted at Source (TDS) on the subject income. Our aforesaid view that the income and deduction of Tax Deducted at Source (TDS) must go hand-in-hand is supported by the judgment of the Hon’ble Supreme Court in the case of ITO, Lucknow Vs. Bachulal Kapoor, (1966) 60 ITR 74 (SC). The Hon’ble Supreme Court, in its order, had observed that, in the context of the facts involved in the case before them, that if the assessment proceedings initiated under Section 34 of the Income-tax Act, 1962, in the hands of the members of a Hindu Undivided Family (HUF) culminated in an assessment order passed in the hands of the HUF, then proper adjustments were to be made by the Income Tax Officer, in respect of the tax realized by the Revenue, in respect of the part of the income of the family, that was assessed in the hands of the said Printed from counselvise.com 18 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. family. Accordingly, by drawing an analogy from the aforesaid judgment of the Hon’ble Supreme Court, are of the firm conviction that the credit of the Tax Deducted at Source (TDS) on the corresponding income, which had been assessed in the hands of the partners of the assessee firm, i.e., the co-owners, is statutorily required to be allowed in their hands while computing their respective tax liability. 22. We may herein observe that the Hon’ble Apex Court in the case of ITO Vs. C.H. Atchaiah [(1998) 218 ITR 239 (SC)], has held that the income is to be brought to tax in the hands of the right person and right person alone. Considering the aforesaid judgment of the Hon’ble Apex Court in the case of ITO Vs. C.H. Atchaiah (supra), we are of the firm conviction that now, when the Tribunal, in the case of the present assessee before us, had, while disposing of its appeal for A.Y. 2001-02 in ITA No.418/Hyd/2004, dated 02.06.2005, and for the subsequent year had held that the income from the subject property is to be brought to tax in the hands of the respective partners, then it is the said partners, who are the “right persons”, liable to be assessed for the subject income in question, in their respective hands. Also, now when it is a matter of an Printed from counselvise.com 19 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. admitted fact that the income from the subject property is exigible to tax in the hands of the respective partners, then as per Section 199 of the Act, and also the judgment of the Hon’ble Apex Court in the case of ITO, Lucknow Vs. Bachulal Kapoor (supra), the credit of the Tax Deducted at Source (TDS) on the corresponding income is statutorily required to be allowed in the hands of the said respective partners, i.e., the co-owners of the property, in whose hands the income from the property is statutorily liable to be assessed as per Section 26 of the Act. 23. We thus, in terms of our aforesaid deliberations, set aside the order passed by the CIT(A) and direct the A.O. to allow the credit of Tax Deducted at Source (TDS) on the income received from the subject property in the hands of the respective partners. 24. Before parting, we may herein observe, as a word of caution, that the A.O., shall in the course of the set-aside proceedings while giving effect to our aforesaid directions, verify that the income from the subject property had been offered for tax by the respective partners i.e., as co-owners of the property, as per the mandate of Section 26 of the Act. Printed from counselvise.com 20 ITA No.143/Hyd/2024 Tirumala Estates, Hyderabad. 25. Resultantly, the appeal filed by the assessee firm is allowed in terms of our aforesaid observations. Order pronounced in the Open Court on 30th July, 2025. Sd/- Sd/- (मंजूनाथ जी) (MANJUNATHA G.) लेखा सदस्य/ACCOUNTANT MEMBER Sd/- (श्री रवीश सूद) (RAVISH SOOD) न्यायिक सदस्य/JUDICIAL MEMBER Sd/- Hyderabad, dated 30.07.2025. *TYNM/sps आदेशकी प्रनतनलनप अग्रेनर्त/ Copy of the order forwarded to:- 1. निर्धाररती/The Assessee : Tirumala Estates, 3-6-262, Himayatnagar – 500029, Hyderabad, Telangana. 2. रधजस्व/ The Revenue : The Income Tax Officer, Ward – 4(1), Hyderabad. 3. The Principal Commissioner of Income Tax, Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file आदेशधिुसधर / BY ORDER Sr. Private Secretary ITAT, Hyderabad Printed from counselvise.com "