My tenant deposited the disputed rent in court and the TDS was deducted then, but the money only reached me two years later when the suit was settled. The officer has taxed it in the earlier year. Which year is it taxable in, and what happens to the TDS credit?
The rent is taxable in the year it is actually received, not the year it was deposited in court, and the addition made in the earlier year was deleted. The TDS, however, does not simply follow the money: under Rule 37BA(3)(ii) the credit is allowed across the years in the same proportion in which the income is assessable, so the officer was directed to give proportionate credit in both years.
Decided by the ITAT (N.S. Saini, Accountant Member and Kuldip Singh, Judicial Member) on 2019-02-26, reported as ITA No.6674/Del./2015 (ITAT Delhi, 'G' Bench). It bears on section 25B, section 22, section 23, section 199, section 198, section 234B of the Income Tax Act 1961, in House Property, TDS Defaults and Assessment & Scrutiny matters.
The problem is common wherever rent is litigated, and it is made worse by the fact that the deductor's TDS return puts the whole credit in the earlier year while the money arrives later. Two things are worth taking from this order. First, both the CIT(A) and the Tribunal treated the receipt basis in the special provision on arrears of rent as the answer, so the assessee who has already offered the amount in the later year is not exposed to a second assessment in the earlier one. Second, and this is where practitioners lose money, the Tribunal did not accept the coordinate bench view in Chander Shekhar Aggarwal that the whole TDS credit follows the year of deduction where the assessee is on the cash system; it read that decision subject to Rule 37BA(3) and split the credit. So the taxpayer wins the year of taxability and gets a proportionate, not a full, credit. Note the statutory position has since changed shape: s.25B, which the CIT(A) set out and applied, was omitted and a new s.25A substituted by the Finance Act 2016 with effect from AY 2017-18, covering arrears of rent and unrealised rent together in one provision. The substituted section keeps the same three features the CIT(A) relied on, taxation in the year of receipt, a thirty per cent deduction, and chargeability whether or not the assessee owns the property in that year, so the reasoning survives; but for any year from AY 2017-18 the section to cite is s.25A, not s.25B, and s.25AA has gone as well.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For AY 2012-13 the assessee, who follows the cash system and maintains no books of account, returned income of Rs 13,30,903, which included Rs 3,27,611 comprising rent of Rs 8,05,661 on which Goodyear India Ltd. had deducted tax of Rs 80,567. Rent of Rs 7,25,094 remained deposited in the District Court because of civil litigation between the assessee and the tenant, and the deductor also deposited Rs 6,94,934 as interest on the unpaid rent, on which tax of Rs 77,215 was deducted. The dispute was settled in AY 2014-15 and the assessee showed the rent of Rs 7,25,094 as income of that year. The Assessing Officer added Rs 7,25,094 under income from house property and Rs 6,94,934 under income from other sources in AY 2012-13, on the ground that the income arose in that year per the court orders and TDS had been deducted on it, taking total income to Rs 27,50,931. The CIT(A) set out s.25B and observed that the amount was rightly assessable in the year in which it was finally received, that is AY 2014-15, and treated the assessee's alternative claim to the thirty per cent deduction as academic; but he did not direct deletion of the addition. The assessee appealed on the addition and on the denial of TDS credit of Rs 1,57,782.
Appeal allowed. The rent of Rs 7,25,094 and the interest of Rs 6,94,934, which remained deposited in the District Court until AY 2014-15, were not assessable in AY 2012-13 but were rightly declared by the assessee in AY 2014-15; the CIT(A) erred in not directing deletion of the addition of Rs 14,20,028 and it was ordered to be deleted. On the TDS, credit for tax deducted and paid to the Central Government where the income is assessable over a number of years is to be allowed across those years in the same proportion in which the income is assessable, so the Assessing Officer was directed to give credit proportionately in AY 2012-13 and AY 2014-15. Grounds 2 to 6 were determined in favour of the assessee.
On the year of taxability the Tribunal took the CIT(A)'s own findings, which had set out s.25B and concluded that arrears of rent are to be assessed in the year in which the amount is finally received, and held that the CIT(A) having agreed with that factual and legal position had wrongly left the issue unanswered as academic. Since the assessee had declared the rent in AY 2014-15 when she actually received it on settlement of the civil dispute, the amounts could not be assessed in AY 2012-13 and the addition had to go. On the credit for tax deducted at source, the assessee relied on the coordinate bench decision in Chander Shekhar Aggarwal v. ACIT, ITA No.6185/Del/2013 dated 11 January 2016, which had held that an assessee on the cash system is entitled to credit for the entire TDS offered as income in the year of deduction and that Rule 37BA(3)(ii) applies only where an advance is received which is assessable over several years. The Tribunal held that that decision must be read in the light of Rule 37BA(3), which it set out, and that the rule is categoric: where the income is assessable over a number of years the credit is to be allowed across those years in the same proportion in which the income is assessable. Accordingly the tax of Rs 80,567 on rent and Rs 77,215 on interest was to be credited proportionately against the income assessable in AY 2012-13, with the balance credited in AY 2014-15 when the rent and interest were actually realised.
makes the controversy ample clear that the rental of Rs.7,25,094/- and Rs.6,94,934/- on account of interest which remained deposited in the District Court till AY 2014-15 was not to be assessed in AY 2012-13 rather it has been rightfully declared as income by the assessee in AY 2014-15.
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Handle my notice → Ask a CA on WhatsAppThe rent is taxable in the year it is actually received, not the year it was deposited in court, and the addition made in the earlier year was deleted. The TDS, however, does not simply follow the money: under Rule 37BA(3)(ii) the credit is allowed across the years in the same proportion in which the income is assessable, so the officer was directed to give proportionate credit in both years. This was decided by the ITAT (N.S. Saini, Accountant Member and Kuldip Singh, Judicial Member) and bears on section 25B, section 22, section 23, section 199, section 198, section 234B of the Income Tax Act 1961. It is reported as ITA No.6674/Del./2015 (ITAT Delhi, 'G' Bench). The problem is common wherever rent is litigated, and it is made worse by the fact that the deductor's TDS return puts the whole credit in the earlier year while the money arrives later. Two things are worth taking from this order. First, both the CIT(A) and the Tribunal treated the receipt basis in the special provision on arrears of rent as the answer, so the assessee who has already offered the amount in the later year is not exposed to a second assessment in the earlier one. Second, and this is where practitioners lose money, the Tribunal did not accept the coordinate bench view in Chander Shekhar Aggarwal that the whole TDS credit follows the year of deduction where the assessee is on the cash system; it read that decision subject to Rule 37BA(3) and split the credit. So the taxpayer wins the year of taxability and gets a proportionate, not a full, credit. Note the statutory position has since changed shape: s.25B, which the CIT(A) set out and applied, was omitted and a new s.25A substituted by the Finance Act 2016 with effect from AY 2017-18, covering arrears of rent and unrealised rent together in one provision. The substituted section keeps the same three features the CIT(A) relied on, taxation in the year of receipt, a thirty per cent deduction, and chargeability whether or not the assessee owns the property in that year, so the reasoning survives; but for any year from AY 2017-18 the section to cite is s.25A, not s.25B, and s.25AA has gone as well. If it applies to you, the first step is this: Offer disputed rent in the year it is actually received and say so in a note to the return, identifying the suit, the deposit and the date of release.
For AY 2012-13 the assessee, who follows the cash system and maintains no books of account, returned income of Rs 13,30,903, which included Rs 3,27,611 comprising rent of Rs 8,05,661 on which Goodyear India Ltd. had deducted tax of Rs 80,567. Rent of Rs 7,25,094 remained deposited in the District Court because of civil litigation between the assessee and the tenant, and the deductor also deposited Rs 6,94,934 as interest on the unpaid rent, on which tax of Rs 77,215 was deducted. The dispute was settled in AY 2014-15 and the assessee showed the rent of Rs 7,25,094 as income of that year. The Assessing Officer added Rs 7,25,094 under income from house property and Rs 6,94,934 under income from other sources in AY 2012-13, on the ground that the income arose in that year per the court orders and TDS had been deducted on it, taking total income to Rs 27,50,931. The CIT(A) set out s.25B and observed that the amount was rightly assessable in the year in which it was finally received, that is AY 2014-15, and treated the assessee's alternative claim to the thirty per cent deduction as academic; but he did not direct deletion of the addition. The assessee appealed on the addition and on the denial of TDS credit of Rs 1,57,782. The matter was decided on 2019-02-26 by the ITAT (N.S. Saini, Accountant Member and Kuldip Singh, Judicial Member). On those facts the ITAT held as follows. Appeal allowed. The rent of Rs 7,25,094 and the interest of Rs 6,94,934, which remained deposited in the District Court until AY 2014-15, were not assessable in AY 2012-13 but were rightly declared by the assessee in AY 2014-15; the CIT(A) erred in not directing deletion of the addition of Rs 14,20,028 and it was ordered to be deleted. On the TDS, credit for tax deducted and paid to the Central Government where the income is assessable over a number of years is to be allowed across those years in the same proportion in which the income is assessable, so the Assessing Officer was directed to give credit proportionately in AY 2012-13 and AY 2014-15. Grounds 2 to 6 were determined in favour of the assessee.
On the year of taxability the Tribunal took the CIT(A)'s own findings, which had set out s.25B and concluded that arrears of rent are to be assessed in the year in which the amount is finally received, and held that the CIT(A) having agreed with that factual and legal position had wrongly left the issue unanswered as academic. Since the assessee had declared the rent in AY 2014-15 when she actually received it on settlement of the civil dispute, the amounts could not be assessed in AY 2012-13 and the addition had to go. On the credit for tax deducted at source, the assessee relied on the coordinate bench decision in Chander Shekhar Aggarwal v. ACIT, ITA No.6185/Del/2013 dated 11 January 2016, which had held that an assessee on the cash system is entitled to credit for the entire TDS offered as income in the year of deduction and that Rule 37BA(3)(ii) applies only where an advance is received which is assessable over several years. The Tribunal held that that decision must be read in the light of Rule 37BA(3), which it set out, and that the rule is categoric: where the income is assessable over a number of years the credit is to be allowed across those years in the same proportion in which the income is assessable. Accordingly the tax of Rs 80,567 on rent and Rs 77,215 on interest was to be credited proportionately against the income assessable in AY 2012-13, with the balance credited in AY 2014-15 when the rent and interest were actually realised. In the words reproduced by the source cited on this page: "makes the controversy ample clear that the rental of Rs.7,25,094/- and Rs.6,94,934/- on account of interest which remained deposited in the District Court till AY 2014-15 was not to be assessed in AY 2012-13 rather it has been rightfully declared as income by the assessee in AY 2014-15." The decision followed or applied Chander Shekhar Aggarwal v. ACIT, ITA No.6185/Del/2013, order dated 11 January 2016 (ITAT Delhi) — read down and applied subject to Rule 37BA(3).
It was decided by the ITAT on 2019-02-26 and is reported as ITA No.6674/Del./2015 (ITAT Delhi, 'G' Bench). Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 25B, section 22, section 23, section 199, section 198, section 234B, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. Appeal allowed. The rent of Rs 7,25,094 and the interest of Rs 6,94,934, which remained deposited in the District Court until AY 2014-15, were not assessable in AY 2012-13 but were rightly declared by the assessee in AY 2014-15; the CIT(A) erred in not directing deletion of the addition of Rs 14,20,028 and it was ordered to be deleted. On the TDS, credit for tax deducted and paid to the Central Government where the income is assessable over a number of years is to be allowed across those years in the same proportion in which the income is assessable, so the Assessing Officer was directed to give credit proportionately in AY 2012-13 and AY 2014-15. Grounds 2 to 6 were determined in favour of the assessee. It arises in House Property, TDS Defaults and Assessment & Scrutiny matters, on section 25B, section 22, section 23, section 199, section 198, section 234B of the Income Tax Act 1961, and was decided by N.S. Saini, Accountant Member and Kuldip Singh, Judicial Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Claim the thirty per cent deduction in that year of receipt; here the CIT(A) accepted the claim as reasonable and just but left it academic because he held the amount was not taxable in the year before him, so the point can be lost by default if not pressed in the correct year. For any year from AY 2017-18 cite s.25A as substituted by the Finance Act 2016, not s.25B or s.25AA, both of which were omitted; the chargeability applies whether or not you still own the property in the year of receipt. On TDS, do not assume the whole credit belongs to the year of deduction. Work out the proportion under Rule 37BA(3)(ii) and claim credit in each year in the proportion in which the income is assessable, carrying the balance forward. Ask the deductor to report the deduction correctly and, where possible, file the Form 26B or corrected TDS statement, since a mismatch in Form 26AS is what generates the demand. Where the interest on delayed rent is also deposited, remember it is assessed under income from other sources and not under house property, as it was here.
Superseded by amendment. The holding on the year of taxability is intact but the provision applied is not the one now in force. The CIT(A)'s reasoning, adopted by the Tribunal, rested on s.25B, the special provision for arrears of rent received. Section 25B and s.25AA were omitted and a new s.25A was substituted by the Finance Act 2016 with effect from AY 2017-18, dealing with arrears of rent and unrealised rent together, taxing the amount received in the previous year of receipt after a deduction of thirty per cent, and charging it whether or not the assessee is the owner of that property in that year. Those three elements are carried over unchanged from s.25B, so the receipt-basis reasoning in this order remains sound; for AY 2017-18 onwards the citation must be s.25A. No later treatment of this order was searched for and the validity check was not otherwise completed. Nothing in this entry is an assertion about any decision on the substituted s.25A, none of which was located in this pass. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order is on the predecessor provision. The CIT(A) set out and applied s.25B, the special provision for arrears of rent received, as it then stood; s.25B and s.25AA were omitted and a new s.25A substituted by the Finance Act 2016 with effect from AY 2017-18, and this order says nothing about the substituted text. The retrieved header carries an impossible pair of dates, 'Date of Hearing: 12.12.2019' against 'Date of Order: 26.02.2019'; indiankanoon lists the decision date as 26 February 2019 and that is the date used here, but the hearing date in the report cannot be right as printed. The CIT(A) extract as reproduced contains scanning corruption, notably 'the amount is to be right.fi.1lly assessed'. Paragraph 10 also refers to the addition as 'Rs.14,20,028/-, Rs.7,25,094/- and Rs.6,94,934/-', the first figure being the sum of the other two. The Tribunal decided ground 1 on the receipt basis without itself analysing s.25B beyond adopting the CIT(A)'s finding, so the section is applied here rather than construed. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Appeal allowed. The rent of Rs 7,25,094 and the interest of Rs 6,94,934, which remained deposited in the District Court until AY 2014-15, were not assessable in AY 2012-13 but were rightly declared by the assessee in AY 2014-15; the CIT(A) erred in not directing deletion of the addition of Rs 14,20,028 and it was ordered to be deleted. On the TDS, credit for tax deducted and paid to the Central Government where the income is assessable over a number of years is to be allowed across those years in the same proportion in which the income is assessable, so the Assessing Officer was directed to give credit proportionately in AY 2012-13 and AY 2014-15. Grounds 2 to 6 were determined in favour of the assessee.
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