1177. Problems faced by assessees in getting due credit for tax deducted at source under section 199
Circular No. 5 was issued by the Central Board of Direct Taxes on 2 March 2001. Its subject is 1177. Problems faced by assessees in getting due credit for tax deducted at source under section 199.
Solves the credit problem thrown up by tax deducted under section 194-I on advance rent covering more than one financial year. Because house property income is taxed on the annual letting value, the whole advance does not accrue in one year, and section 199 gives credit only for the year in which the income is assessable, so the landlord could not get full credit in the first year on the single certificate under section 203 and had no certificate for the later years. The Board directs that where advance rent is spread over more than one financial year, credit be allowed in the same proportion in which the income is offered for tax in the different assessment years, on the strength of that single certificate. Where the rent agreement is later terminated or cancelled, or the rented property is transferred by sale, lease, gift or otherwise so that the balance advance rent is refunded to the transferee or the tenant, the whole of the deducted tax not yet credited is to be allowed in the assessment year relevant to the financial year in which that happens.
A number of representations pointed out that assessees were not getting due credit under section 199 for tax deducted on advance rent under section 194-I, both where the rent spanned several years and where the tenancy or the ownership ended before the rent was earned.
1177. Problems faced by assessees in getting due credit for tax deducted at source under section 199
1. A number of representations has been received by the Board pointing out the problems being faced by the assessees in getting due credit for tax deducted at source under the provisions of section 199 of the Income-tax Act, 1961 in respect of tax deducted in terms of section 194-I of the Act. Such problems in getting due credit for tax deducted at source mainly relate to the following situations :
(a) Tax is deducted at source under the provisions of section 194-I of the Act on advance rent pertaining to more than one financial year to be adjusted against future rent.
(b) Subsequent to the deduction of tax at source on advance rent pertaining to one or more financial years :
(i) Rent agreement gets terminated/cancelled resulting into refund of balance amount of advance rent to the tenant.
(ii) Rented property is transferred by way of sale, lease, gift, etc., with tenant in occupation or otherwise resulting into refund of balance amount of advance rent to the transferee or the tenant, as the case may be.
2.1 In the situation mentioned at (a) in para above, difficulty in getting due credit for tax deducted arises because the entire amount of advance rent does not accrue to the assessees as income in one financial year since the income from the property is taxed on the basis of annual letting value whereas the tax is deducted at source on the entire amount of advance rent pertaining to more than one financial year. Therefore, credit for entire amount of tax deducted at source is not allowed in terms of section 199 of the Act because the credit is to be given for the assessment year for which such income is assessable. Thus, the assessees do not get credit for the entire amount of tax deducted at source in the first assessment year, in which part of the advance rent is offered as rental income, on the basis of the Certificate furnished under section 203 of the Act. Further there is a difficulty in claiming the credit in the remaining assessment years to which balance of advance rent relates in the absence of the Certificate for tax deducted at source for these years.
2.2 In the situation as at ( b) mentioned at Para 1, difficulty in getting due credit for tax deducted at source arises because rental income ceases to accrue to the assessees on account of termination/cancellation of Rent agreement of transfer of the rented property subsequent to the deduction of tax at source on advance rent pertaining to one or more financial years. The credit is not given in the hands of the assessees in whose names Certificate for tax deduction at source stands because there is no relatable rental income and, further credit for tax is not allowed to any person other than the person in whose name Certificate for tax deducted at source has been issued. Thus, in such cases, even though tax has been deducted at source and paid to the Government, due credit for such tax deducted is not allowed.
3. The matter has been considered by the Board and it has been decided that credit for tax deducted at source shall be allowed to the assessees on whose behalf such tax has been deducted and to whom Certificate for tax deducted at source has been furnished under section 203 of the Act as under :
(i) In such cases as referred to in (a) above where advance rent is spread over more than one financial year and tax is deducted thereon, credit shall be allowed in the same proportion in which such income is offered for taxation for different assessment years based on the single Certificate furnished for tax so deducted on the entire advance rent.
(ii) In respect of the situation as at (b), credit for the entire balance of tax deducted at source, which has not been given credit so far, shall be allowed in the assessment year relevant to the financial year during which the rent agreement gets terminated/cancelled or rented property is transferred and balance of advance rent is refunded to the transferee or the tenant, as the case may be.
Circular : No. 5/2001, dated 2-3-2001.
In an intimation under section 143(1) restricting credit for tax deducted at source on rent, and in a rectification application after a tenancy is cancelled and advance rent refunded.
A landlord receives three years' rent in advance in one year and the tenant deducts under section 194-I on the whole amount, issuing one certificate. The landlord offers one third of the rent in each of the three assessment years, and takes one third of the deducted tax as credit in each of them on that single certificate. If the agreement is cancelled after the second year and the balance is refunded to the tenant, the whole of the remaining unclaimed tax is allowed in the assessment year for the financial year of cancellation.
Source: the Income Tax Department’s own published text — its page for this instrument.
