ITAT Delhi: Company Entitled to TDS Credit Even if Income Taxed Elsewhere
Tribunal says denying credit leads to double taxation and unjust enrichment of Revenue
Section 199 and Rule 37BA must be applied pragmatically to protect taxpayers
By Our Legal Reporter
New Delhi: December 25, 2025:
In a landmark judgment, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has allowed a company to claim TDS credit of ₹3.41 lakh, even though the corresponding income was taxed in the hands of another entity. The Tribunal held that Section 199 of the Income Tax Act, 1961, read with Rule 37BA of the Income Tax Rules, is a machinery provision designed to ensure proper credit of taxes paid, and must be interpreted pragmatically to avoid double taxation.
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This ruling is significant because it clarifies that TDS credit cannot be denied merely due to technicalities, especially when the tax has already been deposited with the government and is reflected in the taxpayer’s Form 26AS.
Background of the Case
- The assessee company was engaged in real estate development under a collaboration agreement with Emaar MGF Land Ltd.
- Under the agreement, certain income accrued to the principal entity, but TDS was deducted in the name of the assessee company.
- The Assessing Officer (AO) denied TDS credit, arguing that the corresponding income was not offered to tax by the assessee but by its sister concern.
- The company appealed, contending that denying credit would amount to double taxation and unjust enrichment of the Revenue.
Court’s Observations
The ITAT made several important points:
- Section 199 Interpretation: The section clearly states that TDS credit must be given to the person from whose income tax has been deducted.
- Rule 37BA Application: Rule 37BA provides for proportionate credit when income is assessable in the hands of another person. The Tribunal emphasized that this rule is procedural and cannot override substantive justice.
- Form 26AS Evidence: Since the TDS was duly reflected in Form 26AS, denying credit would be unjust.
- Double Taxation Risk: The Tribunal warned that denying credit would lead to double taxation, which is against the principles of equity.
- Precedents: The ITAT relied on Delhi High Court’s ruling in CIT v. Relcom Ltd. and other precedents that upheld similar interpretations.
Legal Issue at Stake
The central legal issue was whether TDS credit can be denied if the corresponding income is taxed in another entity’s hands.
- The Revenue argued that credit should only be given to the entity that offered the income to tax.
- The Tribunal clarified that tax deducted at source is a payment to the government, and once deposited, it must be credited to the taxpayer whose PAN reflects the deduction.
- Denying credit would amount to the government retaining tax without granting relief to any taxpayer, which is impermissible.
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Impact of the Ruling
This judgment has wide implications:
- For Taxpayers: Provides relief in cases where income allocation between group entities creates technical mismatches in TDS credit.
- For Revenue Authorities: Reinforces the need to apply Section 199 and Rule 37BA pragmatically, avoiding unjust enrichment.
- For Business Environment: Strengthens investor confidence by ensuring fairness in tax administration.
- For Legal Precedent: Adds to jurisprudence that procedural technicalities cannot defeat substantive justice.
Broader Context
- TDS System: Designed to ensure advance collection of tax, but mismatches often arise in group structures, joint ventures, and collaboration agreements.
- Judicial Trend: Courts and Tribunals have consistently held that TDS credit must be allowed if reflected in Form 26AS, even if income is taxed elsewhere.
- Policy Implications: The ruling may push the CBDT (Central Board of Direct Taxes) to issue clearer guidelines to prevent unnecessary litigation.
Reactions
- Tax Experts: Welcomed the ruling, noting that it prevents double taxation and protects taxpayer rights.
- Corporate Sector: Companies engaged in joint ventures see this as a major relief, reducing compliance risks.
- Policy Analysts: Suggested that the case highlights the need for better coordination between TDS provisions and income recognition rules.
Conclusion
The Delhi ITAT’s ruling that a company is entitled to TDS credit even when the corresponding income is taxed elsewhere is a landmark in Indian tax law. By allowing credit of ₹3.41 lakh, the Tribunal reinforced the principle that tax deducted at source cannot be denied due to technical mismatches.
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This judgment strengthens taxpayer rights, prevents double taxation, and ensures that procedural rules do not override substantive justice.
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