12 January 2010
SECTION 199 l CREDIT FOR TAX DEDUCTED
1184. Shares belong to one person but they are held in some
1. Attention is invited to the Board’s Circular No. 31 (XXI-4), dated 1-12-1953 wherein instructions were issued, inter alia, that in a case where shares belonging to a person are held in someShree Shakti Mills Ltd. v. CIT [1948] 16 ITR 187.
2. The legal position in such cases was explained later by the Supreme Court in several cases, the latest being the case of Kishanchand Lunidasing Bajaj v. CIT [1966] 60 ITR 500. The Supreme Court has held that the dividend income in such cases has to be assessed in the hands of the registered shareholder who is merely a trustee for the former and receives the income on his behalf.
3. The matter has been reconsidered in the light of the judicial pronouncements mentioned above and it has been decided to withdraw the instructions contained in Circular No. 31(XXI-4), dated 1-12-1953, as these instructions are not in conformity with law. The correct legal position is that the gross dividend (net dividend plus the tax deducted at source) receivable by the registered shareholder on behalf of the beneficial shareholder, will be assessed in the hands of the latter as “income from other sourcesâ€, in the year in which it is declared, distributed or paid.1 [He will not be given credit for the tax deducted at source. Credit for the tax deducted at source will, however, be given to the registered shareholder if he files an application for refund under section 237(1)]. Income from such dividends in his hands will be nil.
Circular : No. 3-D(XXI-20), dated 30-3-1967.
1185. 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.
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