In Shri Rangji Realities Pvt Ltd v. ITO, the Single Member of the ITAT, Mumbai bench allowed the assesses claim towards TDS credited on unrealized income.
Assessee, in the instant case, has offered income under the head of income from house property after deducting the amount of unrealized rent under Rule 4 of the Income Tax Rules 1962 and claimed TDS credited on both, realized as well as unrealized rent. The AO, under Section 154 of the Income Tax Act, restricted the allowances of TDS credited to the extent of actual amount of rent received.
The first appellate authority dismissed the appeal filed against the above order by holding that since the unrealized rent has not been assessed to tax, the TDS deducted on such rent cannot be claimed as tax deducted and paid to the central government.
The bench noted that the assesssee has claimed deduction of Unrealized rent u/s 23(1) of the Act, read with Rule 4 of the Rules, from the total rental income offered for the year under consideration. “The unrealized rent is not an exempt income. As the total rental income (including unrealized rent) is duly offered to tax under the head ‘Income from House Property’, corresponding TDS credit needs to be allowed. There similar instances, where although the deduction is allowed with respect to total income offered during the year, still the claim of TDS with respect to such deduction claim is duly allowable under the Act i.e. TDS credit is allowed on deduction of Income under u/s 8OIA, 8OIB, 80IC of the act, etc and also TDS credit is allowed on bad debts claimed u/s 36(1)(vii) of the Act. Accordingly I am of the view that that the Unrealized rent is duly offered to tax by the assessee at first instance, and then the same is claimed as deduction from Rental Income u/s 23(1) of the Act r.w. Rule 4 of the rules.”
Allowing the appeal, the Single Member noted that assessee duly fulfills all the conditions as laid down in section 198 r.ws. 199 r.w. Rule 378A of the Act and TDS had been deducted and paid to the Central Government by the deductee and Payment/ Credit of Rent Income has been included in the accounts of the assessee. Also, the deductor had duly filed requisite TDS returns as per Rules and also issued TDS certificate to the assessee and the same was furnished to the AO. Amount of TDS claimed, corresponding to claim of unrealized rent, is duly offered to tax as income of the assessee, in view of section 198 of the Act and also assessed by the AO.
