ITAT Jodhpur Affirms Trust’s Right to TDS Credit Standing in Trustee’s PAN: Rule 37BA Treated as Procedural

1. Background of the Dispute

The Jodhpur Bench of the Income Tax Appellate Tribunal in Venktesh Ayurvedic Aushdhalaya Vs ITO (ITAT Jodhpur) examined whether an assessee trust can be denied credit of TDS merely because the tax was deducted in the name of its trustee and did not appear in the trust’s Form 26AS, and no declaration under Rule 37BA(2) was filed.

The appeal arose from an intimation under Section 143(1) for Assessment Year 2024-25, where the Centralized Processing Centre (CPC) restricted the assessee’s claim of prepaid taxes/TDS to Rs. 9,93,220/-, as against a claim of Rs. 12,41,130/-, resulting in a short credit of Rs. 2,47,910/-. This shortfall formed the core issue in dispute.

The assessee challenged the intimation dated 09.01.2025 and the appellate order dated 16.01.2026 passed by the Addl/JCIT(A)-01, Nashik under Section 250 of the Income Tax Act, 1961, confining its effective grievance to denial of TDS credit of Rs. 2,47,910/-.

2. Facts Recorded and Nature of Mismatch

2.1 Processing under Section 143(1)

While processing the return under Section 143(1), CPC compared:

  • TDS/prepaid tax claimed in the return: Rs. 12,41,130/-
  • TDS credit available in the assessee’s Form 26AS: Rs. 9,93,220/-

The difference of Rs. 2,47,910/- was disallowed, with CPC recording it as a “mismatch between the tax credits claimed and allowed” as per Form 26AS, which was also reflected in Table B of the intimation.

2.2 Assessee’s Explanation Before CIT(A)

The assessee explained that:

  • It is a trust which had invested its own funds in securities.
  • As per operational constraints, the trust claimed it was not in a position to open a demat account in its own name, so the securities were held in the name of the trustee.
  • Consequently, the TDS on interest from these securities was deducted under the trustee’s PAN, and therefore did not appear in the trust’s Form 26AS.
  • However, the entire interest income arising from such securities was offered to tax in the return of the trust, and the trust claimed the corresponding TDS credit.

The assessee also submitted that the investments were funded through RTGS from the trust’s own bank account, and supporting documentation was placed on record to substantiate that the beneficial ownership and taxation of the interest income lay with the trust itself.

3. CIT(A)’s View: Strict Interpretation of Section 199 and Rule 37BA

The CIT(A) upheld the CPC’s denial of TDS credit of Rs. 2,47,910/- by applying:

  • Section 199 of the Income Tax Act, 1961, read with
  • Rule 37BA(2) of the Income-tax Rules, 1962.

According to the CIT(A):

  • Where income on which TDS is deducted is assessable in someone else’s hands, Rule 37BA(2) permits credit to such “other person” only when:
    • The deductee files a declaration with the deductor, and
    • The deductor reports the deduction in the name of that other person in the TDS statement.

On this basis, the CIT(A) reasoned:

  • The assessee had not furnished the declaration contemplated by Rule 37BA(2).
  • The requirement of such a declaration was treated as mandatory, not merely procedural.
  • Consequently, the trust was held ineligible for the disputed TDS credit, irrespective of the fact that the underlying income was offered to tax by the trust.

4. Arguments Advanced Before the Tribunal

4.1 Assessee’s Submissions

Before the ITAT, the assessee’s counsel stressed the following: