TDS Credit On Deceased Person’s Income: Legal Heir Entitled Where Income Is Taxed In Her Hands

Background and Context

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) in the case of Rohini Gautambhai Shah Vs ITO has delivered an important ruling on the interaction between Tax Deduction at Source (TDS) and taxation of income in the hands of a legal heir. The dispute centered around whether TDS, which was deducted and reported under the PAN of a deceased professional, could be denied to the legal heir when the same income was assessed and taxed in her hands.

The order deals with core principles under the Income Tax Act 1961, the rectification mechanism under Section 154, and the constitutional mandate under Article 265 that no tax shall be collected except by authority of law. The Tribunal has reiterated that the Revenue cannot, in law or equity, tax income in one person’s hands while simultaneously refusing corresponding TDS credit on the technical ground that the TDS appears in someone else’s PAN—especially where that someone is deceased and the legal heir’s status is recognized on the tax portal.

Facts of the Case

Personal and Return Filing Details

  • The assessee, a super senior citizen, filed her return of income for Assessment Year (AY) 2020-21 on 19-10-2020.
  • Declared total income: Rs. 30,26,560/-
  • The return comprised:
    • Income from house property
    • Short-term and long-term capital loss
    • Income from other sources
    • Professional consultation fees relating to her late husband, Gautam B. Shah

The return was processed under Section 143(1), and a refund of Rs. 9,050/- was issued.

Income of Deceased Husband Offered in Assessee’s Return

  • Late Gautam B. Shah was a professional Architect and Planning Consultant carrying on business as a sole proprietor of M/s. Gautam Shah Associates.
  • He passed away on 24-08-2018.
  • During the Financial Year 2019-20, payments aggregating to Rs. 11,63,635/- were received from Ahmedabad Municipal Corporation (AMC) towards professional services rendered.
  • On these payments, AMC deducted TDS of Rs. 1,16,365/- and reported such TDS under the PAN of the deceased, ACBPS6986J.
  • After his death, the assessee, as legal heir:
    • Surrendered the PAN of the deceased.
    • Offered the professional income of Rs. 11,63,635/- in her own return for AY 2020-21.
    • Claimed the corresponding TDS credit of Rs. 1,16,365/- in her own PAN.

Rectification Application and CPC’s Stand

Although the return was processed, the Centralized Processing Centre (CPC) did not allow the full TDS credit. The assessee’s position was:

  • She had declared the late husband’s professional income in her own return.
  • She had claimed TDS credit of Rs. 1,16,365/-, which was reflected in Form 26AS of the deceased.

The CPC, while processing rectification under Section 154, refused to grant this TDS credit, stating:

  • There was no mistake apparent from the record.
  • The TDS amount pertained to the PAN of the deceased husband and therefore could not be given as credit in the PAN of the assessee.

Consequently, the rectification petition was disposed of with a finding that no further amount was due to the assessee.

First Appeal Before CIT(A)

Aggrieved by CPC’s refusal, the assessee filed an appeal before the Additional Commissioner of Income Tax/JCIT (Appeals)-4, Mumbai.

Findings of CIT(A)

The CIT(A) analyzed the TDS claim as under:

  1. The assessee had claimed TDS credit of Rs. 1,30,313/- in the return.
  2. CPC allowed TDS credit of only Rs. 13,948/- under Section 143(1) as well as under Section 154.
  3. This resulted in a short TDS credit of Rs. 1,16,365/-.

Upon verifying Form 26AS, the CIT(A) noted that:

  • The disputed TDS of Rs. 1,16,365/- was recorded against the PAN of Mr. Gautam Budhabhai Shah, the deceased husband of the assessee.
  • The assessee had stated that her husband had passed away and that the income of Rs. 11,63,632/- was offered in her own return along with the TDS claim of Rs. 1,16,365/-.

However, the CIT(A) concluded:

  • The assessee did not file the return of income in the capacity of a legal heir of Late **Mr.