When Mr Yadav from Etawah, Uttar Pradesh gave his property which was jointly owned by him and his mother and sister, on rent, State Bank of India (SBI) offered to take it at Rs 40.62 lakh annual rent.
On February 5, 2020, a lease deed was signed between Yadav, his mother and sister as co-owners/landlord and landladies and the tenant, SBI. The lease was set for the period from September 26, 2014 to September 25, 2024.
Also the sale deed mentioned Yadav and his mother and sister’s PAN and said that SBI must pay the rent to all the three lessors jointly. With this income, Yadav purchased a car for Rs 20.79 lakh. On February 3, 2021 Yadav filed his income tax return (ITR) for AY 2020-2021 declaring a total income of Rs 22.08 lakh.
After filing the ITR, everything was going fine in Yadav’s life when one day he got a tax notice under Section 148. Subsequently, on November 11, 2024, December 20, 2024 and December 30, 2024 he got Section 142(1) tax notice and reminders to reply to them. This is when Yadav got attentive to the tax issue and tried to explain it to the tax department.
The issue was the Income Tax Department’s software caught a mismatch between Yadav’s declared income and his purchases. Yadav being unaware of this mismatch initially had difficulty apprehending it but he tried to explain his income sources and submitted the evidence also.
The Income Tax Assessing Officer (AO) from ITO, Near Balram Singh Chauraha, Etawah, listened to Yadav and accepted his explanation for the source of funds for the car purchase and also accepted the SBI rent joint bank account issue but disagreed with the TDS on rent claim.
The AO found that according to Yadav’s Form 26AS, SBI deducted Rs 4.06 lakh TDS on rent paid, but Yadav reported only one-third of the rent received from SBI. So the AO therefore held that Yadav should get 1/3rd of the TDS credit i.e. Rs 1.35 lakh and accordingly prepared an assessment order on February 14, 2025.
Feeling aggrieved, Yadav tried to convince the commissioner of appeals (CIT A) but failed to do so. Thus Yadav filed an appeal before the Income Tax Appellate Tribunal (ITAT) Agra. Chartered Accountant Rajesh Malhotra represented him before ITAT Agra.
Sunil Kumar Singh, Judicial Member and Brajesh Kumar Singh, Accountant Member of ITAT Agra heard his case on June 22, 2026 and passed their judgement on July 30, 2026. Yadav won the case.
Mihir Tanna, associate director, S.K Patodia LLP says: For specified nature of income, income tax provisions distinguish the legal owner of income/asset with the beneficial owner of income/asset. Accordingly, in certain cases though income received by a particular person is taxable in the hands of another person.
Tanna says that for such types of cases, credit for TDS should be given to said another person if the receiver of income submitted a declaration stating the same. In the absence of such declaration, the deductor of TDS (i.e. payer of income) will assume that TDS is required to be deducted on the PAN of the recipient of income.
Tanna says: “In the given case, Hon’ble ITAT highlighted an important aspect that said declaration is not required if income is partially taxable in the hands of another person.”
Keep reading to know more about why Yadav won the case.
Summary of the judgement
Chartered Accountant Suresh Surana said to ET Wealth Online : The dispute arose after the Assessing Officer (AO) restricted the TDS credit to one-third of the total amount, holding that the Mr Yadav had offered only one-third of the rental income to tax as the property was jointly owned by Mr Yadav, his mother and his sister. The lower authorities had denied credit of the balance amount of TDS.
The tax tribunal noted that it was an undisputed fact that the entire TDS of Rs 4.06 lakh had been deducted against Mr Yadav's PAN, while the three co-owners had shown their respective one-third share of rental income in their income tax returns.
The tax tribunal noted that the tenant bank (SBI) had inadvertently posted the entire TDS against Mr Yadav's PAN instead of allocating it proportionately among the co-owners.
ITAT Agra further recorded that the two co-owners had not claimed their proportionate TDS credit in their income tax returns (ITRs) and had filed affidavits supporting Mr Yadav's claim.
The tax tribunal observed that under Section 199 of Income-tax Act, 1961 read with Rule 37BA(2)(i) Income-tax Rule, 1962, TDS credit can be transferred to another person only if the prescribed declaration is furnished to the deductor. But since Yadav had not filed any such declaration, the co-owners (his mother and sister) were not eligible for proportionate TDS credit.
The tax tribunal also emphasised that any rule of procedure is only a tool for justice and should not be applied in a manner that defeats the rights of any party. ITAT Agra also held that the object of procedural law is to advance the cause of justice and that procedural law is an aid to justice, not an obstruction.
ITAT Agra further emphasised that technical justice cannot substitute substantial justice and also observed that if the credit of the whole TDS was denied to Yadav, the remaining two-thirds of the TDS would be permanently retained by the Income Tax Department without credit being given to anyone, which could never be the spirit and intention of law.
ITAT Agra held that the Income Tax Department cannot retain tax deducted at source (TDS) without granting credit to any person.
Surana says that since the co-owners had supported Mr Yadav's claim and had not claimed their proportionate TDS credit in their income tax returns for the relevant assessment year, ITAT Agra held that Mr Yadav was entitled to credit of the entire TDS deducted under his PAN.
Accordingly, ITAT Agra directed the AO to allow credit of the full TDS amount.
