The Income Tax Appellate Tribunal, Mumbai, has clarified that dividend income accruing after the death of an individual and taxed in the hands of the deceased’s estate is eligible for TDS credit originally deducted in the deceased’s name, provided the income is demonstrably post-death. This ruling reinforces the statutory framework under Section 168 and affirms the estate’s right to claim tax credits, subject to factual verification of the income’s timing.
Background & Facts
The Dispute
The dispute arises from the denial of TDS credit of Rs. 3,56,931/- claimed by the Estate of the late Mr. Pallonji Shapoorji Mistry (PSM) for the assessment year 2024-25. The dividend income, which formed the basis of the TDS, was earned from assets owned by PSM during the financial year 2023-24. PSM died on 28.06.2022. His estate was formally constituted on 29.06.2022 under Section 168 of the Income Tax Act, 1961, with family members acting as executors pending probate of his will in the Bombay High Court.
Key Facts
- Mr. Pallonji Shapoorji Mistry died on 28.06.2022.
- The Estate was deemed constituted on 29.06.2022 under Section 168(1)(b) of the Income Tax Act.
- The assessee filed the return of income for A.Y. 2024-25 on 29.07.2024 as an Association of Persons (AOP), declaring total income of Rs. 78,07,290.
- The return claimed TDS credit of Rs. 3,56,931/-, deducted by the dividend-paying entities in the name of the deceased during FY 2023-24.
- No income tax return was filed in the name of the deceased for A.Y. 2024-25.
- The TDS credit was not claimed by any other person or entity.
- The Income Tax Department issued intimation under Section 143(1) on 22.10.2024, disallowing the TDS credit and determining tax payable at Rs. 4,06,530.
Procedural History
- 22.10.2024: Intimation under Section 143(1) issued, disallowing TDS credit.
- 14.10.2025: Order passed by Additional/Joint Commissioner of Income Tax (Appeals)-6, Delhi, restoring the matter to the Assessing Officer for factual verification.
- 18.03.2026: Hearing before ITAT Mumbai.
- 26.03.2026: ITAT Mumbai delivers order.
The Parties' Positions
For the Appellant (Estate of PSM):
- Argued that dividend income arose entirely after PSM’s death and was duly offered to tax in the hands of the estate under Section 168.
- Relied on Section 199 of the Act, which entitles the person in whose hands the income is taxable to claim TDS credit.
- Cited Late Russi Dinshaw Bahadurji v. ITO (ITA No. 1618/Mum/2022) to support liberal interpretation of Rule 37BA(2) for transfer of TDS credit.
- Contended that since no return was filed by the deceased and no other claimant existed, the estate is the only lawful recipient of the credit.
For the Respondent (Revenue):
- Did not dispute the legal position that income post-death is taxable in the estate’s hands.
- Argued that the timing of income accrual - whether pre- or post-death - must be verified to prevent double claim or misappropriation of credit.
- Maintained that Rule 37BA(2) requires a declaration by legal heirs for TDS transfer, and its non-filing invalidates the claim.
Relief Sought
The appellant sought:
- Allowance of TDS credit of Rs. 3,56,931/- in the hands of the estate.
- Rectification of the intimation under Section 143(1).
- Setting aside of the order of the Additional/Joint CIT(A) directing restoration to the AO.
The Legal Issue
Whether the TDS credit deducted in the name of a deceased individual can be allowed to his estate, where the underlying income (dividend) accrued entirely after death and is offered to tax in the estate’s hands under Section 168, without requiring a formal declaration under Rule 37BA(2)?
Arguments Presented
For the Appellant
The appellant relied on Section 199, which states that the person in whose hands the income is taxable is entitled to the TDS credit. Since the dividend income was earned after PSM’s death and taxed in the estate’s hands, the credit must follow the income. The appellant argued that Rule 37BA(2) is procedural and cannot override the substantive right under Section 199. The Russi Dinshaw precedent was cited to show that technical compliance should not defeat substantive entitlement, especially where no double claim is possible.
For the Respondent
The Revenue did not contest the legal principle that post-death income belongs to the estate. However, it emphasized the need for factual verification to ensure the income did not accrue partially during the deceased’s lifetime, which would require apportionment and potential return filing by the legal heir. The Revenue contended that Rule 37BA(2) provides the only statutory mechanism for TDS credit transfer and its non-compliance renders the claim invalid.
The Court's Analysis
The Tribunal acknowledged that Section 168 creates a distinct taxable entity - the estate - upon the death of an individual with a valid will. Income arising from the estate’s assets after death is chargeable to tax in the hands of the executor, not the deceased. The Tribunal agreed with the appellant that Section 199 mandates that the TDS credit must vest with the person in whose hands the income is assessed.
"The person in whose hands the income is taxable is entitled to the TDS credit."
However, the Tribunal found that the record lacked evidence to conclusively determine whether the dividend income arose entirely after 28.06.2022 or if any portion accrued during the deceased’s lifetime. The Tribunal noted that if any part of the income accrued before death, it would be taxable in the hands of the legal heir under Section 160, and the estate would not be entitled to the corresponding TDS credit.
The Tribunal further held that the Additional/Joint CIT(A) erred in restoring the matter to the Assessing Officer under Section 251, which does not empower the CIT(A) to remand for factual verification unless the appeal is against an assessment under Section 144. The Tribunal observed:
"The learned CIT(A) is not empowered to restore the matter to the file of the AO... except in a case where the appeal is against an order of assessment under section 144 of the Act."
Despite this procedural error, the Tribunal endorsed the need for factual verification, stating that the timing of income accrual is a material fact affecting the entitlement to TDS credit. The Tribunal directed the Assessing Officer to conduct the verification and, if satisfied that the income arose post-death, to allow the TDS credit.
The Verdict
The appeal was partly allowed for statistical purposes. The ITAT directed the Assessing Officer to verify whether the dividend income of Rs. 3,56,931/- accrued entirely after 28.06.2022. If verified as post-death income, the TDS credit of Rs. 3,56,931/- shall be allowed to the estate. The directions to the AO are to be completed within 60 days of the order. Grounds 1.2 and 1.3 were dismissed as premature.
What This Means For Similar Cases
TDS Credit Follows Taxable Income, Not Name on TDS Certificate
- Practitioners must argue that Section 199 governs TDS credit entitlement, not the name on the TDS certificate.
- Where income is taxed in the estate’s hands under Section 168, the credit must be allowed irrespective of whether the deceased’s PAN was used for TDS deduction.
- Rule 37BA(2) is procedural and cannot override the substantive right under Section 199.
Verification of Income Timing Is Critical
- In all cases involving post-death income, practitioners must obtain and submit:
- Bank statements showing dividend credit dates
- Corporate dividend declaration dates
- Record of ex-dividend dates
- Any correspondence from the dividend-paying entity
- Failure to establish the post-death timing may result in denial of credit.
Procedural Errors by CIT(A) Are Reversible
- CIT(A) cannot remand cases for factual verification unless the appeal is against a Section 144 assessment.
- Any such order is ultra vires and can be set aside by the Tribunal.
- Practitioners should challenge remand orders in appeals under Section 253 as jurisdictional errors.
