2018 (9) TMI 1635 - HC - Income Tax

Court rules in favor of petitioner regarding tax recovery dispute, emphasizing entitlement to credit. Department directed to return funds.

The court ruled in favor of the petitioner, holding that the Department could not recover the tax amount from the petitioner when the employer had ... Credit of tax deducted at source - application of Section 205 of the Income-tax Act, 1961 to TDS credit - liability to recover TDS from deductor and not from deductee where TDS has been withheld by employer - adjustment of subsequent refunds and refund with statutory interest - precedential effect of Sumit Devendra Rajani and Om Prakash GattaniCredit of tax deducted at source - application of Section 205 of the Income-tax Act, 1961 to TDS credit - liability to recover TDS from deductor and not from deductee where TDS has been withheld by employer - Assessee is entitled to credit for TDS deducted by employer though the employer did not deposit the same with revenue; Revenue cannot recover that TDS from the assessee. - HELD THAT: - The Court, applying the reasoning in Sumit Devendra Rajani (which follows Om Prakash Gattani), held that where the employer has deducted tax at source and documentary proof (Form No.16A) is produced, the assessee-deductee is entitled to credit for the TDS despite non-deposit by the employer. The Court examined the statutory scheme including Section 205 and concurred with the view that the tax credit cannot be denied to the deductee on account of the deductor's failure to deposit; the proper remedy for non-deposit lies against the deductor. Consequently, demand notices issued against the deductee in such circumstances cannot be sustained. The Court further directed that any recoveries or adjustments made by the Department from the assessee's subsequent refunds must be restored, and permitted departmental recourse against the deductor if necessary. [Paras 3, 4, 5]Petitioner entitled to credit of TDS for the stated years; Department cannot recover such amount from petitioner and must restore any refunds adjusted, with statutory interest; Department may pursue recovery from the deductor.Final Conclusion: Petitions allowed; credit of TDS (for AY 2012-13 and related adjustment in AY 2013-14) to be given to the petitioner, adjustments out of later refunds to be returned with statutory interest, while the Department remains free to recover the amount from the employer/deductor. Issues:1. Recovery of tax deducted at source by employer but not deposited with the Government.2. Entitlement of the petitioner to the benefit of tax deducted at source.Analysis:1. The petitioner, an individual and a pilot with King Fisher Airlines, filed an income tax return for the assessment year 2012-13, with the employer deducting tax at source amounting to Rs. 2,68,498. However, the employer failed to deposit this tax with the Government. The Income Tax Department raised an equivalent tax demand with interest, which the petitioner contested, citing statutory provisions and relevant court decisions. The Department adjusted a refund of Rs. 47,140 from the petitioner for a subsequent assessment year, leading to the dispute.2. The main question before the court was whether the Department could recover the tax amount from the petitioner when the employer had deducted it but not deposited it with the Government. Referring to previous judgments, particularly the case of Sumit Devendra Rajani vs. Assistant Commissioner of Income Tax, the court held that the petitioner was entitled to credit for the tax deducted at source by the employer. The court emphasized that the mere failure of the deductor to deposit the tax should not allow the Department to recover the amount from the petitioner.3. Citing Section 205 of the Income Tax Act, 1961, the court relied on the decision of the Division Bench in the Sumit Devendra Rajani case and directed the Department to give credit for the tax deducted at source to the petitioner. The court ruled in favor of the petitioner, emphasizing that the Department could not deny the benefit of tax deducted at source by the employer. The court ordered the Department to return any recovery or adjustment made from the petitioner's refunds in later years, along with statutory interest.4. Ultimately, the court disposed of the petitions, holding that the Department was not permitted to recover the tax amount from the petitioner when the employer had deducted it but failed to deposit it with the Government. The court affirmed the petitioner's entitlement to the benefit of tax deducted at source and ordered the return of any adjustments made from the petitioner's refunds in subsequent years, with statutory interest.