Court rules liability for tax deduction lies with deductor under Income Tax Act Section 205. Refunds ordered. Recovery notices quashed.

The court ruled in favor of the petitioner, holding that the liability to pay tax deducted at source lies with the deductor under Section 205 of the Income Tax Act. The court directed the respondents to refund the recovered amount to the petitioner within four weeks without interest, or with 8% p.a. interest if delayed. The recovery notices were quashed, and the bank account attachment was lifted. The court emphasized the importance of timely communication with tax authorities to avoid interest liabilities.

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Issues:
Challenge to notice under Section 226(3) of the Income Tax Act, 1961 and refund claim of recovered amount.

Analysis:
The petitioner challenged a notice issued by the Income Tax Officer under Section 226(3) of the Income Tax Act, 1961, seeking a refund of the amount already recovered and to restrain further recovery. The petitioner sold a property for &8377; 9 crores, with the buyers deducting &8377; 9 lakhs as TDS, but failing to deposit it with the government. The department demanded &8377; 10,36,850 from the petitioner, leading to recovery from the petitioner's bank account. The petitioner contended that, under Section 205 of the Act, recovery should be made from the deductor-payee, not the petitioner. The respondent rejected the petitioner's representation, prompting the petition.

The court noted that the deducted TDS was not deposited by the buyers, resulting in the petitioner being asked to pay the amount again. Referring to Section 205 of the Act, the court cited a previous case where it was held that once tax is deducted at source, the assessee need not pay it again, even if not deposited with the government. The court emphasized that the liability to pay tax, if deducted at source, lies with the deductor. The Act provides mechanisms for recovering unpaid tax from the deductor, not the assessee.

The court held that the petitioner cannot be asked to pay the TDS amount again, as the liability rests with the deductor under Section 205 of the Act. The court directed the respondents to refund the recovered amount to the petitioner, with no interest if done within four weeks; otherwise, simple interest at 8% p.a. would apply. The court disposed of the petition, quashing the recovery notices and lifting the bank account attachment. The petitioner's delay in informing the department may affect interest claims, according to the court.

In conclusion, the court upheld the petitioner's challenge to the recovery notice under the Income Tax Act, emphasizing the applicability of Section 205 to prevent double taxation and shifting the liability to the deductor for unpaid TDS amounts. The court directed the refund of the recovered amount to the petitioner, highlighting the importance of timely communication with tax authorities to avoid interest liabilities.

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