TDS recovery limitation runs from the salary-payment default, making delayed recovery action time-barred on these facts.

Employer default in deducting tax at source arises when salary is paid and no deduction is made, and limitation for recovery runs from the financial year in which that default occurs. A later demand letter may initiate recovery proceedings, but it cannot extend the statutory period. On the stated facts, the default had occurred years earlier and the recovery action commenced by the 26 June 1965 letter was time-barred, so the proceedings were held barred by limitation in favour of the assessee.

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Issues: Whether recovery proceedings against an employer for failure to deduct tax at source were barred by limitation under section 18(7) of the Indian Income-tax Act, 1922, and section 201(1) read with section 231 of the Income-tax Act, 1961.

Analysis: The obligation to deduct tax from salary arises when salary is paid, and the default is committed at that stage if deduction is not made. The later demand letter, which recorded the assessee as a defaulter and called upon it to pay the outstanding tax, could amount to initiation of recovery proceedings. However, the period of limitation for recovery runs from the financial year in which the default occurs, not from the date on which an order or demand is later made. On the facts, the default had occurred years earlier and the recovery action initiated by the letter dated 26 June 1965 was beyond the statutory period.

Conclusion: The recovery proceedings were barred by limitation and the question was answered in the affirmative, in favour of the assessee.

Ratio Decidendi: In cases of tax deduction at source, the employer's default occurs at the time of payment of salary, and recovery proceedings must be commenced within the statutory limitation period computed from that default.

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