Court directs tax recovery from defaulting assessee, spares petitioners from liability, emphasizes procedural fairness.

The court quashed the impugned demand notices for tax arrears, directing the tax recovery efforts towards the second respondent who was the assessee in default. The petitioners were not held liable for the tax deducted but not remitted by the second respondent, emphasizing procedural fairness. The court ordered fresh notices to be issued by the tax department, allowing recovery from the petitioners only after suitable notice issuance. The writ petitions were disposed of without costs, ensuring no double taxation on the petitioners.

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Issues Involved:
1. Validity of impugned demand notices for tax arrears.
2. Liability of petitioners for tax deducted but not remitted by the second respondent.
3. Application of Section 201 and Section 205 of the Income Tax Act, 1961.
4. Discrepancies in tax amounts and adjustments.
5. Procedural fairness in issuing demand notices.

Detailed Analysis:

1. Validity of Impugned Demand Notices for Tax Arrears:
The petitioners challenged the impugned demand notices which required them to clear tax arrears. They argued that the tax demanded as arrears was deducted at source by the second respondent but was not credited to the Central Government. Therefore, they contended that they should not be held liable for the tax as the second respondent was the assessee in default under Section 201 of the Income Tax Act, 1961.

2. Liability of Petitioners for Tax Deducted but Not Remitted by the Second Respondent:
The petitioners submitted that the second respondent, a tenant under the petitioners, had deducted TDS but failed to remit it to the Income Tax Department. This issue was previously addressed by the court, directing the respondents to consider the petitioners' representation and conduct an enquiry. The enquiry led to orders against the second respondent, acknowledging their default in remitting the deducted tax.

3. Application of Section 201 and Section 205 of the Income Tax Act, 1961:
The petitioners argued that under Section 205, they should not be liable for the tax deducted but not remitted by the second respondent. The court noted that Section 205 prevents double taxation on the same income. The petitioners also cited a Memorandum of Understanding (MOU) with the second respondent, which acknowledged the latter's responsibility to remit the deducted tax.

4. Discrepancies in Tax Amounts and Adjustments:
The court observed discrepancies in the amounts deducted and remitted by the second respondent. The MOU detailed specific amounts for various financial years that were deducted but not credited to the Income Tax Department. The court found inconsistencies in the tax amounts reflected in the demand notices versus those acknowledged in the MOU.

5. Procedural Fairness in Issuing Demand Notices:
The court emphasized that any recovery of tax should be directed at the second respondent, who was the assessee in default. The petitioners should not be made to pay the tax twice. The court quashed the impugned demand notices and directed the third respondent to issue fresh notices after considering the payments made by the second respondent. The court clarified that any balance of tax that escaped payment could be recovered from the petitioners, but only after issuing a suitable notice under the Income Tax Act, 1961.

Conclusion:
The court disposed of the writ petitions, quashing the impugned demand notices and directing the third respondent to issue fresh notices considering the subsequent developments and payments by the second respondent. The court reiterated that no demand should be made against the petitioners for tax deducted but not remitted by the second respondent. The department was directed to recover such amounts from the second respondent and issue suitable notices for any balance of tax due from the petitioners within four weeks. The writ petitions were disposed of with these observations, and no costs were awarded.

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