2023 (2) TMI 261 - AT - Income Tax

Tribunal grants appeal for tax credit despite employer's failure to deposit, clarifies deductee's entitlement.

The Tribunal allowed the appeal, overturning the order disallowing credit under section 143(1) for tax deducted at source by the employer but not ... Credit for tax deducted at source - processing of return under section 143(1) - distinction between tax deducted at source and tax deposited by the deductor - time of chargeability of salary under the head 'Salaries'Credit for tax deducted at source - processing of return under section 143(1) - distinction between tax deducted at source and tax deposited by the deductor - Whether credit under the intimation issued u/s.143(1) must be denied where tax was deducted at source by the employer but the deductor failed to deposit that tax with the Government - HELD THAT: - The Tribunal examined clause (c) of section 143(1), which provides for determining the sum payable or refundable after adjustment by 'any tax deducted at source' among other items. The wording of clause (c) requires allowance of credit for tax that has been deducted at source and does not add a further condition that such deducted tax must have been deposited by the deductor. Accordingly, unlike advance tax (where the statute refers to amounts 'paid'), the statutory scheme of section 143(1) allows benefit of TDS once deduction has occurred. The fact that the employer in the present case deducted the specified amount from the assessee's salary but failed to deposit it with the exchequer does not, on the language of section 143(1), preclude granting credit to the deductee. The Tribunal noted the contextual distinction between chargeability of salary under section 15 and the separate statutory mechanics for allowance of TDS credit in the processing provision; however, the determinative point is the absence of any requirement in clause (c) that deducted tax must also have been deposited. For these reasons the Tribunal held that the Intimation under section 143(1) ought to have allowed the credit for the TDS actually deducted by the employer, notwithstanding non-deposit by the employer, and set aside the disallowance pro tanto. [Paras 7, 9]Credit for the tax deducted at source by the employer must be allowed in the intimation under section 143(1) even though the employer did not deposit the deducted amount; the disallowance in the intimation is set aside pro tanto and the appeal is allowed.Final Conclusion: The appeal is allowed: credit for tax deducted at source that was actually deducted by the employer must be given in the section 143(1) intimation for AY 2019-20 despite non-deposit by the employer. Issues:1. Disallowance of credit under section 143(1) for tax deducted at source by the employer not deposited with the exchequer.Detailed Analysis:The appeal was against the order passed by the ld. CIT(A) in relation to the assessment year 2019-20, where the only issue raised was the disallowance of credit under section 143(1) for tax deducted at source by the employer but not deposited. The assessee argued that the employer failed to deposit the tax deducted at source, leading to a mismatch in the credit allowed. The employer deducted Rs. 8,21,149/- from the salary but did not deposit it. The employer's financial difficulties were cited as the reason for non-deposit. The Tribunal examined the case and noted that the salary was due and offered by the assessee but remained unpaid for the last six months of the year. The key question was whether the credit for the tax deducted at source should be allowed even if not deposited by the employer.The Tribunal analyzed Section 15 of the Income-tax Act, which states that any salary due from the employer, whether paid or not, is chargeable to tax under the head 'Salaries.' It was emphasized that the salary income becomes chargeable to tax when due, regardless of actual payment. The Tribunal highlighted the provisions of section 143(1) of the Act, which allow adjustments for tax deducted at source against the tax liability on total income. The Tribunal pointed out that the credit for tax deducted at source should be allowed to the deductee under section 143(1) irrespective of the subsequent deposit by the deductor.Further, the Tribunal referred to section 234B dealing with interest for default in payment of advance tax, which considers tax deducted at source for calculating assessed tax. The Tribunal noted that while the law requires deduction of tax at source, the subsequent deposit by the deductor is not a condition for allowing the credit. The Tribunal held that since the tax was duly deducted at source by the employer, the benefit of such deduction must be allowed under section 143(1) even if not deposited. Consequently, the appeal was allowed, and the impugned order was overturned partially.In conclusion, the Tribunal's decision emphasized the importance of allowing credit for tax deducted at source under section 143(1) based on deduction by the employer, irrespective of the actual deposit with the government. The judgment provided clarity on the treatment of tax deducted at source in cases where the employer fails to deposit the deducted amount, ensuring that the deductee is not penalized for the deductor's non-compliance with deposit obligations.