2023 (12) TMI 64 - HC - Income Tax

Employee cannot be penalized for employer's failure to deposit TDS under Section 199 of Income Tax Act

Delhi HC ruled in favor of employee whose employer failed to deposit TDS. The court held that employee cannot be penalized for employer's default in ... Non deposit of TDS by employer - Kingfisher Airlines Limited - employer had not deposited the tax deducted at source, so the outstanding dues be recovered by the respondents from his employer - recovery from employee for default in TDS deposits - credit of TDS deduction denied - as per revenue no credit for tax can be given to the petitioner, since in view of the provisions under Section 199 of the Income Tax Act the credit can be given only when the tax which was deducted at source is paid to the Central Government and in the present case, admittedly the tax deducted from salary of the petitioner has not been deposited by his employer. Whether any recovery towards the said outstanding tax demand can be effected against the petitioner in view of the admitted position that the tax payable on salary of the petitioner was being regularly deducted at source by his employer namely Kingfisher Airlines Ltd. who did not deposit the deducted tax with the revenue? - HELD THAT:- In the case of BDR Finvest Pvt. Ltd. vs DCIT, [2023 (11) TMI 808 - DELHI HIGH COURT] it was clarified that payment of the tax deducted at source to the Central Government has to be understood as the payment in accordance with law. The petitioner having accepted the salary after deduction of income tax at source had no further control over it in the sense that thereafter it was the duty of his employer acting as tax collecting agent of the revenue under Chapter XVII of the Act to pay the deducted tax amount to the Central Government in accordance with law. The employer of the petitioner having failed to perform his duty to deposit the deducted tax with the revenue, petitioner cannot be penalized. It would always be open for revenue to proceed against employer of the petitioner for recovery of the deducted tax. Same view has been taken by this court in the case of PCIT vs Jasjit Singh [2023 (12) TMI 34 - DELHI HIGH COURT] Section 199 of the Act, in our view cannot operate as impediment to grant relief to the petitioner. The petition is allowed, thereby setting aside the intimations/communications issued by respondent no. 3 u/s 143 of the Act raising a demand of tax to the tune and consequently, also restraining the respondents from carrying out any recovery proceedings pertaining to the said intimations/ communications. However, it is clarified that in case the petitioner is able to obtain any amount of money towards tax deducted from his income at source for the Assessment Year 2012-13 from his employer, the same shall be deposited by him with the revenue forthwith. Issues involved:The judgment deals with a writ petition under Articles 226 and 227 of the Constitution of India seeking to set aside an intimation raising a tax demand for the Assessment Year 2012-13 as arbitrary and unreasonable, and to prevent recovery proceedings under Chapter XVII of the Act.Issue 1: Tax Demand and Recovery ProceedingsThe petitioner, an employee of Kingfisher Airlines Ltd., had tax deducted at source by the employer but the employer failed to deposit it with the revenue. The core issue is whether recovery of the outstanding tax demand can be made from the petitioner despite the tax being deducted at source but not deposited by the employer.Summary of Judgment:The court relied on Section 205 of the Income Tax Act and an instruction dated 01.06.2015, which bar direct demand on the assessee for tax deducted at source. The court held that recovery from the petitioner for the tax not deposited by the employer is impermissible. The judgment in the case of Sanjay Sudan vs Assistant Commissioner of Income Tax was cited to support this position.Issue 2: Employer's Failure and Assessee's LiabilityThe petitioner's employer, Kingfisher Airlines Ltd., did not deposit the tax deducted at source with the revenue. The question is whether the petitioner can be held liable for the employer's failure to fulfill its obligations under Chapter XVII of the Act.Summary of Judgment:The court emphasized that the petitioner, having accepted salary after tax deduction, had no control over the employer's duty to deposit the tax. It was ruled that the petitioner cannot be penalized for the employer's failure, and the revenue can seek recovery from the employer. The judgment in the case of PCIT vs Jasjit Singh was cited to support this conclusion.Conclusion:The petition was allowed, setting aside the intimation and communications raising the tax demand for the Assessment Year 2012-13. The respondents were restrained from carrying out any recovery proceedings related to the demands. However, it was clarified that if the petitioner receives any amount from the employer for tax deducted at source, it must be deposited with the revenue promptly.