TDS credit cannot be denied to an employee merely because the deductor failed to deposit the deducted tax.

Where tax has been deducted at source from salary, credit cannot be denied to the assessee merely because the deductor failed to remit the tax to the Government. The statutory scheme under sections 199 and 205 of the Income-tax Act, together with the CBDT instruction on non-deposit of TDS, protects the assessee from direct demand to the extent tax was already deducted. The revenue may proceed against the deductor for recovery of the unpaid tax, but the employee remains entitled to TDS credit. The article notes that judicial discipline requires subordinate authorities to follow binding decisions on this issue.

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Issues: Whether credit for tax deducted at source from salary can be denied to the assessee merely because the deductor failed to deposit the deducted tax with the Central Government.

Analysis: The statutory scheme under section 199 of the Income-tax Act, 1961 and section 205 of the Income-tax Act, 1961, along with the CBDT instruction on non-deposit of tax deducted at source, shows that the assessee should not be burdened with direct demand to the extent tax has already been deducted from income. The revenue retains the liberty to proceed against the deductor for recovery of the unpaid tax, and judicial discipline requires subordinate authorities to follow binding decisions on the issue.

Conclusion: The assessee was entitled to TDS credit, and the denial of such credit for want of deposit by the employer was unsustainable.

Final Conclusion: The appeal succeeded and the assessee obtained relief in respect of the TDS credit claimed.

Ratio Decidendi: Where tax has been deducted at source from income, the assessee cannot be made to suffer denial of TDS credit or coercive demand merely because the deductor failed to remit the deducted tax to the Government.

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