TDS credit where third-party deductor failed to deposit intimation disallowed and refund with interest directed to assessees.

Non-grant of credit for tax deducted at source by a third-party deductor where the deductor failed to deposit the TDS was addressed: the intimation denying TDS credit and consequent recovery from the assessee was quashed because the assessee could not be penalised for the deductor's non-deposit, and the recovery from the assessee's refund was declared illegal; the respondent was directed to refund the amounts recovered with applicable interest under Section 244(1) and 244(1A) within three months. Territorial challenge to forum was rejected as assessing authority was situated in the forum at filing.

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Issues: (i) Whether the Delhi High Court had territorial jurisdiction to entertain the writ petition filed by the assessee; (ii) Whether the assessee is entitled to credit for Tax Deducted at Source by a third-party deductor (Kingfisher Airlines) and to refund of amounts recovered from the assessee on account of non-grant of such credit, with interest.

Issue (i): Whether the writ petition could be maintainable in Delhi despite subsequent change of assessing authority.

Analysis: The petition was filed when the assessee's assessing authority and residence were in Delhi; subsequent change of assessing authority to another city does not defeat territorial jurisdiction existing at the time of filing.

Conclusion: The territorial jurisdiction objection is rejected and the writ petition is maintainable in Delhi.

Issue (ii): Whether the assessee is entitled to TDS credit for amounts deducted by Kingfisher Airlines and to a refund of amounts recovered from the assessee on account of non-grant of that credit, together with statutory interest.

Analysis: The disallowance of TDS credit on the ground that the deductor failed to deposit the tax does not render the assessee liable to lose the credit; recovery effected from the assessee's refund in respect of the disputed TDS was consequent on the intimation under Section 143(1) and is contrary to the entitlement established by the applicable legal position relied upon by the Court.

Conclusion: The intimation under Section 143(1) insofar as it denies credit for the TDS deducted by the third-party is quashed; the consequential demand and recovery from the assessee's refund are declared illegal and the respondent is directed to refund the recovered amount with applicable interest under Sections 244(1) and 244(1A) of the Income-tax Act, 1961 within three months.

Final Conclusion: The writ petition is allowed on the merits and on jurisdictional grounds; the relief is confined to amounts deducted by the third-party deductor and does not affect any other independent demands raised by the Assessing Officer.

Ratio Decidendi: An assessee remains entitled to TDS credit for tax deducted by a third-party deductor notwithstanding the deductor's failure to deposit the tax, and recoveries made from the assessee's refund on that basis are unlawful; territorial jurisdiction is determined by the position at the time of filing the petition.

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