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2023 (12) TMI 34 - DELHI HIGH COURTCredit of TDS if deductor failed to deposit the TDS - whether the assessee is entitled to credit concerning the tax which had been deducted with respect to the transaction entered into by him with Koutons Group? - Bar against direct demand on assessee u/s 205 - as per revenue credit for the said amount, sought by assessee, could not be given since the deductor, i.e., Koutons Group had not deposited the said amount with the appellant/revenue - HELD THAT:- As SANJAY SUDAN VERSUS THE ASSISTANT COMMISSIONER OF INCOME TAX & ANR. [2023 (2) TMI 1079 - DELHI HIGH COURT] Section 205 read with instruction dated 01.06.2015, clearly point in the direction that the deductee/assessee cannot be called upon to pay tax, which has been deducted at source from his income. The plain language of Section 205 of the Act points in this direction The adjustment of demand against future refund amounts to an indirect recovery of tax, which is barred under Section 205 of the Act.The fact that the instruction merely provides that no coercive measure will be taken against the assessee, in our view, falls short of what is put in place by the legislature via Section 205 of the Act. Therefore, in our view, the petitioner is right inasmuch as neither can the demand qua the tax withheld by the deductor/employer be recovered from him, nor can the same amount be adjusted against the future refund, if any, payable to him. Act does not seem to cast a burden on the deductee/payee with regard to the deposit of money, which is retained as tax, by the payer i.e., the deductor. Therefore, insofar as the deductee/payee is concerned, once the payer/deductor, who acts as an agent of the Central Government, has retained money towards tax, credit for the same cannot be denied, having regard to the consequences and the modes available for recovering the said amount from the payer/deductor. Deductors are individuals who, concededly, after retaining the tax deducted at source did not fully deposit the same, as noted above, with the Central Government. Upon the respondent/assessee becoming aware of this fact, a police complaint was lodged, which was brought to the notice of the appellant/revenue. Despite this aspect being brought to the notice of the appellant/revenue, no steps were taken either under the provisions of the Act or under the common law for recovery or even under the extant statute(s) for bringing deductors to book in accordance with the law. In our opinion, the argument advanced by revenue that the amount deducted towards tax at source will not be given credit because the deductor has chosen not to deposit the amount with the Central Government is erroneous for another reason, which is that the nature of the amount retained by the deductor continues to remain as ‘tax’. Act has, thus, provided a regime as to how tax is required to be collected against certain payments. Once the deductee adheres to the statutory regime and allows the deductor to retain money towards tax, the nature of the amount cannot change and, therefore, the deductee, in our view, would be entitled to the credit of the amount retained by the deductor towards tax. Any other view would result in a situation where even though the assessee would have grossed up his income [by including the tax deducted at source] and offered the same for taxation, he would be denied the benefit of having the resultant tax demand adjusted against tax deducted at source by the payer. This handicap the assessee/deductee would suffer only because the deductor, who acts as the agent of the Central Government, chooses not to deposit the amount retained towards tax. Appeal dismissed - no substantial question of law arises.
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