2024 (1) TMI 275 - HC - Income Tax

Demand qua outstanding tax liability - seeking credit to the petitioner against the Tax Deducted at Source (TDS) by his employer - whether any recovery towards the outstanding tax demand can be effected against the petitioner in view of the admitted position that the tax payable on his salary was being regularly deducted at source by his employer who did not deposit the same with the authorities? - HELD THAT - As relying on Jasjit Singh case 2023 (12) TMI 34 - DELHI HIGH COURT s ince the petitioner accepted salary after deduction of income tax at source, it is his employer who is liable to deposit the same with the revenue authorities and on this count, the petitioner cannot be burdened. We find no substantial question of law to be considered by us in this appeal. Therefore, the petition is allowed and consequently the impugned demand notice dated 04.02.2019 is set aside and the respondent/revenue is directed to allow credit of TDS deducted by his employer for the Assessment Year 2013-14 to the petitioner.

Summary

Issues Involved:
1. Validity of the demand letter dated 04.02.2019 for outstanding tax liability pertaining to the Assessment Year 2013-14.
2. Entitlement of the petitioner to credit for Tax Deducted at Source (TDS) for the assessment year 2013-14.

Summary:

Issue 1: Validity of the demand letter dated 04.02.2019 for outstanding tax liability pertaining to the Assessment Year 2013-14

The petitioner was employed with Tulip Telecom Ltd. and resigned in May 2013. For the assessment year 2012-13, the employer deducted Tax at Source (TAS) but failed to deposit it with the Income Tax authorities and did not issue the requisite TDS certificate. Despite informing the Income Tax Officials, no action was taken. The petitioner filed a winding-up petition against the employer, resulting in the appointment of a liquidator. Instead of granting TDS credit, the respondent issued a demand of Rs. 15,77,240/- on 03.12.2015, and later, another demand notice of Rs. 15,36,220/- on 04.02.2019. The respondent argued that the employer had no obligation to deduct tax for unpaid salaries, but it was not disputed that the salary for December 2012 and the full and final settlement amount, including salaries for March 2013 to May 2013, was paid after TDS deduction.

Issue 2: Entitlement of the petitioner to credit for Tax Deducted at Source (TDS) for the assessment year 2013-14

The core issue was whether recovery towards the outstanding tax demand could be effected against the petitioner, given that the tax was deducted at source by the employer but not deposited with the authorities. The court referred to the judgment in Sanjay Sudan vs Assistant Commissioner of Income Tax, which held that under Section 205 of the Act, the assessee cannot be called upon to pay tax deducted at source from his income. The court emphasized that the demand cannot be enforced coercively against the assessee and that the tax credit mismatch cannot be adjusted against future refunds.

The respondent's contention that credit can only be given when the tax deducted is paid to the Central Government was rejected, as previously held in Sanjay Sudan. The court also referred to BDR Finvest Pvt. Ltd. vs DCIT and Shri Chintan Bindra vs DCIT, which clarified that the employer, as the tax collecting agent, must deposit the deducted tax, and the petitioner cannot be penalized for the employer's failure.

In PCIT vs Jasjit Singh, it was elucidated that the Act does not cast a burden on the deductee/payee for the deposit of money retained as tax by the payer/deductor. Once the payer/deductor retains money towards tax, the deductee is entitled to credit for the amount retained.

Conclusion:

The court concluded that since the petitioner accepted salary after TDS deduction, the employer is liable to deposit the same with the revenue authorities, and the petitioner cannot be burdened. The petition was allowed, the impugned demand notice dated 04.02.2019 was set aside, and the respondent/revenue was directed to allow TDS credit for the Assessment Year 2013-14 to the petitioner.