2005 (6) TMI 28 - HC - Income Tax

Demand for payment of tax TDS Held that the Revenue is to be definitely restrained in terms of section 205 from enforcing any demand on the assessee-petitioner in so far as the demand with reference to the amount of tax which had been deducted by the tenant of the assessee in the present case, and assuming that the tenant had not remitted the amount to the Central Government - Only course open to the Revenue is to recover the amount from the very person who has deducted, and not from the petitioner - writ petition is allowed in part and the demand under the impugned notice, in so far as it relates to the demand for payment of tax, which had already been deducted by the tenant of the petitioner stands quashed. The Revenue is restrained from enforcing such demand as against the petitioner either by raising a demand or by any other coercive method. It is open to the Revenue to realize the amount from the other person and if the assessee pays it voluntarily receive it, but not otherwise. Rule issued and made absolute.

Issues Involved:
1. Legality of the demand notice for tax arrears.
2. Applicability of Section 205 of the Income-tax Act, 1961.
3. Responsibilities and obligations under Sections 194-I, 203, and other related provisions.
4. Interpretation of "deduction" under Section 205.
5. Principles of law of principal and agent.

Issue-wise Detailed Analysis:

1. Legality of the Demand Notice for Tax Arrears:
The petitioner, an assessee under the Income-tax Act, 1961, challenged the demand notice dated December 5, 2002, for tax arrears for the assessment years 1997-98 to 2001-02. The notice indicated arrears totaling Rs. 6,70,199. The petitioner contended that the demands for the years 1999-2000 to 2001-02 were unjustified as they included amounts deducted by her tenant but not remitted to the Income-tax Department.

2. Applicability of Section 205 of the Income-tax Act, 1961:
The petitioner argued that under Section 205, the Revenue cannot enforce a demand for tax already deducted at source by the tenant under Section 194-I. The section states, "the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income." The court interpreted this provision to mean that once tax is deducted, the Revenue cannot demand the same amount from the assessee, irrespective of whether it was remitted to the Central Government.

3. Responsibilities and Obligations under Sections 194-I, 203, and Other Related Provisions:
The respondent's counsel argued that the petitioner failed to provide certificates of deduction (Form No. 16A) as required under Section 203. They contended that the concept of deduction is complete only when the amount is deducted and remitted to the Central Government. The court noted that while the Act imposes obligations on the person deducting the tax to remit it, Section 205 does not condition the protection it offers to the assessee on such remittance.

4. Interpretation of "Deduction" under Section 205:
The court emphasized that Section 205 explicitly bars the Revenue from demanding tax from the assessee once it has been deducted, without requiring proof of remittance. The court stated, "the section by itself does not say that the amount should also be paid to the Central Government." The court concluded that the word "deduct" in Section 205 should not be interpreted to mean "deducted and remitted."

5. Principles of Law of Principal and Agent:
The court applied the principles of the law of principal and agent, noting that the person deducting tax acts as an agent of the Revenue. The court held that any default by this agent (the tenant) should not result in penalizing the petitioner-assessee. The court stated, "for a default of the agent of the Revenue, the petitioner-assessee, who is a third party in relation to such relationship cannot be penalized."

Conclusion:
The court allowed the writ petition in part, quashing the demand for the assessment years 1999-2000, 2000-01, and 2001-02 to the extent it related to the amounts deducted by the tenant. The Revenue was restrained from enforcing this demand against the petitioner and was directed to recover the amount from the tenant instead. The judgment underscores the protection offered to assessees under Section 205 and clarifies that the Revenue must seek recovery from the person who deducted the tax, not the assessee.

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