2007 (7) TMI 7 - HC - Income Tax

Where the employer deduct TDS from the salary of employee whether the revenue can recover the said amount of TDS with interest from the concerned employee? It was held that revenue can not collect TDS from the employee directly. Bar contained in section 205 applicable.

Summary

Issues Involved:
1. Recovery of TDS amount with interest from the employee when the employer fails to deposit the deducted TDS into the Government treasury.
2. Denial of credit for TDS amount due to non-issuance of TDS certificate by the employer.
3. Legal implications and remedies under sections 192, 199, 200, 201, 203, 205, 221, and 276B of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Recovery of TDS Amount with Interest from the Employee:
The primary issue addressed is whether the revenue can recover the TDS amount with interest from the employee when the employer has deducted TDS from the salary but failed to deposit it into the Government treasury. The court held that under section 205 of the Income Tax Act, 1961, once the tax is deducted at source, it cannot be levied again on the employee. Section 205 clearly states that 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 emphasized that the bar under section 205 comes into operation as soon as it is established that the tax has been deducted at source, irrespective of whether the tax deducted is paid to the Central Government or not.

2. Denial of Credit for TDS Amount Due to Non-issuance of TDS Certificate:
The petitioner claimed credit for the TDS amount deducted by the employer but was denied this credit due to the non-issuance of the TDS certificate (Form No.16) by the employer. The court acknowledged that under section 199, credit for TDS can be given on production of the TDS certificate issued under section 203. However, the court noted that the purpose of section 205 is to prevent double taxation. Even if the TDS certificate is not issued, the revenue cannot recover the TDS amount again from the employee once it is established that the tax was deducted at source. The court concluded that the non-availability of the TDS certificate does not justify the recovery of the TDS amount from the petitioner.

3. Legal Implications and Remedies under Various Sections of the Income Tax Act, 1961:
The court examined the relevant sections of the Income Tax Act:
- Section 192: Mandates the deduction of tax at source from salaries.
- Section 200: Requires the TDS amount to be paid to the credit of the Central Government within the prescribed time.
- Section 201: Deems the person who fails to deduct or pay TDS as an assessee in default, liable to pay interest and penalty, and creates a charge on all assets of such person.
- Section 203: Requires the issuance of a TDS certificate specifying the amount of tax deducted.
- Section 205: Bars the revenue from recovering the TDS amount again from the employee once it is deducted at source.
- Section 221: Provides for the levy of penalty for failure to pay TDS.
- Section 276B: Prescribes rigorous imprisonment and fine for failure to pay TDS to the credit of the Central Government.

The court concluded that the Act provides a complete machinery for the recovery of TDS from the person who has deducted it. The revenue must recover the TDS amount with interest and penalty from the employer who deducted the tax, not from the employee. The court directed the revenue to refund the amount of Rs.17,89,587/- recovered from the petitioner with interest at 6% from the date of recovery till the date of payment and to earmark the TDS liability as "not recoverable" from the petitioner.

Conclusion:
The court ruled in favor of the petitioner, emphasizing that the revenue cannot recover the TDS amount from the employee once it is deducted at source, even if the employer fails to deposit it with the Government or issue a TDS certificate. The petition was allowed, and the revenue was directed to refund the recovered amount with interest.