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Issues involved: Interpretation of jurisdiction u/s 201 of the Income-tax Act, 1961 regarding tax deduction by employer for employee's income.
Summary: The High Court of Madhya Pradesh addressed a reference u/s 256(1) of the Income-tax Act, 1961 regarding the jurisdiction of the Income-tax Officer, Salary Circle (TDS) to demand further tax from an employer in cases of tax short-deduction for an employee. The Court considered the case where the regular assessment of an employee had been completed and the tax fully paid by the employee. The Tribunal's decision was challenged by the Revenue, leading to this reference. The Court referred to previous decisions, including Gwalior Rayon Silk Co. Ltd. v. CIT [1983] 140 ITR 832 and CIT v. Divisional Manager, New India Assurance Co. Ltd. [1983] 140 ITR 818, which established that the provisions of section 201 of the Act apply to employers who fail to deduct or pay tax at source. It was emphasized that an incorrect estimate by the employer does not automatically imply dishonesty. The Court concurred with the precedent that once an employee's assessment is completed and tax paid, the Income-tax Officer (TDS) cannot demand further tax from the employer for any short-deduction related to that employee. In conclusion, the Court answered the reference in the affirmative, ruling against the Revenue. The parties were directed to bear their own costs in this matter.
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