2015 (10) TMI 2798 - HC - Income Tax

Demanding the tax deducted at source from the assessee who has suffered a deduction - deduction of TDS by the 2nd respondent - Seeking for mandamus directing the 1st respondent to reflect the TDS amount, which has been deducted by the 2nd respondent herein while paying rent, and to treat the 2nd respondent as the defaulter and also directing the 1st respondent to recover the dues from them - According to the petitioners, the 2nd respondent deducted TDS and though necessary details were furnished to the authority concerned by the petitioners, recovery proceedings are sought to initiated - HELD THAT - There is no dispute that the 2nd respondent was a tenant under the petitioners herein. Now, the petitioners claim that the 2nd respondent vacated the premises long back. It is the specific case of the petitioners that though the 2nd respondent company effected TDS, it had failed to remit the same into the account of the Income Tax Department. This is a disputed fact which cannot be resolved in this writ petition without any material and in the absence of the 2nd respondent. Having regard to the fact that the deduction of TDS from the amount payable to the petitioners towards rent as well as remittance of the same were to be made by the 2nd respondent, this court deems it appropriate to direct the respondents 1 and 3 to consider the letter/representation of the petitioner in this regard after issuing necessary notice to the 2nd respondent and to conduct an enquiry and to pass appropriate orders on merits and in accordance with law. The said exercise shall be completed within a period of four weeks from the date of receipt of a copy of this order.

Summary

Issues:
Deduction of TDS by the 2nd respondent and recovery proceedings, interpretation of Sec. 205 of the Income Tax Act, liability of the Official Liquidator in case of default.

Analysis:
The petitioners sought a mandamus directing the 1st respondent to reflect the TDS amount deducted by the 2nd respondent while paying rent and to treat the 2nd respondent as the defaulter, initiating recovery proceedings under the Income Tax Act for the years 2011-12, 2012-13, and 2013-14. The issue revolved around the deduction of TDS by the 2nd respondent, with the petitioners claiming that despite furnishing necessary details to the authority, recovery proceedings were being initiated against them. The court referred to previous judgments to analyze the legal provisions regarding recovery of tax deducted at source. It highlighted Section 201 of the Act, which deems a company failing to deduct or pay TDS as an assessee in default, subject to interest and penalties. The court emphasized the machinery provided by the Act for recovery from the deductor and the protection offered to the assessee under Section 205, barring direct demands once tax is deducted at source.

The court cited judgments from the Bombay High Court and the Karnataka High Court to interpret Section 205 of the Act. It emphasized that once tax is deducted at source, the liability cannot be enforced on the assessee who suffered the deduction, placing the responsibility on the deductor. The court noted that the provision aims to protect the assessee and prevent the Revenue from pursuing recovery proceedings against them for the deducted amount. The judgment highlighted the statutory obligation of the deductor to remit the deducted tax to the government and the consequences of failure to do so, emphasizing the agent-principal relationship in tax deduction at source.

In the present case, the court found that the 2nd respondent, a former tenant of the petitioners, had allegedly failed to remit the TDS to the Income Tax Department despite deducting it. As this was a disputed fact requiring further inquiry, the court directed the respondents to consider the petitioners' representations, issue notice to the 2nd respondent, conduct an enquiry, and pass appropriate orders within four weeks. The judgment concluded by disposing of the writ petitions with these directions, without imposing costs, and closing the connected miscellaneous petitions.