2018 (9) TMI 1635 - HC - Income Tax

Claim of credit of TDS deducted on salary - Employer failed to deposit the TDS amount with the Department - Denial of benefit of tax deducted at source by the employer of the petitioner during the relevant financial years - Department seek to recover such amount from the petitioner or whether the petitioner is correct in contending that he had already suffered the deduction of tax, the mere fact that the deductee did not deposit such tax with the Government revenue could not permit the Income-tax Department to recover such amount from the petitioner - Held that - The issue is no longer res integra. Division Bench of this Court in case of Sumit Devendra Rajani (2014 (8) TMI 418 - GUJARAT HIGH COURT) examined the statutory provisions and in particular Section 205 of the Income-tax Act, 1961. Facts in both case are very similar. These petitions we hold that the Department cannot deny the benefit of tax deducted at source by the employer of the petitioner during the relevant financial years. Credit of such tax would be given to the petitioner for the respective years. If there has been any recovery or adjustment out of the refunds of the later years, the same shall be returned to the petitioner with statutory interest.

Summary

Issues:
1. Recovery of tax deducted at source by employer but not deposited with the Government.
2. Entitlement of the petitioner to the benefit of tax deducted at source.

Analysis:
1. The petitioner, an individual and a pilot with King Fisher Airlines, filed an income tax return for the assessment year 2012-13, with the employer deducting tax at source amounting to ?2,68,498. However, the employer failed to deposit this tax with the Government. The Income Tax Department raised an equivalent tax demand with interest, which the petitioner contested, citing statutory provisions and relevant court decisions. The Department adjusted a refund of ?47,140 from the petitioner for a subsequent assessment year, leading to the dispute.

2. The main question before the court was whether the Department could recover the tax amount from the petitioner when the employer had deducted it but not deposited it with the Government. Referring to previous judgments, particularly the case of Sumit Devendra Rajani vs. Assistant Commissioner of Income Tax, the court held that the petitioner was entitled to credit for the tax deducted at source by the employer. The court emphasized that the mere failure of the deductor to deposit the tax should not allow the Department to recover the amount from the petitioner.

3. Citing Section 205 of the Income Tax Act, 1961, the court relied on the decision of the Division Bench in the Sumit Devendra Rajani case and directed the Department to give credit for the tax deducted at source to the petitioner. The court ruled in favor of the petitioner, emphasizing that the Department could not deny the benefit of tax deducted at source by the employer. The court ordered the Department to return any recovery or adjustment made from the petitioner's refunds in later years, along with statutory interest.

4. Ultimately, the court disposed of the petitions, holding that the Department was not permitted to recover the tax amount from the petitioner when the employer had deducted it but failed to deposit it with the Government. The court affirmed the petitioner's entitlement to the benefit of tax deducted at source and ordered the return of any adjustments made from the petitioner's refunds in subsequent years, with statutory interest.