2019 (2) TMI 243 - HC - Income Tax

TDS credit not granted - Mismatch of TDS claimed by the petitioner and recognized by the department - purchasers of the immovable property from the petitioner, had not deposited the sum of ₹ 9 lakhs deducted from the petitioner while making payment of the sale consideration - recovery proceedings - claim of refund - Held that - The department does not contend that the petitioner did not suffer deduction of tax at source at the hands of payer, but contends that the same has not been deposited with the Government revenue. As provided under Section 205 of the Act and as elaborated by this Court in case of Yashpal Sahni 2007 (7) TMI 7 - HIGH COURT , BOMBAY) under such circumstances the petitioner cannot be asked to pay the same again. It is always open for the department and infact the Act contains sufficient provisions, to make coercive recovery of such unpaid tax from the payer whose primary responsibility is to deposit the same with the Government revenue scrupulously and promptly. If the payer after deducting the tax fails to deposit it in the Government revenue, measures can always be initiated against such payers. Revenue is correct in pointing out that for long after issuing notice under Section 266(3) of the Act, petitioner has not brought this fact to the notice of the respondent No.2 which led the respondent No.2 to make recoveries from the bank account of the petitioner. In that view of the matter, at best petitioner may not be entitled to claim interest on the amount to be refunded. Petition is disposed of as taking note of the fact that the respondents have lifted the bank account attachment, no need to quash the attachment. Two impugned notices dated 5th February, 2018 as at annexure B to the petition and 10th September, 2018 as at annexure J to the Petition for recovery are quashed. The respondents shall refund a sum of ₹ 3,67,600/to the petitioner within four weeks from today. If so done, there shall be no interest liability, failing which beyond such period the respondents shall pay simple interest at the rate of 8% p.a. on such amount till actual payment.

Summary

Issues:
Challenge to notice under Section 226(3) of the Income Tax Act, 1961 and refund claim of recovered amount.

Analysis:
The petitioner challenged a notice issued by the Income Tax Officer under Section 226(3) of the Income Tax Act, 1961, seeking a refund of the amount already recovered and to restrain further recovery. The petitioner sold a property for &8377; 9 crores, with the buyers deducting &8377; 9 lakhs as TDS, but failing to deposit it with the government. The department demanded &8377; 10,36,850 from the petitioner, leading to recovery from the petitioner's bank account. The petitioner contended that, under Section 205 of the Act, recovery should be made from the deductor-payee, not the petitioner. The respondent rejected the petitioner's representation, prompting the petition.

The court noted that the deducted TDS was not deposited by the buyers, resulting in the petitioner being asked to pay the amount again. Referring to Section 205 of the Act, the court cited a previous case where it was held that once tax is deducted at source, the assessee need not pay it again, even if not deposited with the government. The court emphasized that the liability to pay tax, if deducted at source, lies with the deductor. The Act provides mechanisms for recovering unpaid tax from the deductor, not the assessee.

The court held that the petitioner cannot be asked to pay the TDS amount again, as the liability rests with the deductor under Section 205 of the Act. The court directed the respondents to refund the recovered amount to the petitioner, with no interest if done within four weeks; otherwise, simple interest at 8% p.a. would apply. The court disposed of the petition, quashing the recovery notices and lifting the bank account attachment. The petitioner's delay in informing the department may affect interest claims, according to the court.

In conclusion, the court upheld the petitioner's challenge to the recovery notice under the Income Tax Act, emphasizing the applicability of Section 205 to prevent double taxation and shifting the liability to the deductor for unpaid TDS amounts. The court directed the refund of the recovered amount to the petitioner, highlighting the importance of timely communication with tax authorities to avoid interest liabilities.