2023 (2) TMI 261 - AT - Income Tax

Intimation issued by the Central Processing unit u/s.143(1) - Disallowing credit for tax deducted at source by the employer that was not deposited with the exchequer - HELD THAT - Important thing to be borne in mind in this regard is that though the word paid has been used after the words advance tax , but it is absent in the context of tax deducted at source . The effect of this is that unlike advance tax, the credit for tax deducted at source is to be allowed only when it is deducted and there is no further stipulation of the same having been paid also as a condition precedent. As a sequitur, credit for the amount of tax deducted at source is not dependent upon its subsequent deposit by the deductor. Once there is deduction of tax at source, the benefit of such tax deduction has to be allowed in the hands of deductee u/s 143(1) of the Act irrespective of its subsequent deposit or non-deposit by the deductor. Our view is fortified by section 234B dealing with interest for default in payment of advance tax. This section provides that where an assessee fails to pay due advance tax etc., he shall be liable to pay simple interest at the specified rate on the amount of assessed tax - if there is an income on which tax is deductible at source, then such income will be reduced for determining the advance tax liability and the consequential interest liability u/s 234B of the Act, even if no tax was actually deducted at source. The Finance Act, 2012 inserted a proviso to section 209(1) nullifying the above position of deducting income on which tax is deductible but not actually deducted. Instantly, we are confronted with a situation in which the deductor has duly deducted tax at source but not paid the same to the exchequer. Albeit gap between tax which would be deductible as per section 209(1)(d) and tax deducted at source has been abridged by insertion of proviso to section 209(1), but the open space between the tax deducted at source as per section 143(1)(c) and tax deducted at source and deposited still persists. We find that the requirement for allowing credit is only of the amount of tax deducted at source and not the amount eventually getting deposited with the Government after deduction. Since a sum was duly deducted at source by the employer from the salaries credited/paid to the assessee for the year under consideration, we hold that benefit of such tax deducted at source has to be allowed in Intimation u/s 143(1) of the Act notwithstanding the fact that it was not deposited. The impugned order is overturned pro tanto. Assessee appeal is allowed.

Summary

Issues:
1. Disallowance of credit under section 143(1) for tax deducted at source by the employer not deposited with the exchequer.

Detailed Analysis:
The appeal was against the order passed by the ld. CIT(A) in relation to the assessment year 2019-20, where the only issue raised was the disallowance of credit under section 143(1) for tax deducted at source by the employer but not deposited. The assessee argued that the employer failed to deposit the tax deducted at source, leading to a mismatch in the credit allowed. The employer deducted Rs. 8,21,149/- from the salary but did not deposit it. The employer's financial difficulties were cited as the reason for non-deposit. The Tribunal examined the case and noted that the salary was due and offered by the assessee but remained unpaid for the last six months of the year. The key question was whether the credit for the tax deducted at source should be allowed even if not deposited by the employer.

The Tribunal analyzed Section 15 of the Income-tax Act, which states that any salary due from the employer, whether paid or not, is chargeable to tax under the head 'Salaries.' It was emphasized that the salary income becomes chargeable to tax when due, regardless of actual payment. The Tribunal highlighted the provisions of section 143(1) of the Act, which allow adjustments for tax deducted at source against the tax liability on total income. The Tribunal pointed out that the credit for tax deducted at source should be allowed to the deductee under section 143(1) irrespective of the subsequent deposit by the deductor.

Further, the Tribunal referred to section 234B dealing with interest for default in payment of advance tax, which considers tax deducted at source for calculating assessed tax. The Tribunal noted that while the law requires deduction of tax at source, the subsequent deposit by the deductor is not a condition for allowing the credit. The Tribunal held that since the tax was duly deducted at source by the employer, the benefit of such deduction must be allowed under section 143(1) even if not deposited. Consequently, the appeal was allowed, and the impugned order was overturned partially.

In conclusion, the Tribunal's decision emphasized the importance of allowing credit for tax deducted at source under section 143(1) based on deduction by the employer, irrespective of the actual deposit with the government. The judgment provided clarity on the treatment of tax deducted at source in cases where the employer fails to deposit the deducted amount, ensuring that the deductee is not penalized for the deductor's non-compliance with deposit obligations.