2023 (2) TMI 753 - HC - Income Tax

Mismatch of credit of TDS due to non-payment of TDS - benefit of tax deducted at source by the employer - Petitioner is a pilot by profession as an employee of Kingfisher Airlines has deducted the TDS from his salary but such amount had not been deposited by the Airlines to the Central Government s account - HELD THAT - As in case of Kartik Vijaysingh Sonavane 2021 (11) TMI 682 - GUJARAT HIGH COURT wherein similarly situated assessee, the Court allowed the petition, directed the department not to deny the benefit of tax deducted at source by the employer during the relevant financial year. Reference of Section 205 of the I.T. Act is to the effect where it provides that the tax when is deductible at source, assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted form that income. Its applicability is not dependent upon the credit for tax deducted being given under Section 199 of the I.T. Act. Facts being identical, petition is allowed. The department shall not be denying the benefit of tax deducted at source by the employer during the relevant financial years to the petitioner. The credit of the tax shall be given to the petitioner and if in the interregnum, any recovery or adjustment is made by the department, the petitioner shall be entitled to the refund, with the statutory interest, within eight (08) weeks from the date of receipt of copy of this order.

Summary

Issues Involved:
1. Legality of the recovery notices for unpaid TDS amounts for the Assessment Years 2010-11, 2011-12, and 2012-13.
2. Entitlement of the petitioner to a refund of the adjusted amount against the outstanding demand.
3. Applicability of Section 205 of the Income Tax Act regarding non-payment of TDS by the employer.

Issue-Wise Analysis:

1. Legality of the Recovery Notices:
The petitioner challenged the recovery notices dated 14.02.2020 and 15.02.2020 for the Assessment Years 2010-11, 2011-12, and 2012-13 under Article 226 of the Constitution of India. The petitioner argued that the outstanding demand on the income tax portal should be cancelled since the TDS was deducted by the employer, Kingfisher Airlines, but not deposited with the government. The petitioner cited an office memorandum dated 11.03.2016 from the Ministry of Finance, which directed Income Tax Department officers not to raise tax demands on account of TDS credit mismatch due to non-payment by the employer. The court acknowledged this memorandum and the statutory protection under Section 205 of the Income Tax Act, which bars direct demand against the assessee when TDS has been deducted but not deposited by the employer.

2. Entitlement to Refund:
The petitioner sought a refund of Rs. 5,88,820/-, which was adjusted against the outstanding demand, along with interest at 9% per annum. The court referred to previous judgments, including the case of Kartik Vijaysingh Sonavane vs. Deputy Commissioner of Income Tax, where it was held that the department cannot deny the benefit of TDS deducted by the employer. The court reiterated that the petitioner is entitled to the credit of the tax deducted at source and any recovery or adjustment made by the department should be refunded with statutory interest.

3. Applicability of Section 205 of the Income Tax Act:
The court emphasized the applicability of Section 205, which states that when tax is deductible at source, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from his income. The court noted that the petitioner, a pilot formerly employed by Kingfisher Airlines, had TDS deducted from his salary for the relevant assessment years, but the amount was not deposited by the employer. The court held that the department should not enforce demands created due to TDS credit mismatch and should instead recover the amount from the employer. The court cited the case of Om Prakash Gattani, where it was held that the assessee should not be subjected to double payment of tax due to the employer's failure to deposit the deducted TDS.

Conclusion:
The court allowed the petition, directing the department not to deny the benefit of TDS deducted by the employer during the relevant financial years. The credit of the tax should be given to the petitioner, and any recovery or adjustment made by the department should be refunded with statutory interest within eight weeks from the date of receipt of the order. The petition was disposed of accordingly.