2023 (11) TMI 808 - HC - Income Tax

Rectification application concerning the Return of Income (ROI) - credit of TAS deducted by borrower - Tax Deducted at Source (TDS) was not deposited with the Government - petitioner sought to stake a claim with respect to the tax which had been deducted at source on the interest paid by its borrower undergoing CIRP and a Resolution Professional (RP) has been appointed - whether any recovery towards TAS can be made against the petitioner? HELD THAT - Issues stand covered by the judgment rendered by this court in Sanjay Sudan 2023 (2) TMI 1079 - DELHI HIGH COURT No recovery towards TAS can be made towards the petitioner i.e., the deductee, in view of the provisions of Section 205 of the Act. Whether the petitioner can obtain the credit of TAS? - submission is that unless the tax deducted at source is paid to the Central Government, no credit can be given to the deductee, i.e., the petitioner in this case - The argument that credit for TAS deducted in the present case by Ninex should not be given to the petitioner, fails to recognize the fact that the amount retained against remittance made by the payer is nothing but tax which the assessee/deductee has offered for tax by grossing up the remittance. If credit is not given, the respondents would end up doing indirectly what they cannot do directly i.e., that recover tax directly from the assessee i.e., the deductee. There is, in our view, another reason why the submission advanced on behalf of the respondents/revenue is untenable, that the deductee (i.e., the petitioner in this case) followed the regime put in place in the Act for collecting tax albeit, through an agent of the government. The agent for collecting the tax under the Act is the deductor i.e., Ninex in the present case. Since the agent/Ninex failed to deposit the tax with the government, recovery proceedings can only be initiated against the agent/Ninex. We may once again emphasize that payment of TAS to the government can only be construed as payment in accordance with the law. Thus, given the factual and legal position, the relief sought for by the petitioner would have to be granted. The petitioner will be given credit for TAS amounting to Rs. 29,16,674/-, notwithstanding the fact that it is not reflected in Form 26AS. The order dated 25.06.2020 passed under Section 154 of the Act, given the relief granted above, cannot survive, as, according to learned counsel for the parties, the only rectification that was sought was with regard to the aforementioned TAS deducted by Ninex. The order is, accordingly, set aside. Since the petitioner has evidently lodged a claim with the RP, if it were to receive any amount, it will deposit the amount not exceeding TAS deducted at source by Ninex with the revenue forthwith. Petitioner will ensure that, for whatever its worth, its claim with regard to TAS deducted by Ninex is pressed before the RP. The deductee, i.e., the petitioner followed the regime framed in the Act, for collecting TAS albeit through an agent of the government, i.e., the deductor. It was the agent, i.e., Ninex who was required to deposit the tax with the government. In this case, the agent is, as noticed hereinabove, undergoing CIRP, therefore, possibly the ability of the Central Government to recover the amount from the agent may seem remote. However, where the agent does not suffer from any such disability, it is always open to the Central Government to proceed against the agent, i.e., the deductor. In our view, Section 199 of the Act cannot come in the way of granting the deductee being granted credit of TAS deducted by Ninex borrower .

Summary

Issues:
1. Application for amendment to challenge the order under Section 154 of the Income Tax Act, 1961.
2. Claim for credit of tax deducted at source by borrower Ninex Developers Ltd.

Issue 1:
The petitioner sought to challenge the order dated 25.06.2020 passed under Section 154 of the Income Tax Act, 1961, concerning a rectification application filed in relation to the Return of Income dated 10.08.2019. The petitioner, after seeking credit for tax deducted at source by Ninex, filed a writ petition for direction to receive credit of Rs. 29,16,674. The respondents accepted notice, and it was noted that Ninex is undergoing Corporate Insolvency Resolution Process (CIRP). The Resolution Professional issued a certificate confirming the tax deducted at source, slightly less than the claimed amount. The court allowed the application for amendment and disposed of the matter accordingly.

Issue 2:
The petitioner claimed credit for tax deducted at source by Ninex, which was not initially reflected in the Return of Income but was later claimed in a revised return. However, the credit was disallowed under Section 143(1) of the Act. The respondents argued that credit can only be given when the amount is paid to the Central Government, citing Section 199 of the Act. The court referred to a previous judgment and emphasized that recovery cannot be made from the deductee and that credit for tax deducted at source must be granted to the petitioner. The court directed that the petitioner be given credit for the full amount, set aside the previous order, and instructed the petitioner to deposit any amount received from the Resolution Professional not exceeding the tax deducted at source by Ninex.

This judgment clarifies the legal position regarding the grant of credit for tax deducted at source and highlights the rights of the deductee in such matters.