2023 (12) TMI 63 - HC - Income Tax

Non deposit of TDS by employer - Kingfisher Airlines Limited - employer had not deposited the tax deducted at source, so the outstanding dues be recovered by the respondents from his employer - recovery from employee for default in TDS deposits - credit of TDS deduction denied - as per revenue no credit for tax can be given to the petitioner, since in view of the provisions u/s 199 of the Income Tax Act the credit can be given only when the tax which was deducted at source is paid to the Central Government and in the present case, admittedly the tax deducted from salary of the petitioner has not been deposited by his employer. Whether any recovery towards the said outstanding tax demand can be effected against the petitioner in view of the admitted position that the tax payable on salary of the petitioner was being regularly deducted at source by his employer namely Kingfisher Airlines Ltd. who did not deposit the deducted tax with the revenue? - HELD THAT - In the case of BDR Finvest Pvt. Ltd. vs DCIT, 2023 (11) TMI 808 - DELHI HIGH COURT it was clarified that payment of the tax deducted at source to the Central Government has to be understood as the payment in accordance with law. The petitioner having accepted the salary after deduction of income tax at source had no further control over it in the sense that thereafter it was the duty of his employer acting as tax collecting agent of the revenue under Chapter XVII of the Act to pay the deducted tax amount to the Central Government in accordance with law. The employer of the petitioner having failed to perform his duty to deposit the deducted tax with the revenue, petitioner cannot be penalized. It would always be open for revenue to proceed against employer of the petitioner for recovery of the deducted tax. Same view has been taken by this court in the case of PCIT vs Jasjit Singh 2023 (12) TMI 34 - DELHI HIGH COURT Section 199 of the Act, in our view cannot operate as impediment to grant relief to the petitioner. The petition is allowed, thereby setting aside the intimations/communications issued by respondent no. 3 u/s 143 of the Act raising a demand of tax to the tune and consequently, also restraining the respondents from carrying out any recovery proceedings pertaining to the said intimations/ communications. However, it is clarified that in case the petitioner is able to obtain any amount of money towards tax deducted from his income at source for the Assessment Year 2012-13 from his employer, the same shall be deposited by him with the revenue forthwith.

Summary

Issues Involved:

1. Legality of tax and interest demand against the petitioner for AYs 2009-10, 2011-12, and 2012-13.
2. Entitlement to refund and interest on the illegally adjusted amount.
3. Validity of multiple intimations/orders issued under Section 143(1) of the Income Tax Act.
4. Compliance with CBDT instructions and statutory provisions by the Respondents.
5. Prohibition on coercive action against the petitioner during the pendency of the writ petition.

Summary:

Issue 1: Legality of Tax and Interest Demand

The petitioner sought to declare that the tax and interest demand for AYs 2009-10, 2011-12, and 2012-13, due to TDS deducted by his employer but not deposited, should not lie against him. The court noted that the petitioner was employed by Kingfisher Airlines Limited, which deducted TDS from his salary but failed to deposit it with the revenue. Despite repeated communications, the demands were not withdrawn. The core issue was whether recovery could be effected against the petitioner given that the employer did not deposit the deducted tax.

Issue 2: Entitlement to Refund and Interest

The petitioner claimed a refund of Rs. 3,88,209/- adjusted against the erroneous demand and sought statutory and compensatory interest on this amount. The court held that the petitioner, who had accepted the salary after TDS, had no control over the subsequent deposit of the tax. Since the employer failed to deposit the deducted tax, the petitioner could not be penalized, and the revenue should proceed against the employer for recovery.

Issue 3: Validity of Multiple Intimations/Orders

The petitioner challenged various intimations/orders under Section 143(1) of the Income Tax Act for different AYs, which raised demands based on "Unmatched Tax Deducted at Source." The court set aside these intimations/communications, restraining the respondents from carrying out any recovery proceedings related to these demands.

Issue 4: Compliance with CBDT Instructions and Statutory Provisions

The petitioner sought compliance with CBDT Instruction No. 275 dated 01.06.2015 and other related communications. The court referred to Section 205 of the Act, which bars direct demand on the assessee for tax deducted at source. The court emphasized that the instruction aligned with this provision, prohibiting coercive enforcement of tax credit mismatches.

Issue 5: Prohibition on Coercive Action

The petitioner requested that no coercive action be taken during the pendency of the writ petition. The court noted that the adjustment of demand against future refunds amounted to an indirect recovery of tax, which is barred under Section 205 of the Act.

Conclusion:

The court allowed the petition, setting aside the impugned intimations/communications for AYs 2009-10, 2011-12, and 2012-13, and restrained the respondents from recovery proceedings. The respondents were directed to refund Rs. 3,88,209/- to the petitioner within four weeks. If the petitioner recovers any amount from his employer, it must be deposited with the revenue.