2024 (10) TMI 1208 - HC - Income Tax

Non-deposit of the TDS amounts - according to the petitioners, such amounts were shown to have been deducted from the salary slips as issued to the petitioners - petitioners contend that it was not permissible for respondent No. 1 to issue such demand notices against the petitioners in view of clear provisions of Section 205 of the Income Tax Act, which bars any demand against the assessees - HELD THAT - The mandate of Section 205 is absolutely clear that the assessee shall not be called upon to pay taxes himself to the extent to which tax has been deducted from the asessee s income. The object and purpose behind the provision is to the effect that when an obligation to deposit the tax as in the present case, is on the employer and if the employer has defaulted, the liability to pay such tax cannot be shifted so as to be foisted on the employee, who is in fact the beneficiary of the payment to be received from the employer and who would also become the beneficiary of the tax being deposited at source on his behalf. Such is the object of the provision. However, what the department has done is that without a warrant in law, the liability to pay such tax is being foisted on the petitioners, which is clearly in the teeth of Section 205 of the Income Tax Act. Thus, looked from any angle, it was not permissible for respondent No. 2 to raise any such demand against the petitioners. WP allowed.

Summary

Issues:
Petitioners seeking to quash demand notices for non-deposit of TDS by their employer; Interpretation of Section 205 of the Income Tax Act; Compliance with office memorandum dated 11 March 2016; Comparison with previous judgments; Entitlement to reliefs sought by petitioners.

Analysis:
The petitioners in two separate petitions sought relief from demand notices issued by respondent No. 1 due to non-deposit of TDS amounts by their employer. The petitioners argued that the demands were improper as taxes had been deducted at source from their salaries by the employer. The petitioners highlighted that the employer faced financial irregularities leading to delayed or unpaid salaries, forcing the petitioners to leave the employment. The petitioners contended that Section 205 of the Income Tax Act prohibits demands against assessees where tax has been deducted at source. They also referenced an office memorandum emphasizing the same. The petitioners compared their situation to previous cases where similar relief was granted by the court, indicating entitlement to relief.

The Revenue, in response, argued that the petitioners must provide evidence to the Assessing Officer to address the demand notices. They also addressed the additional prayer for credit of the TDS amount and related interest/penalty.

Upon review, the Court found Section 205 clear in barring demands against assessees where tax has been deducted at source, emphasizing that the liability cannot be shifted to employees. The Court noted that the department's actions were in breach of Section 205 by imposing tax liability on the petitioners. Consequently, the Court quashed the demand notices, citing the violation of the Income Tax Act. The Court left other tax demands open for further adjudication but allowed the petitioners to pursue appropriate steps for credit of the deducted amount during assessment proceedings. The petitions were partly allowed without costs.