ENTITLEMENT OF CREDIT FOR TAX DEDUCATED AT SOURCE

[Mr. M. GOVINDARAJAN]

According to Sec.191 of the Income Tax Act, 1961 income tax shall be payable by an assessee directly in case of income in respect of which provision is not made under Chapter XVII of the Act for deducting income tax at the time of payment. The provisions of the Act make it obligatory on certain persons to deduct income tax at source and pay the same to the credit of the Central Government. The deductor has to issue certificate for tax deducted at source. The tax deducted certificate is the conclusive evidence that the tax liable to be deducted at source was deducted and therefore it is no more the liability or responsibility of the deductee to pay any tax mentioned therein.

Sec. 205 of the Act creates bar against direct demand on the assessee to the extent of tax deducted at source. According to Sec. 205 of the Act where tax is deductible at the source under the provisions of the Act and has been so deducted the assessee shall not be called upon to pay the tax himself to the extent of deduction so made. Whether the person deducting the tax at source has paid it to the credit of the Central Government is immaterial for the applicability of Sec. 205 of the Act.

In 'Om Prakash Gattani V. Assistant Commissioner of Income Tax' - 1996 -TMI - 18236 - (GAUHATI High Court) the tax deducted at source certificates issued by the deductor revealed that he had deducted the tax at source but had not paid the tax so deducted to the credit of the Central Government. The benefit of tax deducted at source was denied by the Assessing Officer to the deductee. The High Court held that in view of Section 205 of the Act, the authorities under no circumstances could make the petitioner liable to make payment of any tax to the extent to which the tax had been deducted at source. The Court further held that the tax deducted at source certificate showed that the tax liable to be deducted at source was deducted and therefore it was no more the liability or responsibility of the deductee to pay any tax mentioned therein.

In "Ahulwallia and Associates V. Income Tax Officer' (2010) 2 ITR (Trib) 582 (Ahamedabad) the assessee filed its return of income on 27.03.2006 declaring the income of Rs.5,56.606/- He claimed a refund of Rs.9,732/- out of the tax deducted at source amounting to Rs.2,09,414/-. The assessee in support of his claim enclosed the tax deduction at source certificates issued by M/s Milestone Automobiles Private Limited under Section 194-I of the Act, along with the refund application.

The Assessing Officer did not give credit for the said amount of tax deducted at source and intimated the same to the assessee. Being aggrieved against the same the assessee moved an application under Section 154 of the Act seeking credit for the tax deducted at source on the basis of respective tax deducted at source certificates enclosed along with the return. The Assessing Officer rejected the rectification application on the ground that the tax deducted at source certificates were defective inasmuch as they did not indicate the date of payment of tax deducted at source to the account of the Central Government. The assessee filed an appeal before the Commissioner of Income Tax (Appeals).

The Commissioner of Income Tax (Appeals) held that the Assessing Officer was right in treating the tax deducted at source certificates as defective because the tax deducted at source did not mention 'date and challan number of deposit of tax into Central Government Account'. This column was left blank. Neither during the rectification proceedings nor during the appellate proceedings the appellant produced any certificate from its tenant M/s Milestone Automobiles Private Limited giving information which was missing in the tax deducted at source certificates, rather the appellant insisted that whatever certificates were given by M/s Milestone Automobiles Ltd., the appellant should be allowed tax deducted at source credit of the same. The decision of the Assessing Officer in this regard communicated to the appellant vide his order dated 18.03.2008 is therefore upheld.

The assessee filed the present appeal before the tribunal. In support of their case the appellants furnished the copies of tax deducted at source certificates in Form 16A by Milestone Automobiles Private Limited. The appellants put forth the contention that Section 205 of the Act created a bar against direct demand on the assessee where tax was deductible at source and was also deducted by the deductor.

The Tribunal found that the relevant columns in all the tax deducted at source certificates have been left blank by the tax deductor. The Tribunal analyzed the provisions of Sec. 191 and 205 of the Act. The Tribunal held that the provisions of Section 205 are quite clear and free from debate. Sec. 205 of the Act focuses on two important elements, namely,

* Tax should be deductible at source under the Income Tax Act; and

* The tax has actually been deducted at source.

If both the conditions are satisfied the assessee cannot be called upon to pay the tax in terms of the provisions of Section 205 of the Act. Once both the aforesaid conditions are satisfied, the deductee is entitled to have the benefit of tax deducted at source. Tax deducted at source certificates placed by the assessee before the Tribunal prima facie show that both the aforesaid conditions stipulated by Section 205 are met. The Assessing Officer may however verify whether both the aforesaid conditions are actually fulfilled in the present case and if so to give credit for the amount of tax deducted at source accordingly. The assesssee, in no case, shall be denied the benefit of tax deducted at source on the sole ground that the tax so deducted has not been paid to the credit of the Central Government. It is for the Department to recover such amount from the deductor and take such action against him as may be warranted in law but the deductee cannot be made to suffer for the illegalities committed by the defaulter.