2023 (6) TMI 1135 - HC - Income Tax

Claiming full amount of TDS - Deductor has deducted the TDS but only small portion of the amount of TDS was deposited with the revenue - Bar against direct demand on assessee - petitioner avers that instead of being granted credit for the tax deducted at source by CAL, a demand was raised against it - HELD THAT - While respondent/revenue cannot recover the deficit tax at source from the petitioner, which was deducted and pocketed by CAL, and they cannot also refuse to grant credit for the same. The rationale being what the appellant/revenue cannot do directly, it is impermissible for it to reach the same end indirectly. Given this position, the prayer made in the writ petition is allowed. Revenue will refund to the petitioner, as prayed.

Summary

Issues involved:
The judgment involves issues related to tax deduction at source, non-deposit of the deducted tax with the revenue, adjustment of demand against future refund, and the legality of such actions under Section 205 of the Income Tax Act.

Tax Deduction at Source:
The petitioner provided services to an entity, Clutch Auto Ltd. (CAL), during Financial Year 2010-11. CAL deducted tax at source amounting to Rs. 24,96,199, but only deposited Rs. 69,897 with a deficit of Rs. 24,26,302. The petitioner claimed that the tax deducted by CAL was not completely deposited with the revenue, leading to a demand of Rs. 15,24,840 against the petitioner. The petitioner sought a writ for the refund of Rs. 11,39,870 due to them for Assessment Year 2011-12.

Legal Interpretation of Section 205:
The judgment referred to Section 205 of the Income Tax Act, which prohibits calling upon the assessee to pay tax themselves if it has been deducted at source. The court emphasized that the revenue cannot recover the deficit tax at source from the petitioner, which was deducted and not deposited by CAL. Additionally, the court held that the revenue cannot adjust the demand against future refunds, as it amounts to indirect recovery of tax, which is prohibited under Section 205.

Refund of Amount Claimed:
The court directed the revenue to refund Rs. 11,39,870 to the petitioner, as the amount was not in dispute and was rightfully due to the petitioner for Assessment Year 2011-12. The judgment highlighted that what the revenue cannot do directly, it cannot achieve indirectly, emphasizing the importance of adhering to legal provisions and principles in tax matters.

Conclusion:
The judgment concluded by allowing the petitioner's prayer for the refund and disposing of the writ petition in favor of the petitioner. The court reiterated that parties should act based on the digitally signed copy of the order, ensuring compliance with the directives outlined in the judgment.