admin November 15, 2019

The assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income. Section 205 of the Income Tax act, 1961 which is as under:-

“Where tax is deductible at the source under [the foregoing provisions of this Chapter], the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income.”

THERE ARE VARIOUS IMPORTANT JUDGEMENTS ON THIS ISSUE THAT WHERE TDS IS NOT REFLECTED IN 26AS DUE TO NON DEPOSIT OF TDS OR WRONGLY DEPOSITED BY THE TDS DEDUCTOR

1. When form 16A has been issued

In Sumit Devendra Rajani Versus Assistant Commissioner Of Income Tax case the Hon’ble High Court of Gujarat has decided “It is held that the petitioner assessee deductee is entitled to credit of the tax deducted at source with respect to amount of TDS for which Form No.16A issued by the employer deductor – M/s. Amar Remedies Limited has been produced and consequently department is directed to give credit of tax deducted at source to the petitioner assessee – deductee to the extent form no.16 A issued by the deductor have been issued. Consequently, the impugned demand notice dated 6.1.2012 (Annexure D) is quashed and set aside. However, it is clarified and observed that if the department is of the opinion deductor has not deposited the said amount of tax deducted at source, it will always been open for the department to recover the same from the deductor….”

2. The assessee cannot be doubly saddled with the tax liability when the TDS is deducted as held in ACIT vs. Om Prakash Gattani (2000) 242 ITR 638, the Hon’ble Gauhati High has decided that “It would not be possible to proceed to recover the amount of tax from the assessee. The assessee cannot be doubly saddled with the tax liability. Deduction of tax at source is only one of the modes. Once this mode is adopted and by virtue of the statutory provisions the person responsible to deduct the tax at source deducts the amount, only that mode should be pursued for the purpose of recovery of tax liability and the assessee should not be subjected to other modes of recovery of tax by recovering the amount once again to satisfy the tax liability. It is, therefore, provided u/s 201 of the Income-tax Act that the person responsible to deduct the tax at source would be deemed to be an assessee in default in case he deducts the amount and fails to deposit it in the Government treasury. As observed earlier, the assessee has no control over such person who is responsible to deduct the income-tax at source, but fails to deposit the same in the Government treasury. In this light of the matter, in our view, the notices issued under Section 226(3) of the Income-tax Act to the bankers of the petitioner-respondent to satisfy the tax liability from the bank account of the petitioner-respondent are illegal. It is not that the Income-tax Department was helpless in the matter. The person responsible to deduct the tax at source would move into the shoes of the assessee and he would be deemed to be an assessee in default. Whatever process or coercive measures are permissible under the law would only be taken against such person and not the assessee.”
3. Once the TDS is deducted then there is specific bar contained in Section 205 of the Act as held in Yashpal Sahni vs. ACIT (2007) 293 ITR 539 the Hon’ble Bombay High Court that  “Although it is obligatory on the part of the person collecting tax at source to pay the said TDS amount to the credit of the Central Government within the stipulated time, if such person fails to pay the TDS amount within the stipulated time, then, Section 201 of the Act provides that such person shall be deemed to be an assessee in default and the revenue will be entitled to recover the TDS amount with interest at 12% p.a. and till the said TDS amount with interest is recovered there shall be a charge on all the assets of such person or the company. Penalty u/s 221 of the Act and rigorous imprisonment u/s 276B of the Act can also be imposed upon such defaulting person or the company. Thus, complete machinery is provided under the Act for recovery of tax deducted at source from the person who has deducted such tax at source and the revenue is barred from recovering the TDS amount from the person from whose income, tax has been deducted at source. Therefore, the fact that the revenue is unable to recover the tax deducted at source from the person who has deducted such tax would not entitle the revenue to recover the said amount once again from the employee-assessee, in view of the specific bar contained in Section 205 of the Act.”
4. The department is restrained in terms of Section 205 of the Act from enforcing any demand as held in In Smt. Anusuya Alva vs. Deputy Commissioner of Income Tax and Others (2005) 278 ITR 206 (Karn). The Hon’ble Karnataka High Court held that “In the circumstances, I am of the view that the Revenue is to be definitely restrained in terms of Section 205 of the Act from enforcing any demand on the assessee-petitioner insofar as the demand with reference to the amount of tax which had been deducted by the tenant of the assessee in the present case, and assuming that the tenant had not remitted the amount to the Central Government. The only course open to the Revenue is to recover the amount from the very person who has deducted and not from the petitioner.”
5. Similarly in Commissioner of Income Tax vs. Ranoli Investment P. Ltd. and Others (1999) 235 ITR 433(Guj). The Hon’ble High Court of Gujarat in this case has decided  that “As provided by s. 205 of the Act, where tax is deductible at source, the assessee shall not be called upon to pay the tax himself to the extent to which it has been deducted from the relevant income. Thus, from the aforesaid provisions it emerges that as soon as the tax is actually deducted at source by the person responsible to make payment, the liability of the assessee to pay that tax gets discharged and it is for the person who has deducted the tax at source to deposit the same with the Government.”

There are various other judgments of the different Hon’ble High Courts where it has been decided that if the TDS is reflecting in Form 16/Form 16A or TDS certificates or the fact of TDS deduction is established, then the Department must provide the credit of the same to the concerned assessee and he/she shall not be called upon to pay the tax again to the extent to which tax has been deducted.