TDS Not Deposited By Employer, Can’t Be Adjusted Against Future Refund Due To Assessee: Delhi High Court
The Delhi High Court has ruled that the revenue department cannot adjust the withheld tax (TDS) which has not been deposited by the deductor (employer) in the Central Government Account, against the refund due and payable to the deductee/assessee.
The bench of Justices Rajiv Shakdher and Tara Vitasta Ganju held that adjustment of demand against future refund amounts to an indirect recovery of tax, which is barred under Section 205 of the Income Tax Act, 1961.
Section 205 of Income Tax Act provides that where tax is deductible at source, the assessee shall not be called upon to pay the tax himself to the extent to which the same has been deducted from his income.
The petitioner, Sanjay Sudan, was an employee of Kingfisher Airlines Limited from 2008 up until March, 2012.
For the Assessment Year (AY) 2012- 13, the petitioner’s employer, Kingfisher Airlines, had withheld an amount towards withholding tax payable on salary. However, the same was not deposited by Kingfisher and thus, a demand for AY 2012-13 was raised by the revenue department.
The petitioner, Sanjay Sudan, filed a writ petition before the Delhi High Court, arguing that because of the outstanding demand concerning AY 2012-13, the refund payable to him for AY 2015-16 was not paid to him, and instead, the same was set-off against the said demand. The petitioner thus challenged the notice issued by the revenue department, contending that the same virtually amounts to compelling the petitioner to pay the demand which is not recoverable from him as per the provisions of Section 205 of the Income Tax Act, 1961.
The revenue department submitted before the High Court that credit for withholding tax can only be given in terms of Section 199 of the Income Tax Act, when the amount is received in the Central Government account. It added that while no coercive measure can be taken against the petitioner, the demand will remain outstanding and it cannot be effaced.
The High Court reckoned that as per the record, the withholding tax was reflected in Form 16A issued by the petitioner’s employer, i.e., the Kingfisher Airlines.
The bench ruled that in view of Section 205 of the Income Tax Act, read with the instruction dated 01.06.2015 issued by the Central Board of Direct Taxes (CBDT), the deductee/assessee cannot be called upon to pay tax, which has been deducted at source from his income.
Referring to the instruction dated 01.06.2015, the Court added: “The instruction dated 01.06.2015 is aligned with the aforesaid provision of Act inasmuch as it clearly provides in paragraph 2 that since the Act places a bar on a direct demand qua the deductee assessee, the same cannot be enforced coercively.”
While observing that the revenue department cannot do indirectly what they can’t do directly, the Court held that the adjustment of demand against future refund amounts to an indirect recovery of tax, which is barred under Section 205 of the Income Tax Act.
“Therefore, in our view, the petitioner is right inasmuch as neither can the demand qua the tax withheld by the deductor/employer be recovered from him, nor can the same amount be adjusted against the future refund, if any, payable to him,” the bench said.
While quashing the notice issued against the petitioner, the High Court added that the revenue department is not entitled in law to adjust the demand raised for AY 2012-13 against any other AY.
Noting that the amount claimed by the petitioner towards refund was not in dispute, the Court directed that the same will have to be refunded.
Case Title: Sanjay Sudan vs. Assistant Commissioner of Income Tax & Anr.
Citation: 2023 LiveLaw (Del) 203
Counsel for the Petitioner: Mr Shashi Mathews with Mr Abhishek Book, Advs.
Counsel for the Respondents: Mr Sanjay Kumar, Senior Standing Counsel with Ms Hemlata Rawat, Adv.