I-T - Non-Deposit of TDS - No Direct Demand against Assessee
WHEN somebody deducts TDS from you but does not deposit it with the Government, what is your remedy? You will get deduction for TDS only if it figures in the Form 26AS Statement. All your pleas and proof that TDS has been deducted will not cut ice with the Department.
CBDT has received grievances from many taxpayers that in their cases the deductor has deducted tax at source from payments made to them in accordance with the provisions of Chapter-XVII of the Income-tax Act, 1961 but has failed to deposit the same into the Government account leading to denial of credit of such deduction of tax to these taxpayers and consequent raising of demand.
As per Section 199 of the Act credit of Tax Deducted at Source is given to the person only if it is paid to the Central Government Account. However, as per Section 205 of the Act the assessee shall not be called upon to pay the tax to the extent tax has been deducted from his income where the tax is deductible at source under the provisions of Chapter-XVII. Thus the Act puts a bar on direct demand against the assessee in such cases and the demand on account of tax credit mismatch cannot be enforced coercively.
Section 205 reads as: Bar against direct demand on assessee. 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.
The CBDT wants this to be brought to the notice of all assessing officers so that if the facts of the case so justify, the assessees are not put at any inconvenience on account of default of deposit of tax into the Government account by the deductor.
CBDT Letter No. 275/29/2014-IT-(B)., Dated: June 01 2015
But isn't the issue well settled?
Look at this case:
One Yashpal Sahni was Managing Director of a Company. His company paid him salary after deducting a TDS of Rs. 6,66,000 and after some time his job was terminated.
Mr. Yashpal Sahni (assessee) filed his income tax return claiming credit of TDS amounting to Rs.6,66,000/-. The assessing officer issued an intimation under section 143(1) (a) of the Income Tax Act denying credit of the TDS amount of Rs.6,66,000/- and after imposing interest under section 234A, 234B and 234C of the Act raised a demand of Rs.12,73,940/-. He addressed several letters to various authorities including a letter addressed to the Income Tax Officer, TDS Circle calling upon them to initiate necessary action against the employer so as to recover the TDS amount collected and to compel the employer to issue TDS certificate to him.
Instead of recovering the TDS amount with interest from the employer, the income tax authorities, in furtherance of the intimation issued under section 143(1) (a) of the Act initiated penalty proceedings against the assessee under section 221(1) of the Act and by attaching the bank account of the assessee recovered a sum of Rs.17,89,587/- from the petitioner.
Challenging the attachment, the assessee filed a writ in the High Court. The High Court observed,
1. From the language of section 205, it is clear that once the tax is deducted at source, the same cannot be levied once again on the assessee who has suffered the deduction.
2. Once it is established that the tax has been deducted at source from the salary of the employee, the bar under section 205 of the Act comes into operation and it is immaterial as to whether the tax deducted at source has been paid to the Central Government or not, because elaborate provisions are made under the Act for recovery of tax deducted at source from the person who has deducted such tax.
3. Once the mode of collecting tax by deduction at source is adopted, that mode alone is to be adopted for recovery of tax deducted at source.
4. 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.
The High Court ordered refund the amount of Rs.17,89,587/- with interest from the date of recovery.
We carried this decision of the High Court in