Question And Answer
Subject: Tax demand despite TDS deduction by employer
Category:  Income Tax
Asked by: Devarsh Pravinbhai Patel
Answered by:
Tags:
Date: September 29, 2018
Query asked by Devarsh Pravinbhai Patel

The assessee is an individual employed as a pilot of King Fisher Airlines. The employer deducted tax at source on salary payments made to the assessee. However the employer did not deposit such tax with the Government revenue. The Department demanded that the assessee pay the tax as the employer has committed a default.

Can the Department seek to recover such amount from the assessee or whether the petitioner is correct in contending that he had already suffered the deduction of tax, the mere fact that the employer did not deposit such tax with the Government revenue could not permit the Income tax Department to recover such amount from the assessee?

The question whether income-tax Department can recover such amount from the taxpayer or whether the petitioner is correct in contending that he had already suffered the deduction of tax, the mere fact that the employer did not deposit such tax with the Government revenue could not permit the Income tax Department to recover such amount from the petitioner is answered by the Division Bench of the Gujarat High Court in Sumit Devendra Rajani vs. Assistant Commissioner of Income tax, reported in (2014) 49 taxmann.com 31.

In Sumit Devendra Rajani vs. Assistant Commissioner of Incometax, reported in (2014) 49 taxmann.com 31, the Court examined the statutory provisions and in particular Section 205 of the Income-tax Act, 1961.

The Court concurred with the view of the Bombay High Court in case of Asst. CIT VS. Om Prakash Gattani, reported in (2000) 242 ITR 638 and observed as under:

“10. We are in complete agreement with the view taken by the Bombay High Court and Gauhati High Court. Applying the aforesaid two decisions of the Bombay High Court as well as Gauhati High Court, the facts of the case on hand and even considering Section 205 of the Act action of the respondent in not giving the credit of the tax deducted at source for which form no.16 A have been produced by the assessee – deductee and consequently impugned demand notice issued under Section 221(1) of the Act cannot be sustained. Concerned respondent therefore, is required to be directed to give credit of tax deducted at source to the assessee deductee of the amount for which form no.16 A have been produced.”

This view was followed in Devarsh Pravinbhai Patel vs. ACIT (SPECIAL CIVIL APPLICATION NO. 12965 of 2018 dated 24/09/2018) by the Gujarat High Court.

Accordingly, the law is clear that the 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. The department has to give credit of tax deducted at source to the assessee – deductee to the extent form no.16 A issued by the deductor.

If the department is of the opinion that the 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.



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