Sarath V. S. Vs CIT (Kerala High Court)
Kerala High Court: Employees Liable to Pay Tax Where Employer Deducts TDS but Fails to Remit It
The Kerala High Court dismissed a batch of writ appeals filed by employees of Attinad Software Pvt. Ltd., who challenged income-tax demands raised on them despite their employer having deducted TDS from their salaries but not remitted it to the Government.
The appellants relied on Section 205 of the Income-tax Act, contending that once tax is deducted at source, the Department is barred from recovering the same tax again from the assessee-employee. However, affirming the reasoning of the Single Judge, the Division Bench held that the protection under Section 205 operates only when TDS has been deducted and paid to the Central Government in accordance with Section 199.
The Court clarified that credit for TDS can be granted only if the deducted tax is actually deposited with the Government. In the present case, since the employer failed to remit the deducted TDS, no credit stood to the employees’ accounts, and therefore, the tax demand raised upon completion of assessment was legally valid. The demand was not for “TDS” per se, but for tax payable on assessed income, which ordinarily would have been adjusted against TDS credit—had such credit existed.
The Court observed that the employees’ remedy lies against the defaulting employer, who had effectively short-paid salary under the guise of TDS deduction. It also noted that the Single Judge had protected the employees’ interests by directing that any recovery made from the employer by the Department must be given as credit to the employees, to the extent relatable to them, thereby effacing the corresponding demand.
Finding no error in the impugned judgment, the Division Bench dismissed the appeals, reinforcing that Section 205 does not shield an assessee where TDS is deducted but never reaches the Government
Author’s Comments:
What makes the Kerala High Court ruling significant is not that it ignored the Delhi High Court’s employee-centric jurisprudence, but that it consciously departed from it after due consideration. The Delhi High Court’s approach, though compelling on grounds of equity and fairness, effectively treats mere deduction as equivalent to payment, introducing a deemed-deposit concept that the statute does not expressly recognise. The Kerala High Court, by contrast, chose to preserve the internal coherence of the Act by anchoring Section 205 to Section 199, even at the cost of individual hardship. This divergence reflects a deep interpretative fault-line between equitable tax justice and strict statutory construction, making the issue ripe for authoritative settlement by the Supreme Court or legislative intervention to clearly allocate the risk of employer default.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
