Shravan Rustagi Vs ACIT & Anr. (Delhi High Court)
TDS credit – tax deducted from salary but not deposited by employer – employee cannot be denied credit for employer’s default – refund of recovery with interest
Summary: The Delhi High Court considered a writ petition concerning Assessment Year 2011-12, where an intimation dated 23.09.2025 issued under Section 143(1) of the Income Tax Act, 1961 raised a demand against Shravan Rustagi because credit for TDS of Rs.5,59,792 deducted from his salary by Kingfisher Airlines, his erstwhile employer, was not granted. The petitioner contended that the issue was covered by the Delhi High Court’s judgment dated 01.10.2024 in Satwant Singh Sanghera Vs ACIT, W.P.(C) 13765/2024. It was further submitted that a substantial portion of the demand had been recovered by the Revenue from a refund due to the petitioner and that, therefore, the petitioner was entitled not only to setting aside of the intimation to the extent of the denied TDS credit but also to refund of the amount recovered. The Revenue did not dispute the legal position advanced by the petitioner.
The High Court observed that the respondent could perhaps have been justified in disallowing the TDS collected by Kingfisher Airlines because the deductor had not deposited the amount, but the petitioner could not be blamed for the deductor’s default or deprived of his legitimate right, as held in Satwant Singh Sanghera. The Court accordingly allowed the writ petition and quashed and set aside the intimation dated 23.09.2025 for AY 2011-12 to the extent that it related to non-grant of TDS credit by Kingfisher Airlines. The consequential demand and recovery made from the petitioner’s refund were also declared illegal. The respondent was directed to refund the amount recovered from the petitioner together with applicable interest under Sections 244(1) and 244(1A) of the Act within three months from the date of the order. The Court clarified that its order was confined to amounts deducted by Kingfisher Airlines and that any other demand raised by the Assessing Officer was not to be affected. The petition and pending applications were accordingly disposed of.
The Delhi High Court held that a salaried taxpayer cannot be denied credit of tax deducted at source by the employer merely because the employer failed to deposit the deducted tax with the Revenue. While the Revenue may be justified in not allowing credit where the deductor has not deposited the TDS, the employee cannot be penalised for a default over which he had no control. Following its earlier decision in Satwant Singh Sanghera v. ACIT & Anr., W.P.(C) No. 13765/2024, decided on 01.10.2024, the Court quashed the intimation and consequential demand to the extent of the denied TDS credit and directed refund of the amount recovered from the assessee’s refund, together with applicable interest.
Facts: For AY 2011-12, an intimation under section 143(1) dated 23.09.2025 raised a demand against the petitioner because credit was not granted for ₹5,59,792 of TDS deducted from his salary by Kingfisher Airlines, his erstwhile employer. Although the tax had been deducted from the petitioner’s salary, Kingfisher Airlines had failed to deposit the amount with the Revenue. Consequently, the TDS credit was not reflected/allowed to the petitioner, resulting in a demand.
The petitioner further submitted that a substantial portion of the demand had already been recovered by adjustment against a refund otherwise payable to him. He therefore sought not only quashing of the intimation but also restoration of the amount recovered from his refund.
Revenue’s position: The Revenue did not dispute the legal position relied upon by the petitioner, namely the judgment of the Delhi High Court in Satwant Singh Sanghera.
High Court finding: The Court observed that the Revenue could perhaps have been justified in disallowing the TDS amount because the deductor had not deposited the tax. However, the crucial question was whether the employee could be blamed for the employer’s failure. The Court answered this in the negative. Once tax had actually been deducted from the employee’s salary, the employee could not be deprived of his legitimate entitlement merely because the employer subsequently failed to deposit the deducted amount with the Government.
The Court followed the principle laid down in Satwant Singh Sanghera, thereby reinforcing the distinction between the default of the deductor and the rights of the deductee. The employee has no control over whether an employer deposits the tax after deducting it from salary. Consequently, the employer’s failure cannot be converted into an additional tax liability for the employee.
Relief granted: The High Court allowed the writ petition and quashed the section 143(1) intimation dated 23.09.2025 for AY 2011-12, but only to the extent that it denied credit for the TDS deducted by Kingfisher Airlines. The consequential demand and the recovery made by adjustment against the petitioner’s refund were also declared illegal.
The Revenue was directed to refund the amount recovered from the petitioner, together with applicable interest under sections 244(1) and 244(1A), within three months from the date of the judgment.
The Court clarified that the relief was confined specifically to the amounts of TDS deducted by Kingfisher Airlines. Any other independent demand raised against the petitioner was not affected by the judgment.
Ratio: Where an employer has deducted TDS from the employee’s salary, the employee cannot be denied the corresponding TDS credit merely because the employer failed to deposit the deducted tax with the Revenue. The deductee should not suffer the consequences of the deductor’s statutory default. If denial of such credit results in a demand and the demand is recovered by adjustment against the taxpayer’s refund, the recovery is liable to be reversed, with applicable statutory interest.
Key proposition: TDS deducted from salary represents tax already borne by the employee. The employer’s failure to deposit the deducted amount is a default of the deductor and cannot, by itself, extinguish the deductee’s legitimate entitlement to TDS credit. The decision provides important protection to salaried taxpayers, particularly in cases involving employer defaults, insolvency or failure of the deductor to deposit tax after making the deduction.
List of Cases Discussed / Relied Upon
- Satwant Singh Sanghera Vs ACIT, W.P.(C) 13765/2024 — the Delhi High Court judgment dated 01.10.2024 was relied upon as covering the issue concerning denial of TDS credit where Kingfisher Airlines had deducted TDS from the employee’s salary but had not deposited it.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Learned counsel for the petitioner contended that for the Assessment Year 2011-12 demand with Reference No. 2012201110016925656T has been raised by way of intimation dated 23.09.2025 under Sections 143(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act of 1961′) against the petitioner because the credit of TDS which Kingfisher Airlines (erstwhile employer) had deducted from the salary of the petitioner amounting to Rs. 5,59,792/- for AY 2011-12 was not given.
2. It is contended that the issue involved in the present writ petition is squarely covered by a judgment dated 01.10.2024 of this Court rendered in W.P.(C) 13765/2024 Satwant Singh Sanghera v. The Assistant Commissioner of Income Tax & Anr.
3. The Learned Counsel for the Petitioner further asserted that the Respondent has recovered the substantial amount of said demand from the amount of refund which became due to the Petitioner. Learned Counsel submitted that in the facts of the present case, not only the intimation/order that has been passed under Section 143(1) dated 23.09.2025 of the Act, of 1961 is liable to be set aside but the Petitioner is also entitled to the refund of the amount which stands recovered from the Petitioner.
4. Mr. Vipul Agrawal, learned Senior Standing Counsel for the Respondent, was not in a position to dispute the legal position of law as stated by the learned counsel for the Petitioner.
5. Heard learned Counsel for the Parties.
6. Adverting to the merits of the case, we are of the view that the Respondent could perhaps have been justified in disallowing the amount of TDS which was collected by Kingfisher Airlines from the Petitioner’s salary, as the same was not deposited by said deductor but the Petitioner cannot be blamed for that and deprived of his legitimate right, as has been held by this Court in its judgement Satwant Singh Sanghera (supra).
7. We therefore allow the writ petition and quash and set aside the intimation dated 23.09.2025 for AY 2011-12 to the extent it relates to the non-grant of credit of Tax Deducted at Source by the Kingfisher Airlines. The consequential demand and the recovery made from Petitioner’s refund is also declared illegal. The Respondent is directed to refund the amount recovered from the Petitioner along with applicable interest under Section 244(1) and 244(1)(A) of the Act of 1961, within a period of three months from today. It shall be required of the Respondent to ensure that the applicable amount is paid to the Petitioner.
8. Needless to observe that our order shall confine to the amounts which have been deducted by the Kingfisher Airlines and in case there is any other demand raised by the Assessing Officer, the same shall not be effected.
9. The instant petition, along with pending applications, stands disposed of in the aforesaid terms.
