Kirtikumar Shantilal Chandan Vs Hitesh Pawanraj Mehta (Bombay High Court)
Summary: The Bombay High Court, in a commercial summary suit filed by Kirtikumar Shantilal Chandan against Hitesh Pawanraj Mehta, considered the legal significance of Tax Deducted at Source (TDS) certificates for determining whether the limitation period for recovery of a debt could be extended under Sections 18 and 19 of the Limitation Act, 1963. Justice Abhay Ahuja had appointed Mr. Prathamesh Kamat as Amicus Curiae to assist the Court on the issue. The Amicus referred to the Bombay High Court decisions in S. P. Brothers Vs Biren Ramesh Kadakia, Actal Vs India Infoline Limited and J. K. Engineering Pvt. Ltd. Vs ANE Industries Pvt. Ltd. The Court recorded the view in S. P. Brothers, subsequently affirmed by the Full Bench in Jyotsna K. Valia Vs T. S. Parekh and Co., that issuance of a TDS certificate does not, by itself, constitute acknowledgment of debt. Such a certificate primarily evidences deduction of tax and may not disclose the underlying loan amount, interest rate or contractual liability necessary to establish a recoverable debt.
The plaintiff’s counsel, however, relied upon the Delhi High Court judgment in Ansal Housing Ltd Vs Samyak Projects Pvt. Ltd., which distinguished acknowledgment of liability from payment on account of debt. The Delhi High Court had examined Section 19 of the Limitation Act alongside Sections 194A and 198 of the Income-tax Act, 1961, and concluded that TDS deposited on behalf of a creditor against an identified debt could constitute payment on account of that debt, triggering a fresh limitation period where the statutory requirements were satisfied. The judgment distinguished earlier Bombay High Court authorities on TDS certificates as acknowledgments of liability. Related TaxGuru coverage of TDS deposits and extension of limitation in debt recovery proceedings addresses this distinction.
Justice Abhay Ahuja observed that the Delhi High Court’s approach could be examined in the facts and circumstances of a particular case. The Court did not finally resolve the competing legal positions or pronounce an ex-parte decree. The matter had been listed for the plaintiff’s counsel to advance submissions seeking such a decree, but counsel informed the Court that the suit appeared on a list of matters likely to be transferred to the City Civil Court at Bombay, with 28 January 2024 identified as the appointed date. The Court accordingly directed the Registry to take appropriate steps in accordance with the relevant notification. The order is therefore an interlocutory consideration of the TDS-limitation issue and an administrative direction concerning the proposed transfer, rather than a final adjudication of the plaintiff’s monetary claim.
Cases Discussed
- Ansal Housing Ltd Vs Samyak Projects Pvt. Ltd. (Delhi High Court) — 2023 SCC OnLine Del 2387; judgment dated 26 April 2023. The plaintiff relied upon this decision for the proposition that TDS deposited against a debt may constitute part-payment under Section 19 of the Limitation Act, 1963, even though issuance of a TDS certificate may not independently amount to acknowledgment of liability. Related TaxGuru coverage: TDS and limitation in debt recovery.
- S. P. Brothers Vs Biren Ramesh Kadakia (Bombay High Court) — 2008 SCC OnLine Bom 1599. Discussed for the proposition that a TDS certificate primarily records deduction of tax and does not, merely by its issuance, amount to acknowledgment of debt. Related TaxGuru discussion: Acknowledgment of debt and limitation principles.
- Actal Vs India Infoline Limited (Bombay High Court) — 2012 SCC OnLine Bom 1507. Referred to by the Amicus Curiae in connection with the evidentiary significance of TDS certificates and acknowledgment of liability.
- Jyotsna K. Valia Vs T. S. Parekh and Co. (Bombay High Court, Full Bench) — 2007(4) Mh. L. J. The order records that the Full Bench affirmed the approach that a TDS certificate by itself does not establish acknowledgment of the underlying debt.
- J. K. Engineering Pvt. Ltd. Vs ANE Industries Pvt. Ltd. — Referred to by the Amicus Curiae. The supplied judgment does not furnish a citation or identify the deciding court in its discussion.
- Baranagore Jute Factory PLC. Mazadoor Sangh (BMS) (Supreme Court) — Referred to within the extracted Delhi High Court judgment concerning the treatment of TDS deposits as part of compensation payable.
- Utility Powertech Limited — Referred to within the quoted Delhi High Court judgment on the distinction between TDS deduction and acknowledgment of liability. The extracted passage does not give its complete case title or citation.
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER
1. Pursuant to the order dated 18th January, 2024 and pursuant to the circulation sought by the learned Counsel for the Plaintiff, this matter is listed today.
2. Pursuant to the earlier order of this Court, Mr. Prathamesh Kamat, learned Counsel of this Court was appointed as Amicus Curiae to examine and assist the Court on the issue of limitation with respect to the TDS Certificate i.e. Whether the TDS certificate can be considered as an acknowledgment of liability for extending the period of limitation under Sections 18 and 19 of the Limitation Act, 1963. Mr. Kamat had relied upon decisions in the cases of S. P. Brothers Vs. Biren Ramesh Kadakia1, Actal Vs India Infoline Limited2 and J. K. Engineering Pvt. Ltd. Vs. ANE Industries Pvt. Ltd.3
3. It is submitted that the view of the Division Bench of this Court in the case of S. P. Brothers Vs. Biren Ramesh Kadakia (supra) holding that the issuance of the TDS certificates does not amount to an acknowledgment of debt within the meaning of Section 25 of the Indian Evidence Act, which has been affirmed by a Full Bench of this Court in the case of Jyotsna K. Valia Vs. T. S. Parekh and Co.4 which held that the TDS certificate is primarily to acknowledge the deduction of tax at source. That the certificate does not refer to any amount of loan or the rate of interest which is payable on the principal amount. That a bare reading of Order 37 Rule 2 shows that these provisions have restricted application and certificate for tax deducted at source would not be a document which will fall in any of the clauses stated under Order 37 Rule 2.
4. Mr. Sharma, learned Counsel for the Plaintiff has drawn the attention of this Court to the decision of the Hon’ble Delhi High Court in the case of Ansal Housing Ltd Vs. Samyak Projects Pvt. Ltd.5, where a contrary view has been taken on the basis of analysis of Section 19 of the Limitation Act, 1963 read with Section 194A and 198 of the Income Tax Act where the Delhi High Court held that as the deposit of TDS was made on a particular date in terms of Section 198 of the Income Tax Act, it would be deemed to be an income received by the Plaintiff and the said payment would, in terms of Section 19, extend the period of limitation. The Delhi High Court held that the issue of TDS certificate would satisfy the second condition of Section 19 of the Limitation Act. The Delhi High Court has also distinguished the decision of this Court in the case of S. P. Brothers Vs. Biren Ramesh Kadakia (supra) and Actal Vs India Infoline Limited (supra) holding that the said judgments have no application to the facts of the said case and that although deposit of TDS may not act as an acknowledgment of debt by the Defendant, it being a payment made by the Defendant on account of the Plaintiff and on account of a debt, would lead to a fresh period of limitation being computed from the date the deposit of TDS was made. Accordingly, the Delhi High Court held that the suit cannot be barred by limitation.
5. Paragraphs 29 to 38 of the said decision are usefully quoted as under:-
“29. The learned senior counsel for the defendant has asserted that as the case of the plaintiff itself is that the last payment made against the Deed of Cancellation was received by the plaintiff from the defendant on 27.03.2015, the present Suit having been filed on 20.09.2018, is, therefore, barred by limitation. He has submitted that the mere fact of the deposit of TDS on 30.09.2015 by the defendant would not extend the period of limitation.
30. The above submission is disputed by the learned senior counsel for the plaintiff contending that the TDS deposited is to the account of the plaintiff and, therefore, would extend the period of limitation.
31. Section 19 of the Limitation Act, 1963 reads as under:
“19. Effect of payment on account of debt or of interest on legacy.—Where payment on account of a debt or of interest on a legacy is made before the expiration of the prescribed period by the person liable to pay the debt or legacy or by his agent duly authorised in this behalf, a fresh period of limitation shall be computed from the time when the payment was made:
Provided that, save in the case of payment of interest made before the 1st day of January, 1928, an acknowledgment of the payment appears in the handwriting of, or in a writing signed by, the person making the payment.”
32. To attract the above provision and take benefit thereof, the plaintiff has to prove that:—
(a) The payment on account of the debt was made by the defendant before the expiration of the prescribed period;
(b) The payment was acknowledged by some term of writing either in the handwriting of the payer or signed by the payer.
33. Section 194A of the Income Tax Act obliges the person responsible for paying interest to another to deduct, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by an issue of a cheque or draft or by any other mode, whichever is earlier, income tax thereon at the rate in force. Explanation to Section 194A (1) further provides that where any income by way of interest is credited to any account in the books of account of the person liable to pay such income, such crediting shall also be deemed to be a credit of such income to the account of the payee making such person liable to deduct TDS.
34. Section 198 of the Income Tax Act further provides that all sums deducted shall, for the purpose of computing the income of the assessee, be deemed to be income received by such assessee.
35. In Baranagore Jute Factory PLC. Mazadoor Sangh (BMS) (supra), the Supreme Court observed that the amount deposited as TDS also partakes the character of compensation that was payable by NHAI in the said case.
36. In the present case, as the deposit of TDS was made on 30.09.2015, in terms of Section 198 of the Income Tax Act, it would be deemed to be an income received by the plaintiff. The said payment being made against the Cancellation Deed, which is not denied by the defendant, would in terms of Section 19 of the Limitation Act, extend the period of limitation. The issue of the TDS Certificate by the defendant shall satisfy the second condition of Section 19 of the Limitation Act as culled out above.
37. In Utility Powertech Limited (supra), the Court held that the deduction of TDS is not an admission of liability. The same was the ratio in Actal (supra) and in S.P. Brothers (supra). The said judgments would, however, have no application to the facts of the present case. Though deposit of TDS may not act as an acknowledgment of debt by the defendant, it being a payment made by the defendant on account of the plaintiff and on account of a debt, would lead to a fresh period of limitation being computed from the date when the deposit of TDS was made.
38. The Suit therefore, cannot be said to be barred by limitation.”
6. In my view, the view taken by the Hon’ble Delhi High Court could be examined in the facts and circumstances of a particular case.
7. Today the matter has been listed for Mr. Sharma, learned Counsel for the Plaintiff, to proceed with the submissions on the facts of the case to pursue this Court to pass ex-parte decree. However, Mr. Sharma, has points out that pursuant to the notification issued in this regard and a notice of this Court, this matter has been listed in the list of matters which are likely to be transferred to the City Civil Court at Bombay, the appointed date being 28th January, 2024.
8. Registry to accordingly take appropriate steps in accordance with the notification.
Notes:
1 2008 SCC Online Bom 1599 ↩
2 2012 SCC Online Bom 1507 ↩
3 ↩
4 2007(4) Mh. L. J. ↩
5 2023 SCC online Del 2387 ↩
