Case Law Details
Shri Chintan Bindra Vs DCIT (Delhi High Court)
Delhi High Court held that non-deposition of deducted tax with the revenue by the employer cannot be recovered from employee as employee after accepting salary post TDS deduction doesn’t have any control over it.
Facts- The petitioner was employed with Kingfisher Airlines Limited as an airline pilot at the rank of captain since 16.04.2008.
Notably, the respondents raised multiple demands of outstanding income tax and interest pertaining to A.Ys 2009–10, 2011–12, and 2012–13. It is also not in dispute that the petitioner was being paid salary after the deduction of income tax at source but his employer namely Kingfisher Airlines Limited, did not deposit it with the revenue. Despite repeated communications from the petitioner, the said demands were not withdrawn by the respondents, so the petitioner approached this court by way of writ action.
The core issue to be considered here is as to whether any recovery towards the outstanding tax demand can be effected against the petitioner in view of the admitted position that the tax payable on salary of the petitioner was being regularly deducted at source by his employer namely Kingfisher Airlines Ltd. who did not deposit the deducted tax with the revenue.
Conclusion- Held that the petitioner having accepted the salary after deduction of income tax at source had no further control over it in the sense that thereafter it was the duty of his employer acting as tax collecting agent of the revenue under Chapter XVII of the Act to pay the deducted tax amount to the Central Government in accordance with law. The employer of the petitioner having failed to perform his duty to deposit the deducted tax with the revenue, petitioner cannot be penalized. It would always be open for revenue to proceed against employer of the petitioner for recovery of the deducted tax.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. By way of this writ petition under Articles 226 and 227 of the Constitution of India, petitioner has sought the following reliefs:
i. To declare that the demand of tax and interest reflected on the income tax portal for the AYs 2009-10, 2011-12, 2012-13 on account of TDS admittedly deducted by the Company (Employer), do not lie against the Petitioner, and to direct the Respondents to delete the impugned demand from the Portal and their records; and/or
ii. To issue an appropriate writ, order, or direction to Respondents to release the refund amount Rs. 3,88,209/-, due for various AYs and which has been illegally adjusted against the illegal and erroneous demand; and/or
iii. Issue an appropriate writ, order, or direction to the Respondents to grant statutory interest on the illegally adjusted refund amount of Rs. 3,88,209/-; and/or
iv. Issue an appropriate writ, order, or direction to the Respondents to grant compensatory interest on the illegally adjusted refund amount of Rs. 3,88,209/-; and/or
v. To issue a writ of certiorari or a writ in the nature of certiorari or any other writ, order or direction, to quash the impugned intimation dated 03.03.2021 (Annexure P/41); and/or
vi. To issue a writ of certiorari or a writ in the nature of certiorari or any other writ, order or direction, to quash the impugned intimations dated 02.07.2016 & 12.08.2016(Annexure P/21) for the AY 2016-17, and impugned intimation dated 19.10.2017 (Annexure P/26) for the AY 2017-18, issued under Section 245 of the Act; and/or
vii. To issue a writ of certiorari or a writ in the nature of certiorari or any other writ, order or direction, to quash the impugned intimations/orders dated 21.03.2011 (Annexure P/6); dated 23.10.2012 (Annexure P/10); dated 16.01.2014 (Annexure P/14); dated 24.09.2016 (Annexure P/22); dated 24.09.2018 (Annexure P/34); dated 18.09.2019 (Annexure P/36); and dated 23.01.2021 (Annexure P/39) under Section 143(1) of the Act for the adjustments of refunds, and for raising of demand on account of “Unmatched Tax Deducted at Source”; and/or
viii. To declare that the Respondents Authorities abide strictly by the instruction No. 275 dated 01.06.2015 and the further Office Memorandum dated 11.03.2016 and Press Release dated 11.03.2016 issued by the CBDT; and/or
ix. Issue an appropriate writ, order, or direction to Respondents to act on the provisions of the statute, in a manner, that the express rights so conferred upon the assessees do not get frustrated for non-action on the part of the Respondents; and/or
x. Issue an appropriate writ, order, or direction to Respondents to not to take any coercive action till the pendency of this Writ Petition; and/or
xi. Issue any other writ, order or direction in favour of the Petitioner, as this Hon’ble Court may deem fit and proper in the present facts and circumstances of the case, so as to ensure the ends of justice, or else the Petitioner shall suffer irreparably; and/or
xii. to grant costs of this Petition; ; and/or
xiii. to award such further and other reliefs as the nature and circumstances of the case may require.
On issuance of notice, the respondents/revenue entered appearance through counsel and filed a counter affidavit which followed a rejoinder affidavit on behalf of petitioner. We heard learned counsel for both sides.
2. Briefly stated, facts relevant for present purposes are as follows.
2.1 Since 16.04.2008, the petitioner was employed with Kingfisher Airlines Limited as an airlines pilot at the rank of Captain.
2.2 For the Assessment Year 2009-10, the income tax payable against salary of the petitioner was deducted at source by his employer but the same was not reflected in his Form 26AS. On 31.03.2010, petitioner filed his return of income for AY 2009-10 declaring gross total income of Rs.39,60,051/- and claimed TDS of Rs.12,10,276/- and refund of Rs.2,340/-. On 21.03.2011, the respondents issued intimation under Section 143(1) of the Income Tax Act, whereby TDS credit claimed by the petitioner was declined and a demand of Rs.15,36,020/- towards tax and interest was raised.
2.3 For the Assessment Year 2011-12 also, employer of the petitioner deducted TDS to the tune of Rs.14,90,055/- from salary of petitioner. On 31.03.2012, petitioner filed his return of income for AY 2011-12 declaring gross total income of Rs.53,30,384/- and claimed TDS of Rs.14,90,055/-. On 23.10.2012, the respondents issued intimation under Section 143(1) of the Act, thereby again denying the TDS credit claim of petitioner and raising a demand of Rs.19,15,807/- towards tax and interest and adjusting a refund of Rs.24,248/-.
2.4 For AY 2012-13 pertaining to the period from 01.04.2011 to 14.02.2012, employer of the petitioner deducted TDS to the tune of Rs.13,59,207/-. On 26.03.2013, petitioner filed his return of income for AY 2012-13 declaring gross total income of Rs.66,11,970/- and declared tax and interest payable at Rs.19,03,910/-. On 16.01.2014, respondents issued intimation under Section 143(1) of the Act on the ground of unmatched tax deducted at source and raised demand of Rs.18,16,870/- towards tax and interest.
2.5 The petitioner through his authorized representative filed a rectification application dated 25.02.2014 under Section 154 of the Act seeking to set aside the demands raised for AYs 2009-10, 2011-12 and 2012-13 as well as to allow the credit of tax deducted at source in view of Section 205 of the Act.
2.6 On 15.07.2014, Karnataka High Court in ITA 165/2012 directed the revenue authorities to recover TDS amounting to Rs.302 crores from the employer of the petitioner. On 18.11.2016, the Kingfisher Airlines Limited (employer of the petitioner) was ordered to be wound up by the Karnataka High Court.
2.7 On 16.06.2016, petitioner filed his return of income for AY 2016-17 claiming a refund of Rs.62,280/-. On 24.09.2016, the respondents issued intimation under Section 143(1) of the Act, thereby making an adjustment of Rs.63,569/- and raising a demand of Rs.15,36,020/- for AY 2009-10.
2.8 On 27.09.2017, petitioner filed his return of income for AY 2017-18 claiming refund of Rs.66,390/-. On 19.10.2017, respondents issued intimation under Section 143(1) of the Act for AY 2017-18 thereby making an adjustment of Rs.66,850/-.
2.9 In view of repeated adjustments of refunds, petitioner filed application dated 11.02.2018 seeking stay of the demands appearing on portal of Income Tax Department for AYs 2009-10, 2011-12 and 2012-13.
2.10 On 20.07.2018, petitioner filed his return of income for AY 2018-19 claiming refund of Rs.72,570/-. On 24.09.2018, respondents issued intimation under Section 143(1) of the Act for AY 2018-19, making an adjustment of refund of Rs. 74,070/- against the demand of Rs.15,36,020/-.
2.11 On 08.07.2019, petitioner filed his return of income for AY 2019-20 claiming a refund of Rs. 76,440/-. On 18.09.2019, respondents issued intimation under Section 143(1) of the Act for AY 2019-20, thereby making an adjustment of refund of Rs.78,020/- against the demand of Rs. 15,36,020/-.
2.12 By way of letter dated 27.01.2020, petitioner agitated that respondents had not taken any action on his repeated requests and communications.
2.13 On 08.10.2020, petitioner filed his return of income for AY 2020-21, claiming refund of Rs. 76,482/-. On 23.01.2021, respondents issued intimation under Section 143(1) of the Act for AY 2020-21, making adjustment of Rs.79,110/- against the demand of Rs.15,36,020/-.
2.14 On 24.02.2021, petitioner sent a reminder email. Finally on 03.03.2021, petitioner received the impugned intimation from respondents with reference to his letter dated 27.01.2020, and thereby the respondents refused to cancel the demand or give credit of TDS to him, though a stay on the recovery of outstanding demand was granted till finalization of proceedings.
2.15 Hence, the present petition.
3. The factual position pleaded by the petitioner and admitted by the respondents is that the respondents raised multiple demands of outstanding income tax and interest pertaining to Assessment Years 2009-10, 2011-12 and 2012-13. It is also not in dispute that as reflected from records, the petitioner was being paid salary after deduction of income tax at source but his employer namely Kingfisher Airlines Limited did not deposit the same with the revenue. Despite repeated communications from petitioner, the said demands were not withdrawn by the respondents, so the petitioner approached this court by way of writ action.
4. That being so, the core issue to be considered by us is as to whether any recovery towards the said outstanding tax demand can be effected against the petitioner in view of the admitted position that the tax payable on salary of the petitioner was being regularly deducted at source by his employer namely Kingfisher Airlines Ltd. who did not deposit the deducted tax with the revenue.
5. The said issue stands covered by the judgment of this court in the case of Sanjay Sudan vs Assistant Commissioner of Income Tax, [2023] 148 com 329 (Delhi). The relevant observations made in the said judgment are set forth hereafter:
“5. Mr Sanjay Kumar, learned senior standing counsel, who appears on behalf of the respondents/revenue, says that the credit for withholding tax can only be given in terms of Section 199 of the Act, when the amount is received in the Central Government account.
5.1 It is, therefore, his submission that while no coercive measure can be taken against the petitioner, the demand will remain outstanding and cannot, thus, be effaced.
6. We have heard counsel for the parties.
7. According to us, Section 205 read with instruction dated 01.06.2015, clearly point in the direction that the deductee/assessee cannot be called upon to pay tax, which has been deducted at source from his income. The plain language of Section 205 of the Act points in this direction. For the sake of convenience, Section 205 is extracted hereafter:
“Section 205 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.”
8. The instruction dated 01.06.2015 is aligned with the aforesaid provision of Act inasmuch as it clearly provides in paragraph 2 that since the Act places a bar on a direct demand qua the deductee assessee, the same cannot be enforced coercively. For the sake of convenience, paragraph 2 of the said Instruction is extracted hereafter:
“…2. 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…”
9. The question, therefore, which comes to fore, is as to whether the respondents/revenue can do indirectly what they cannot do directly.
9.1 The adjustment of demand against future refund amounts to an indirect recovery of tax, which is barred under Section 205 of the Act.
9.2 The fact that the instruction merely provides that no coercive measure will be taken against the assessee, in our view, falls short of what is put in place by the legislature via Section 205 of the Act.
10. Therefore, in our view, the petitioner is right inasmuch as neither can the demand qua the tax withheld by the deductor/employer be recovered from him, nor can the same amount be adjusted against the future refund, if any, payable to him.”
6. On behalf of revenue, it was contended that no credit for tax can be given to the petitioner, since in view of the provisions under Section 199 of the Income Tax Act the credit can be given only when the tax which was deducted at source is paid to the Central Government and in the present case, admittedly the tax deducted from salary of the petitioner has not been deposited by his employer. This contention was raised also in the case of Sanjay Sudan (supra) but not accepted by this court.
7. Further, in the case of BDR Finvest Pvt. Ltd. vs DCIT, WP(C) 9043/2021 decided by this court on 31.10.2023, it was clarified that payment of the tax deducted at source to the Central Government has to be understood as the payment in accordance with law.
8. The petitioner having accepted the salary after deduction of income tax at source had no further control over it in the sense that thereafter it was the duty of his employer acting as tax collecting agent of the revenue under Chapter XVII of the Act to pay the deducted tax amount to the Central Government in accordance with law. The employer of the petitioner having failed to perform his duty to deposit the deducted tax with the revenue, petitioner cannot be penalized. It would always be open for revenue to proceed against employer of the petitioner for recovery of the deducted tax.
9. Same view has been taken by this court in the case of PCIT vs Jasjit Singh, ITA 295/2023 decided on 02.11.2023 (subsequent to the date when judgment in this case was reserved). Section 199 of the Act, in our view cannot operate as impediment to grant relief to the petitioner.
10. In view of the aforesaid, the petition as well as the interim relief application (CM APPL 6192/2022) are allowed, thereby setting aside the intimations/communications dated 21.03.2011 pertaining to Assessment Year 2009-10; dated 23.10.2012 pertaining to Assessment Year 2011-12; and dated 16.01.2014 pertaining to Assessment Year 2012-13, all intimations/communications issued by respondent no. 3 under Section 143 of the Act raising demands of tax and interest against the petitioner and consequently, restraining the respondents from carrying out any recovery proceedings pertaining to the said intimations/communications; and also directing the respondents to refund to the petitioner within four weeks from receipt of this order a sum of Rs.3,88,209/- which was wrongly adjusted by the respondents against the impugned demands pertaining to the above mentioned Assessment Years. However, it is clarified that in case the petitioner is able to obtain any amount of money towards tax deducted from his income at source for the Assessment Years 2009-10, 2011-12 and 201213 from his employer, the same shall be deposited by him with the revenue forthwith.
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