The grievance which is voiced in the present petition by the assessee is that though deductor employer Amar Remedies Limited had deducted TDS for total Rs.5,86,606/ and for which Form 16 A has been issued by it, department has not given credit of the said TDS to the petitioner assessee deductee and when the assessee has claimed the said deduction, the same has not been granted and demand is raised by issuing notice at Annexure D. Therefore, short question which is posed for consideration of this Court is whether in case the deductor had deducted the TDS and for the same Form no.16 A has been issued by deductor, the credit of the same can be denied to the assessee and deductee solely on the ground that such credit does not appear on ITD system of the department and / or same does not match with the ITD system of the department?
At the outset, it is required to be noted that under Chapter XVII, more particularly, Section 204 of the Act the liability to deduct the tax at source would be upon the employer / payer / deductor in the present case Amar Remedies Limited. As per Section 205 of the Act whether tax is deductible at source under Chapter XVII, the assessee shall not be called upon to pay tax himself to the extent to which tax has been deducted from that income. That the deductor is required to issue Form no.16 A providing particulars with respect to the amount of tax deducted at source in the relevant assessment year. In the present case, it is the case on behalf of the petitioner and / or as per the return of income filed the total sum of Rs.5,86,606/ has been deducted by the deductor Amar Remedies Limited as TDA and for which M/s. Amar Remedies Limited deductor has issued Form no. 16 A. It is also the case on behalf of the petitioner that out of total salary of Rs.21,60,000/ to be received from M/s. Amar Remedies Limited – deductor he has received salary after deducting the amount of tax at source by the deductor for which form no.16 A has been issued i.e. he has received Rs. 5,86,606/and on account of said amount deducted at source by the M/s. Amar Remedies Limited. Under the circumstances and considering Sections 204 and 205 when the deductor who is liable to deduct the tax at source under Chapter XVII deducts the TDS and issued form no.16A the assessee – deductee shall be entitled to credit of the same. As stated above and as per Section 205 of the Act whether tax is deductible at the source under Chapter XVII, the assessee shall not be called upon to pay the tax himself to the extent of which tax has been deducted from that income. Meaning thereby, the assessee / deductee is entitled to credit of such amount of TDS. Assuming that in a given case the deductor after deducting the TDS may not have deposited with the department. However, in such situation, the department is to recover the said amount from the deductor and assessee deductee cannot deny the credit of the same. Identical question came to be considered by the Bombay High Court in the case of Yashpal Sahni (supra) and considering Section 205 of the Act in para 15 of the Bombay High Court has observed as under:
“15.Chapter XVII of the IT Act, 1961 provides for collection and recovery of tax by two modes. They are (one) directly from the assessee and (two) indirectly by deduction of tax at source. In the present case, we are concerned with the second mode of recovery, namely recovery of tax by deduction at source.”
In the said decision, the Bombay High Court has considered and relied upon the decision of the Om Prakas Gattani (supra). In the said decision the Gauhati High Court after considering the relevant provision under Chapter XVII has observed and held that so far as assessee is concerned, he is not supposed to do anything in the whole transaction except that he is to accept the payment of the reduced amount which is deducted income tax at source. It is observed that on the amount being deducted the assessee only gets a certificate to that effect by the person responsible to deduct the tax. In the said decision Gauhati High Court has quashed and set aside the notice issued under Section 226(3) of the Act to the bankers of the assessee observing in para 7 as under:
“7. So far the assessee is concerned, he is not supposed to do anything in the whole transaction except that he is to accept the payment of the reduced amount from which is deducted incometax at source. The responsibility to deposit the amount deducted at source as tax is that of the person who is responsible to deduct the tax at source. On the amount being deducted the assessee only gets a certificate to that effect by the person responsible to deduct the tax. In a case where the amount has been deducted by the person responsible to deduct the amount under the statutory provisions, the assessee has no control over the matter. In case of default in making over the amount to the account of the Central Government, it is obviously the person responsible to deduct or the person who has made the deduction who is held responsible for the same. The responsibility of such person is to the extent that he has to be deemed to be an assessee in default in respect of the tax. He may be deemed to be an assessee in default not only in cases where after deduction he does not make over the amount to the Central Government but also in cases where there is failure on his part to deduct the amount at source. This responsibility has been fastened upon him under Section 201 of the Incometax Act. It is, of course, without prejudice to any other consequences which he or it may incur. Presently we are not concerned with the case where the person responsible to make the deductions has not deducted the amount at all. It may or may not fall in a different category from one where the amount has been deducted and not made over to the Central Government. We are concerned with the latter category of cases. As indicated earlier, on the facts it is nobody’s case that the amount was actually not deducted at source by Chandra Agencies. What seems to be in dispute is the deposit of the said amount in the account of the Central Government. The Incometax Department seems to have made enquiries about the exact date of payment to the Central Government which Chandra Agencies could not furnish on the ground that the papers were forwarded to the chairman of Vaibhavshali Bumper. In such a category of cases we feel that the amount of tax can be recovered by the Incometax Department treating the person responsible to deduct tax at source as an assessee in default in respect of the tax. It would not be possible to proceed to recover the amount of tax from the assessee. The assessee cannot be doubly saddled with the tax liability. Deduction of tax at source is only one of the modes of recovery of tax.. Once this mode is adopted and by virtue of the statutory provisions the person responsible to deduct the tax at source deducts the amount, only that mode should be pursued for the purpose of recovery of tax liability and the assessee should not be subjected to other modes of recovery of tax by recovering the amount once again to satisfy the tax liability. It is, therefore, provided under Section 201 of the Incometax Act that the person responsible to deduct the tax at source would be deemed to be an assessee in default in case he deducts the amount and fails to deposit it in the Government treasury. As observed earlier, the assessee has no control over such person who is responsible to deduct the incometax at source, but fails to deposit the same in the Government treasury. In this light of the matter, in our view, the notices issued under Section 226(3) of the Incometax Act to the bankers of the petitionerrespondent to satisfy the tax liability from the bank account of the petitionerrespondent are illegal. It is not that the Incometax Department was helpless in the matter. The person responsible to deduct the tax at source would move into the shoes of the assessee and he would be deemed to be an assessee in default. Whatever process or coercive measures are permissible under the law would only be taken against such person and not the assessee.”
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.
In view of the above and for the reasons stated petition succeeds. It is held that the petitionerassessee 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 – M/s. Amar Remedies Limited has been produced and consequently department is directed to give credit of tax deducted at source to the petitionerassessee – deductee to the extent form no.16 A issued by the deductor have been issued. Consequently, the impugned demand notice dated 6.1.2012 (Annexure D) is quashed and set aside. However, it is clarified and observed that if the department is of the opinion 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.