TDS not deposited by deductor- No recovery can be made against the deductee
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Case Details: |
Ashok Kumar B. Chowatia vs. JCIT (TDS) |
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Appeal No.: |
W.P. Nos. 31167, 31170, 31172, 31174 of 2018 |
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Order Pronounced by: |
Madras High Court |
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Date of Order: |
16-04-2021 |
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In favour of: |
Assessee |
Brief Facts:
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The 2nd respondent (deductor) was a tenant with the petitioner who deducted TDS on the rent paid by him to the petitioner. However, the 2nd respondent failed to remit the same into the account of the Income Tax Department. The petitioner claimed the TDS in his returns however the same was not allowed because the deductor failed to deposit the same to the Income Tax Department. Demand notices were raised upon the petitioner in respect of pending demands of income tax. |
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The petitioner challenged the demand notices on the ground that it is the 2nd respondent (deductor) who is an ‘assessee in default’ as per section 201 of the Income Tax Act, 1961. The petitioner claimed that he cannot be fastened with the tax liability on the default of 2nd respondent (deductor) in depositing the TDS on rent. The petitioner contended that the tax which was demanded from the petitioner was already deducted by way of Tax Deducted at Source (TDS). |
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It was submitted that it is the duty of the person deducting tax under section 203 of the Act to furnish certificate of TDS to the person to whose account credit has to be given and that as per section 200(3) the person deducting tax has to prepare statement for such period giving the details of the Tax Deducted at Source and remitted in the prescribed form and if such a person fails to remit the same to the credit of the Central Government, then he would be treated as a defaulter under section 201(1) of the Income Tax Act. |
High Court Ruling:
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To the extent tax was deducted by the 2nd respondent (deductor) and not remitted by the 2nd respondent to the Income Tax Department, recovery can be only directed against the 2nd respondent as the 2nd respondent is the ‘assessee in default’. The petitioner (deductee) cannot be made to pay tax twice. Balance of tax, if any, which has escaped payment alone can be recovered from the petitioner, by issuing suitable notice under the provisions of the Income Tax Act, 1961. |
Conclusion:
On failure on the part of deductor to deposit the amount of TDS deducted to the Income Tax Department, the assessee (deductee) cannot be saddled with tax liability as it was the duty of the Income Tax Department to recover such TDS from the deductor in default. In conclusion, the Hon’ble Madras High Court quashed demand notices and held that recovery action against the petitioner (deductee) is not just and lawful.
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