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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, JM & SHRI OM PRAKASH KANT, AM
O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)/(NFAC), Delhi dated 10.12.2021 for the assessment year 2019-20.
The grounds of appeal
of the assessee reads as under: - “1. On the facts and circumstances of the case and in law, the learned CIT(A) erred in upholding the demand raised by CPC = Bengaluru of Rs. 17,46,660 while Passing an intimation u/s 143(1)
2. On the facts and circumstances of the case and in law, the learned CIT(A) erred in denying the credit of TDS of Rs. 15,85,989 even though such TDS were duly deducted from the salary income of your appellant.
3. On the facts and circumstances of the case and in law, the learned CIT(A) erred in not following department instructions contained Office Memorandum F.NO.275/29/2014 -IT(B), dated 11-3-2016 stating that in case of an assessee whose tax has been deducted at 2 A.Y. 2019-20 Kiran S. Patel source but not deposited to the Government’s account by the deductor, the deductee assessee shall not be called upon to pay the demand to the extent tax has been deducted from his income which is also specified in Section 205 of the Income-tax Act, 1961.
4. The learned CIT(A) erred in not following the ratio laid down by Gujarat High Court in the case of Kartik Vijaysinh Sonavane v. Deputy Commissioner of Income-tax wherein it was held that “TDS having been deducted by employer of assessee, it will always been open for department to recover same from said employer and credit of same could not have been denied to assessee”
5. On the facts and Circumstance of the Case and in law, the learned CIT(A) ought to have appreciated that Salary income amounting to Rs. 31,70,690 for the Period January 2019 to March 2019 should not have been charged to tax Considering the concept of “real income theory” as your appellant has not received such salary income till date.
6. On the facts and circumstances of the case and in law, the learned CIT(A) erred in not staying the recovery proceedings for the demand of Rs. 17,46,660 raised by CPC — Bengaluru.
7. The appellant craves to leave to add, alter, delete or modify all or any of the aforesaid grounds on or before the final date of hearing.”
3. The main grievance of the assessee is against the action of the Ld. CIT(A) upholding the action of the CPC Bangalore in denying the credit of TDS of Rs.15,85,989/-.
4. Brief facts is that the assessee during the relevant assessment year (AY.2019-10) was a Pilot/Captain of the Jet Airways. He filed his return of income on 31 August, 2019 showing an income of Rs.1,29,57,500/- comprising salary income of Rs.1,32,46,545/-. According to the assessee, the employer/Jet Airway had deducted TDS 3 A.Y. 2019-20 Kiran S. Patel on salary of Rs.44,74,793/- but deposited in Govt Treasury only Rs 28,88,804/- and did not deposit the balance sum of Rs 15,85,989/- (which was TDS on salary payable for the period of December 2018 to March 2019). According to the assessee, the AO/CPC while processing the ROI passed the intimation u/s 143(1) of the Income Tax Act, 1961 (hereinafter “the Act”) wherein the AO/CPC did not grant the TDS credit for Rs.15,85,989/- which was purportedly deducted by the employer on his salary. According to the assessee, on account of the omission on the part of the employer for not remitting the TDS, though deducted, the CPC, rather than recovering the said tax amount from the employer, denied the credit of such TDS to the assessee, thereby recovering the said tax dues from him. Aggrieved by the action of the CPC/AO, the assessee preferred an appeal before the Ld. CIT(A)/NFAC wherein the assessee explained the aforesaid facts and relying on the decision rendered by the Hon’ble Bombay High Court in the case of Yashpal Sahani Vs. Reklia hajarnavis 293 ITR 539 (Bom) and Om Praksh Gattani 161 CTR 85 claimed that he ought to be allowed the tax credit for Rs 15,85,989/- and the said sum may be recovered from the employer. The assessee further submitted before the Ld.CIT(A),/NFAC that the AO/CPC had not even appreciated the fact that the salary income amounting to Rs.31,78,690/- [for the period of 3 months between January 2019 to March 2019] even though offered by the assessee in his return of income on accrual basis, ought not have been charged to tax on the principle of the “real income theory” as the assessee has not received such salary income till date.
4 A.Y. 2019-20 Kiran S. Patel However, the Ld. CIT(A), NFAC did not accept the contention of the assessee and held as under: - “5.1 The main contention of the appellant is non-granting of TDS credit of Rs. 15,85, 989/- 5.2. The assessment order, the submissions of the appellant and the provisions of law have been examined and considered. As per details available and the submissions of the appellant, the appellant, working as Captain with Jet Airways (India) Ltd during the year, was in receipt of salary from his employer. The employer during the FY 2018-19 has deducted an amount of Rs. 44,74,793/- as TDS on the appellant's salary. However, due to certain reasons the employer has deposited TDS only of Rs. 28,88,804/-. The balance TDS amount of Rs. 15,85,989/- representing TDS on Salary payable for the period December 2018 to March 2019 was not deposited to the Government treasury though it was deducted for the salary income. Due to the non- deposit of TDs by the Employer, the appellant could not get credit of such TDS in its Form 26AS. The appellant filed Return of Income of Rs. 1,29,57,500/- and claimed TDS credit of Rs. 44,74,793/-. The return of income was processed u/s 143(1) accepting the returned income but credit of TDS was given at Rs. 28,88,804/-. The remaining TDS amount of Rs. 15,85,989/- was not given credit since the amount was not deposited by the employer. 5.3. Having considered the submissions of the appellant, it is seen that the TDS amount of Rs. 15,85,989/- has not been deposited by the employer to the Government Treasury though the amount was deducted: from the appellant’s salary income. Since the amount has not been deposited in the government's treasury, there was no payment of tax of Rs. 15,85,989/- in the form of TDS by the employer. Therefore, the Assessing Officer has not made any mistake in non- 5 A.Y. 2019-20 Kiran S. Patel granting of credit of TDS amounting to Rs. 15,85,989/-. The contents of Instruction No F.No.275/29/2014-IT(B), dated 11-03-2016 and the provisions of section 205 of the Income Tax Act, 1961 as relied by the appellant are on the issue of “recovery of demands” and not related to credit of TDS amount. In view of the facts and circumstances of the case, since no tax amount of Rs. 15,85,989/- has been deposited in the Government's Treasury, no credit of the amount can be given while computing the tax payments of the appellant. Therefore, ground Nos 1- 6 are not allowed.”
Aggrieved, the assessee is before us.
We have heard the parties and perused the record. We note that the assessee served as a captain in the Jet Airways during the relevant period and filed his return of income showing salary income of Rs.1,32,46,545/- inclusive of three (3) month salary from January 2019 to March 2019 to the tune of Rs.31,70,690/- which according to him has not been paid by Jet Airways. According to the assessee, though the said amount of Rs.31,70,690/- (salary from January to March 2019) was not paid, the employer Jet airways had reported that they had duly deducted the TDS on such salary due. According to him, though he did not receive the salary for this three (3) months, it was offered to tax in terms of Section 15 of the Act since the salary had fallen due and that employer had also reportedly recovered the corresponding TDS thereon. The assessee thus contended that he is entitled to the credit of the said TDS, which was also reflected in the salary slip issued to the assessee. The main grievance of the assessee is that by not giving him the credit of TDS to the tune of Rs.15,85,989/- which had already been deducted by the said employer, the AO/CPC 6 A.Y. 2019-20 Kiran S. Patel was effectively collecting the said tax from him, which was actually payable by the employer who had unjustly withheld the said amount but did not deposit it to the Government. The Ld. CIT(A) had upheld this action of AO/CPC because he was of the view that since the Jet Airways/employer has not deposited the TDS of Rs.15,85,989/-, the assessee could not be allowed its credit.
It is noted that the assessee had offered to tax his entire salary income which was due to him, in terms of Section 15 to 17 of the Act although he had not received three months salary from his employer. Based on the salary slips issued to him, which reflected the amount of TDS deducted by the employer, the assessee had claimed credit of TDS in the return of income. The employer however did not pay the full taxes withheld by them to the credit of the Government. Hence the question before us is whether the AO/CPC was right in denying the credit of the TDS to the employee to the extent not paid by the employer (which was deducted from the salary of the employee). In this regard, we note that Chapter XVII of the Act provides for collection and recovery of taxes via two modes viz., (a) directly from assessee (advance tax/ self assessment tax) or (b) indirectly be deduction/collection at source (TDS/TCS). Section 192 of the Act casts the responsibility on the employer for deducting and paying taxes on the salary paid to the employees. Section 200 of the Act provides that the TDS amount collected is required to be paid to the Government within the time limit prescribed. Section 199 of the Act provides that, any tax deducted at source under the provisions of 7 A.Y. 2019-20 Kiran S. Patel Chapter XVII and paid to Central Government shall be treated as payment of tax on behalf of the person from whose income the deduction was made and the credit shall be given to him for the amount so deducted. Section 205 of the Act provides that where the tax is deductible at the source under Chapter XVII, the payee shall not be called upon to pay the tax himself to the extent to which tax has been deducted. The relevant extracts of the provision is as follows: 205 - 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.
From the language employed in Section 205 of the Act, it is clear that once the payer has deducted tax at source, then the same tax cannot be levied and collected from the payee as it would amount payment of tax twice (as the payee has already suffered deduction). Hence, if the employer has defaulted in payment of tax which he has already deducted from the salary, then such tax cannot be recovered from the employee. This view finds support from the decision of the Hon’ble Bombay High Court in the case of Puskhar P.C. Jain Vs UOI (262 taxman 118). In the decided case also the payer had deducted tax from the sale consideration due to the payee which was not paid to the Central Government. The payee had filed the return of income wherein he had claimed credit for such taxes deducted at source by the payer. In the intimation issued u/s 143(1) of the Act, the AO/CPC had denied the credit of such taxes and raised demand for the same on the payee for which recovery was also initiated. This action of AO/CPC was 8 A.Y. 2019-20 Kiran S. Patel challenged in writ petition, which was decided in his favour. The relevant findings of the Hon’ble High Court is as follows: 6. Facts on record are not seriously in dispute. As noted, the petitioner sold an immovable property for sale consideration of Rs.9 crores. The purchasers paid only Rs.8 crores 91 lakhs retaining Rs.9 lakhs towards TDS. The department does not argue that this amount of Rs.9 lakhs so deducted is not in tune with the statutory requirements. It appears undisputed that the deductors did not depositing such amount in the Government revenue. Under the circumstances, the petitioner is asked to pay the said sum again, since the department has not recognized this TDS credit in favour of the petitioner.
7. Section 205 of the Act carries the caption "Bar against direct demand on assessee". The section provides that where tax is deducted at the source under the provisions of Chapter XVII, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income. This provision came up for consideration before division bench of this Court in case of Yashpal Sahni v. Rekha Hajarnavis Asstt. CIT [2007] 165Taxman 144/293 ITR 539. It was a case where the employer while paying salary to the employee had deducted tax at source Rs.6.66 lakhs. Subsequently, disputes arose between the employer and employee due to which service of the employee was terminated. The employee filed the return of income claiming credit of TDS of Rs.6.66 lakhs. The Assessing Officer issued intimation under Section 143(1)(a) of the Act denying credit of TDS of Rs.6.66 lakhs on the ground that such amount was not deposited by the employer. This Court in such background after referring to Section 205 of the Act held and observed as under:— 9 A.Y. 2019-20 Kiran S. Patel "20. From the language of Section 205, it is clear that once the tax is deducted at source, the same cannot be levied once again on the assessee who has suffered the deduction. Once it is established that the tax has been deducted at source from the salary of the employee, the bar under Section 205 of the Act comes into operation and it is immaterial as to whether the tax deducted at source has been paid to the Central Government or not, because elaborate provisions are made under the Act for recovery of tax deducted at source from the person who has deducted such tax.
In the present case, the petitioner assessee has furnished monthly pay slips and bank statements to show that from his salary tax was deducted at source by the employer - respondent No. 6. Authenticity of the said pay slips and bank statements have not been disputed by the revenue. Thus, it is clear that the tax has been deducted at source by the respondent No. 6 from the salary paid to the petitioner. Therefore, the only question to be considered is, if the employer-respondent No. 6 has failed to deposit the tax deducted at source from the salary income of the petitioner to the credit of the Central Government, whether the revenue can recover the TDS amount with interest once again from the petitioner?
In the present case, though the respondent No. 6 has deducted the tax at source from the salary income of the petitioner, the respondent No. 6 has not issued the TDS certificate in Form No. 16 to the petitioner. As a result, the petitioner is not entitled to avail credit of the tax deducted at source. However, once it is established that the tax has been deducted at source, the bar under Section 205 of the Act comes into operation and the revenue is barred from recovering the TDS amount once again from the employee from whose income, TDS 10 A.Y. 2019-20 Kiran S. Patel amount has been deducted. It is pertinent to note that the purpose of issuing TDS certificate under Section 203 of the Act is to enable the assessee to avail credit of the tax deducted at source in the relevant assessment year. If the TDS certificate is not issued, then under Section 199 of the Act, the assessee from whose income, tax has been deducted at source will not be entitled to take credit of the said amount. In that event, on account of the non availability of the credit, the assessee would be liable to pay tax once again even though the tax was deducted at source. Thus, it would be a case of double taxation which is not permissible in law. To avoid such anomaly, Section 205 has been enacted, to the effect that, once the tax is deducted at source by the employer-company, then, the person from whose income, the tax has been deducted at source shall not be called to pay the said tax again. From the language of Section of 205 of the Act, it is clear that the bar operates as soon as it is established that the tax has been deducted at source and it is wholly irrelevant as to whether the tax deducted at source is paid to the credit of Central Government or not and whether TDS certificate in Form No. 16 has been issued or not. Also the mere fact that the employer may not issue TDS certificate to the employee does not mean that the liability of the employer ceases. The liability to pay income tax if deducted at source is upon the employer.
As held by the Gauhati High Court in the course of Omprakash Gattani (supra), once the mode of collecting tax by deduction at source is adopted, that mode alone is to be adopted for recovery of tax deducted at source. Although it is obligatory on the part of the person collecting tax at source to pay the said TDS amount to the credit of the Central Government within the stipulated time, if such person fails to pay the TDS amount within the stipulated time, then, Section 201 of 11 A.Y. 2019-20 Kiran S. Patel the Act provides that such person shall be deemed to be an assessee in default and the revenue will be entitled to recover the TDS amount with interest at 12% p.a. and till the said TDS amount with interest is recovered there shall be a charge on all the assets of such person or the company. Penalty under Section 221 of the Act and rigorous imprisonment under Section 276B of the Act can also be imposed upon such defaulting person or the company. Thus, complete machinery is provided under the Act for recovery of tax deducted at source from the person who has deducted such tax at source and the revenue is barred from recovering the TDS amount from the person from whose income, tax has been deducted at source. Therefore, the fact that the revenue is unable to recover the tax deducted at source from the person who has deducted such tax would not entitle the revenue to recover the said amount once again from the employee- assessee, in view of the specific bar contained in Section 205 of the Act.
As stated earlier, in the present case the petitioner-assessee has established that from his salary income, tax has been deducted at source by the employer-respondent No. 6 and, therefore, the revenue has to recover the said TDS amount with interest and penalty from the respondent No. 6 alone and the revenue cannot seek to recover the said amount from the petitioner-assessee in view of the specific bar contained under Section 205 of the Act. The fact that the petitioner is not entitled to the credit of the tax deducted at source for the non issuance of the TDS certificate by the respondent No. 6, cannot be a ground to recover the amount of tax deducted at source from the petitioner. In other words, even if the credit of the TDS amount is not available to the petitioner assessee for want of TDS certificate, the fact that the tax has been deducted at source from salary income of the 12 A.Y. 2019-20 Kiran S. Patel petitioner would be sufficient to hold that as per Section 205 of the Act, the revenue cannot recover the TDS amount with interest from the petitioner once again." 8. The situation arising in the present petition is similar. The department does not contend that the petitioner did not suffer deduction of tax at source at the hands of payer, but contends that the same has not been deposited with the Government revenue. As provided under Section 205 of the Act and as elaborated by this Court in case of Yashpal Sahni (supra) under such circumstances the petitioner cannot be asked to pay the same again. It is always open for the department and infact the Act contains sufficient provisions, to make coercive recovery of such unpaid tax from the payer whose primary responsibility is to deposit the same with the Government revenue scrupulously and promptly. If the payer after deducting the tax fails to deposit it in the Government revenue, measures can always be initiated against such payers [emphasis given] 10. Similar issue also came up for consideration before the Hon’ble Gujarat High Court in the case of Sumit D Rajani Vs ACIT (49 taxmann.com 31). In the instant case also, the employer had withheld tax on the salary but failed to deposit it with the Government. Consequently since the TDS did not appear in Form 26AS, the AO/CPC denied credit for the same and resultantly raised tax demand on the assessee. This order of the CPC was challenged in writ before the Hon’ble High Court, which directed the AO to grant credit of TDS based on the Form 16A produced by the assessee evidencing deduction of tax at source. The relevant extracts of the said judgment is as follows:
13 A.Y. 2019-20 Kiran S. Patel “….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. …..
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.[emphasis given] 14 A.Y. 2019-20 Kiran S. Patel 11. In the light of the above judicial precedents and the discussion (supra), the action of the lower authorities cannot be countenanced. We accordingly set aside the impugned order of the Ld. CIT(A) and direct the assessee to furnish relevant documents before the AO evidencing that the TDS of Rs.15,85,989/- had been deducted on his salary due for the period January 2019 to March 2019. After verification, the AO shall grant credit for the same. Needless to say, the AO shall allow sufficient opportunity to the assessee and pass a speaking order in this regard. It is further clarified that if the Department is of the opinion that the employer-deductor has not deposited the said amount of tax deducted at source from the salary of the assessee, then it will be open for the Department to recover the same from the deductor.