KRISHNA HARI GADDAM,HYDERABAD vs. ITO., WARD-12(1), HYDERABAD

Brief facts of the case are that the assessee was a salaried employee of Karvy Stock Broking Limited. For the year under consideration, the assessee fled his return of income, declaring a total income of Rs. 86,10,680/- and paid total income tax of Rs. 27,37,674/-, consisting of Tax Deducted at Source (“TDS”) of Rs. 15,11,384/- and self assessment tax of Rs.12,26,290/-. The CPC Bengluru (“CPC”) in the intimation u/s 143(1) of the income tax Act, 1961 (“the Act”), dt. 08/05/2021 did not give credit of Rs. 13,50,000/- out of total TDS of Rs. 14,75,000/- deducted by M/s. Karvy Stock Broking Limited u/s. 192 of the Act, contending that Form 26AS does contains the details of TDS of Rs. 13,50,000/- and finally raised a demand of Rs.14,17,500/-.

Aggrieved, assessee preferred appeal before the First Appellate Authority.

Learned First Appellate Authority considering the facts of the case, dismissed the appeal of assessee, but simultaneously gave a direction to the jurisdictional AO to treat the assessee as not in default of taxes for the entire sum covered under TDS non-remittance, in accordance with the CBDT instruction No. 05/2013 dated 08/07/2013 and CBDT Press release dated 11/03/2016.

Aggrieved by the said order of the first appellate authority, assessee is in appeal before the Tribunal.

At the time of hearing, learned AR submitted that the entire tax demand of Rs.14,17,501/- has arisen due to the fact that the employer of the assessee i.e. M/s Karvy Stock Broking Limited has not deposited TDS of Rs. 13,50,000/-, deducted from the salary paid to the assessee and in the absence of TDS getting reflected in form 26AS, the CPC erred in not granting TDS credit, while there is no fault on the-part of the assessee. It was submitted that the Ld. CIT(A) erred in holding that the action on the part of the CPC cannot be faulted at, since it is system driven and unless and until the credit of TDS appears in form 26AS, that corresponds to the PAN of the assessee, extending credit in peculiar circumstances, as that of the case of the assessee is rather impossible. He contended that as the TDS on salary was deducted from salaries paid to the assessee, as per Income tax Law, credit for the same to be granted by CPC and prayed that substantial benefit granted as per the law cannot be taken away by the technology and hence credit of TDS deducted by the employer should be granted to the assessee.

Per contra, learned DR while placing heavy reliance on the findings of the Revenue authorities, argued that the impugned order is a well reasoned order and the same may be upheld.

We have heard both the parties, perused the material available on record and gone through the orders of the Revenue authorities along with the decisions relied upon. It is not disputed by the either of the party to the appeal that the TDS of Rs.13,50,000/- has not been deducted. It is an admitted fact that employer of the assessee i.e. M/s Karvy Stock Broking Limited has not deposited TDS of Rs. 13,50,000/-, after deducting the same from the salary paid to the assessee and in the absence of TDS not getting reflected in form 26AS, the CPC did not grant TDS credit to the assessee, however there is no fault on the-part of the assessee. On a careful consideration of the facts of the present case, we find that the issue in this appeal is similar to the issue decided by the Hon'ble Delhi High Court in the case of Harshdip Singh Dhillon vs. Union of India (supra), wherein the Hon'ble High Court decided the issue as under: “………. 7. On behalf of the Revenue, it was also contended that the petitioner cannot be allowed credit of tax because the credit has to be given in view of section 199 of the Act only when the tax deducted at source is paid to the Central Government, which admittedly was not so paid in this case. This contention was raised also in the case of Sanjay Sudan 1 but not accepted by this court. 8. Further, in the case of BDR Finvest Pvt. Ltd. v. Dy. CIT 2 , W. P. (C) No. 9043 of 2021 decided by this court on October 31, 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.

Sanjay Sudan v. Asst. CIT, [2023] 452 ITR 107 (Delhi) ; 2023 SCC Online Delhi 1160 ; [2023]148 taxmann.com 329 (Delhi). 2. [2024] 462 ITR 141 (Delhi) ; 2023 SCC Online Delhi 8467. 3. [2024]470 ITR 346 (Delhi) ; 2023 SCC Online Delhi 7539. 4. [2024]470 ITR 337 (Delhi) ; 2023 SCC Online Delhi 7526. 7.2 Section 199, which is contained in Chapter XVII and, inter alia, includes provisions for collection and recovery of tax. Chapter XVII of the Act is divided into eight (8) parts.

Importantly, section 201 (2), provides that where a person who, although required to, does not deduct tax or does not pay the tax deducted at source or after deducting fails to pay wholly or part of the tax as required under the Act, would have a statutory charge created on his assets concerning both the tax as well as the interest payable under sub-section (1A) of the said provision.

In this particular case, the deductors are individuals who, concededly, after retaining the tax deducted at source did not fully deposit the same, as noted above, with the Central Government.

Upon the respondent-assessee becoming aware of this fact, a police complaint was lodged, which was brought to the notice of the appellant-Revenue. Despite this aspect being brought to the notice of the appellant-Revenue, no steps were taken either under the provisions of the Act or under the common law for recovery or even under the extant statute(s) for bringing deductors to book in accordance with the law.

In our opinion, the argument advanced by Mr. Bhatia that the amount deducted towards tax at source will not be given credit because the deductor has chosen not to deposit the amount with the Central Government is erroneous for another reason, which is that the nature of the amount retained by the deductor continues to remain as 'tax'. 13.1 This aspect clearly emerges upon perusal of the contents of the information provided in the Tax Payers Information Series-28 booklet titled 'Tax deduction at source (TDS) other than salaries' published by the Income-tax Department. The booklet notes that tax deducted at source will be treated as payment of 'tax' on the assessee's behalf. For convenience, the relevant part of the booklet is extracted hereafter : '4.2 Credit of TDS. - Where taxes have been deducted at source from any payment of income receivable by an assessee, the amount of tax deducted at source would be included in the income of the assessee while computing the income of the assessee and would be deemed to be the income received (section 198). Further credit will be given to the assessee while calculating the net tax payable by him and the tax deducted at source will be treated as a payment of tax on his behalf (i. e., to the Central Government by the payer who has deducted the tax at source (section 199)).' (emphasis is ours) 14. The Act has, thus, provided a regime as to how tax is required to be collected against certain payments. Once the deductee adheres to the statutory regime and allows the deductor to retain money towards tax, the nature of the amount cannot change and, therefore, the deductee, in our view, would be entitled to the credit of the amount retained by the deductor towards tax. Any other view would result in a situation where even though the assessee would have grossed up his income (by including the tax deducted at source) and offered the same for taxation, he would be denied the benefit of having the resultant tax demand adjusted against tax deducted at source by the payer. This handicap the assessee-deductee (i. e., the respondent-assessee) would suffer only because the deductor, who acts as the agent of the Central Government, chooses not to deposit the amount retained towards tax."