Facts of the Case

The petitioner, Shri Chintan Bindra, was employed as a pilot with Kingfisher Airlines Limited. Tax was deducted at source (TDS) from his salary for multiple assessment years, including AY 2009-10, 2011-12, and 2012-13. However, the employer failed to deposit the deducted TDS with the revenue authorities.

Despite TDS being deducted, the same was not reflected in Form 26AS, leading the Income Tax Department to deny credit and raise demands along with interest. The department also adjusted the petitioner’s subsequent refunds against these outstanding demands.

Repeated representations and rectification applications filed by the petitioner were not acted upon, compelling him to approach the High Court.

Issues Involved

  1. Whether tax demand can be raised against an assessee where TDS has been deducted but not deposited by the employer.
  2. Whether the Income Tax Department can adjust refunds against such disputed demands.
  3. Whether Section 199 overrides the protection granted under Section 205 of the Income Tax Act 

Petitioner’s Arguments

  • TDS had already been deducted from his salary; therefore, he cannot be made liable again.
  • Under Section 205, once tax is deducted at source, the assessee cannot be called upon to pay the same.
  • The employer’s failure to deposit TDS cannot prejudice the employee.
  • Adjustment of refunds amounts to indirect recovery, which is legally impermissible.
  • The department violated CBDT instructions and statutory protections.

Respondent’s Arguments

  • As per Section 199, credit of TDS can only be granted when the tax is deposited with the Central Government.
  • Since the employer failed to deposit TDS, the petitioner is not entitled to credit.
  • Demand raised is valid due to mismatch in TDS records.

Court’s Findings / Order

  • Section 205 creates a complete bar on direct demand from the assessee where tax has already been deducted at source.
  • The department cannot recover tax indirectly by adjusting refunds.
  • The employer acts as an agent of the revenue; failure on their part cannot penalize the employee.
  • Section 199 cannot override the protection under Section 205.

Final Directions:

  • Impugned demands raised under Section 143(1) were set aside.
  • Respondents were restrained from recovery proceedings.
  • Refund of ₹3,88,209 was directed to be released within four weeks.
  • Revenue was given liberty to proceed against the employer.

Important Clarifications

  • Adjustment of refunds against such demands is equivalent to indirect recovery, which is prohibited.
  • Deductee (employee) cannot be penalized for default of deductor (employer).
  • If the assessee later recovers TDS from employer, it must be deposited with the revenue.

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/60829112023CW21642022_174110.pdf

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