Taxpayer can get TDS credit even if the TDS amount is not deposited by the Deductor: CA Naresh Jakhotia
One of the biggest problems in the TDS concept of collecting income tax is with regard to the amount of Tax which is deducted by the payer but non deposit of it in the Government Treasury.
On the one side, the amount of payee is deducted by the payee and on the other side, the payee is denied of the credit by the department. Without any fault at the end of the payee/deductee, the credit is not given to such deductee.
All this happens for the reason that the TDS credit is given on the basis of credit as reflected in Form No. 26AS of the payee. Obviously, 26AS would show the amount of TDS by the deductor only if
- a) The TDS is deposited by the deductor and
- b) TDS return is filed by such deductor.
If the TDS amount is not paid by the deductor then the credit to the deductee would not be available which means that, Deductee would be at a loss till the deductor either refund the amount with interest to the deductee or deposit it in the Government Treasury.
There are numerous instances which has resulted in loss to the deductee without any fault at their end.
It is worthwhile here to mention that the Income Tax Department is no taking action against such deductor on the basis of the claim of the deductees in their income tax return.
For example, Mr X has filed the return wherein they have claimed TDS credit of say Rs. 1 Lakh deducted by M/s. Y Ltd.
In such case, if the amount is claimed as TDS credit by Mr. X and if it is not getting reflected I the 26AS of Mr. X, ideally Income Tax Department must pursue the matter with M/s Y Ltd so that Mr. X is not penalised for fault of M/s Y Ltd.
But there is no system in place as of now.
In all such cases, there appears to be only two options – either Mr. X himself has to pursue the matter with M/s. Y Ltd or would be required to pay the amount to the Treasury.
However, there is one more remedy. It is to file an appeal against such denial.
There are various courts have held that the TDS credit shall be available to the payee even if the amount is not deposited by the deductor. Few judgements which has held in favour of my above contention as discussed above are as under:
- Aricent Technologies Holdings Ltd vs. ACIT (ITAT Delhi- ITA No.5708/Del/2019)
- Yashpal Sahani 165 TM 144 (Bom)
- Sumit Devendra Rajani 49 TM.com 31 (Guj)
- Pushkar Jain 103 TM.com 106 (Bom)
The short crux of all above judgement is as under:
– Related section – 199/205
– In a case where the deductor has deducted tax at source but has not deposited the tax with the Govt, the assessee cannot be made to suffer.
– U/s 205, the assessee/ deductee cannot be called upon to pay the tax.
– Credit for the tax deducted at source has to be allowed in the hands of the deductee irrespective of whether the same has been deposited by the deductor to the credit of the Central Government or not.
– Reliance can be made on
– In terms of section 205 of the Act, the assessee/deductee cannot be called upon to pay tax, to the extent to which tax had been deducted from the payments due.
– Consequently, it follows that credit for such tax deducted at source, which is deducted from the account of the deductee, by the deductor, is to be allowed as taxes paid in the hands of the deductee, irrespective of the fact whether the same has been deposited by the deductor to the credit of the Central Government or not.
– The deductee in such circumstances cannot be denied credit of tax deducted at source on its behalf. Under the Act, the provisions are enshrined under which recovery of tax from the account of the person, who had deducted the such tax, are provided.
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