Failure of Deductor to pay TDS, payee cannot be denied the TDS Credit
[2021] 128 taxmann.com 230 (Madras)
HIGH COURT OF MADRAS
Ashok Kumar B. Chowatia
v.
Joint Commissioner of Income Tax (TDS), Chennai
Short Overview of the case:
The case pertains to Section 205 of the Income-tax Act, 1961 with regard to Deduction of tax at source
Bar against direct demand on assessee (Illustrations).
Assessment years 2011-12, 2012-13 and 2013-14
Impugned demand notices were issued upon assessees calling upon them to clear arrears of tax purportedly due from them
Assessees challenged demand notices on ground that 2nd respondent company had deducted tax at source from and out of payments made to assessees but had not paid it to credit of Central Government and therefore assessees could not be saddled with tax liability as it was duty of Income Tax department to recover such tax deducted at source from 2nd respondent company
The issue was whether to extent that tax was deducted by 2nd respondent company and not remitted by it to Income Tax Department, recovery could be only directed against 2nd respondent company as it was in default
Court replies it as yes
The next issue was whether assessees could not be made to pay tax twice
The issue was decided in favour of assessee.
On the issue as to whether therefore, respective demand notices issued against assessees were to be set aside and fresh demand notices were to be issued to assessees after taking note of subsequent developments and payments made by 2nd respondent company, the court again held it in favour of assessee.
Conclusion:
Where 2nd respondent company had deducted tax at source from and out of payments made to assessees but had not paid it to credit of Central Government, assessees could not be saddled with tax liability as it was duty of Income Tax Department to recover such TDS from 2nd respondent company, hence demand notice against assessees to clear arrears of tax purportedly due from them was to be quashed and set aside
