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August 5, 2021

Payee cannot be denied TDS Credit where deductor has failed to pay TDS

Payee cannot be denied TDS Credit where deductor has failed to pay TDS

Fact and Issue of the case

These demand notices are challenged by the respective petitioners on the ground that the tax that has been demanded as arrears of tax from the petitioners Tax Deducted at Source by the second respondent but was not paid the credit of the Central Government and therefore the petitioners cannot be fastened with the tax liability as the second respondent is an assessee in default within the meaning of Section 201 of the Income Tax Act, 1961. It is further submitted that earlier W.P.Nos. 28199-205 of 2015 were filed before this court where the petitioners along with others had faced demands from the respondent Income Tax Department.

Observation of the Court

I have considered the arguments advanced by the learned counsel for the petitioners in the respective writ petitions and the learned counsel for the respondent Income Tax Department.

The second respondent was a tenant of the petitioners and few others who belong to the same family. The 2nd respondent had committed default in making payments to the petitioners. Though copy of the lease agreement signed between the parties is not available for perusal, a copy of the Memorandum of Understanding dated 30.7.2014 signed on behalf of the petitioners and other owners with the second respondent company has been filed.

As per the said Memorandum of Understanding, the second respondent was in arrears of lease rental to the petitioners and that as on the date of the said Memorandum of Understanding on 30.07.2014, the second respondent was in arrears of Rs. 64,96, 650/- to the Land-lords. Against the aforesaid arrears, the petitioners along with other owners adjusted the interests free deposit of Rs.34,53,640/- leaving a balance of Rs.30,43,010/-to be paid to the petitioners by the 2nd respondent on or before 31.8.2014. Rs. 30,43,010/-which included the rent payable up to the said date. To that effect, the second respondent is supposed to have given a post-dated cheques drawn on Axis Bank, Anna Salai, Chennai.

That apart in Para 4(a) of the said Memorandum of Understanding, it is recorded that the second respondent had not remitted Tax Deducted at Source on the payments made earlier to the petitioners and others for an amount of Rs.33,16,192/- as per annexure II to the said Memorandum of Understanding.

Annexure II of the said Memorandum of Understanding details, the Tax Deducted at Source by the second respondent for the Financial years 2010-11 (Assessment year 2011-12), Financial year 2011-12 (Assessment years 2012-13), Financial year 2012-13 (Assessment year 2013-14), Financial year 2013-14 (Assessment year 2014-15) and Financial year 2014-15 (Assessment year 2015-16) but not paid to the credit of the Income Tax Department.

That apart in Para 4(c) of the said Memorandum of Understanding also records that during the Financial year 2011-15, the second respondent had not paid Tax Deducted at Source to the credit of the Income Tax Department for a sum of Rs.14,21,617/- and that the second respondent undertook to pay the same together with interest thereon to the Department on or before 31.8.2014 and that Certificate in Form 16-A would also be issued to the petitioners and others who were the owners of the property.

To the extent tax was deducted by the second respondent and not remitted by the second respondent to the Income Tax Department, recovery can be only directed against the second respondent as the second respondent is the assessee in default. The petitioner cannot be made to pay tax twice. Recovery of any of such Tax Deducted at Source but not remitted by the second respondent has to be recovered only from the second respondent.

To secure the interest of the petitioners, the second respondent also enclosed in cheque for the aforesaid amount drawn on the same bank and if the amount was not paid to the credit of the Income Tax Department by the the aforesaid cheque also would be presented for being encashen.

The aforesaid Memorandum of Understanding also refers to another Memorandum of Understanding dated 11.5.2010 wherein it is acknowledged by the second respondent the second respondent and failed to remit Tax Deducted at Source for an amount of Rs. 18,94,875/- and that the aforesaid amount had not been paid by the second respondent and that the second respondent would pay the same to the credit of the Income Tax Department by 30.9.2014 and to secure the payment to the credit of the Income Tax Department, the second respondent had also issued a post-dated -cheque for the aforesaid amount in favour of the petitioners which was to be presented, as the second respondent failed to make such payments to the credit of the Income Tax Department within such time.

There is some confusion in the amount that was to be deducted and actually deducted by the second respondent. In Annexure II to the Memorandum of Understanding Dated 30.7.2014, for the Financial Year 2010-11 [corresponding Assessment Year 2011-12] total tax to be deducted has been shown as Rs.3,,89, 680/- for each of the petitioners whereas the tax that was credited to the account of the Income Tax Department has been shown as only Rs.55, 457/-.

Details of the tax that was remitted the credit of the Central Government as per the aforesaid Memorandum of Understanding is as under:-

Financial YearAssessment YearsW.P.No. 311 67 of 2018*W.P.No. 31170 of 2018*W.P.No. 31172 of 2018W.P.No. 31174 of 2018
2010-112011-123,34,202.503,34,202.503,34,202.5033402.00
2011-122012-1373,107.00*73,107.003,34,202.5033402.00
2012-132013-1473,107.00*73,107.003,34,202.5033402.00
2013-142014-1573,107.00*73,107.003,34,202.5033402.00
2014-152015-1630,461.5030,461.5030,461.5030,461.50
Total5,83,984.005,83,984.005,83,984.005,83,984.00

Whereas, the respective demand notices quantify the amounts due from the petitioners as follows:-

Assessment YearsW.P.No.31167 of 2018W.P.No.31170 of 2018W.P.No.31172 of 2018W.P.No.31174 of 2018
2009-1086,250.50
2010-1120,510.00
2011-128,11,749.00
2012-131,46,730.007,93,740.008,61,010.004,11,570.50
2013-141,20,630.00 5,66,400.00
2014-15 65,420.00
2015-1639,340.00
2016-176,050.00

The counters filed by the first and the third respondent also do not give the exact amount of tax that was allegedly due from the petitioners which ought to have been paid by the petitioners as per the assessments completed for the respective petitioners under section 143 of the Income Tax Act, 1961 as modified by orders passed under section 154 of the Income Tax Act, 1961.

Further, during the intervening period, orders have been passed under section 201(i) and 201(IA) of the Income Tax Act, 1961 against the second respondent by three separate orders dated 16 01.2018 for the assessment years 2011-12, 2012-13 and 2013-14 as mentioned above. These have to be factored while demanding arrears of tax to the petitioners.

To the extent tax was deducted by the second respondent and not remitted by the second respondent to the Income Tax Department, recovery can be only directed against the second respondent as the second respondent is the assessee in default. The petitioner cannot be made to pay tax twice. Recovery of any of such Tax Deducted at Source but not remitted by the second respondent has to be recovered only from the second respondent.

Therefore, court is inclined to quash the respective demand notices and direct the third respondent to issue fresh demand notices to the petitioners after taking note of the subsequent developments and payments made by the 2nd respondent. It is made clear that to the extent Tax was Deducted by the second respondent but not remitted, no demand shall be made against the petitioners. If the second respondent had failed to remit the tax to the credit of the Income Tax Department, it is however open to the department to recover the same from the 2nd respondent in the manner known to Law. Balance of tax if any, which has escaped payment alone can be recovered from the Petitioners, by issuing suitable notice under the provisions of the Income Tax Act, 1961. Such notice may be issued within a period of four weeks from the date of receipt of copy of this order.

Conclusion

The court allowed the petition and ruled in favour of the assessee

Read full order from below

Payee-cannot-be-denied-TDS-Credit-where-deductor-has-failed-to-pay-TDS

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