In a landmark ruling, the Bombay High Court directs that TDS credit cannot be denied to taxpayers due to the failure of the deductor to deposit the deducted tax.
In a significant judgment, the Bombay High Court has ruled that Tax Deducted at Source (TDS) credit must be granted to taxpayers, even if the deductor fails to deposit the deducted tax with the government. The court's decision comes in response to a series of writ petitions filed by taxpayers who faced demands from the Income Tax Department despite having TDS deducted from their incomes.
The court heard multiple petitions, including that of Manohar Ramabtar Jhunjhunwala versus the Principal Commissioner of Income Tax, among others, where the petitioners argued that they were denied TDS credit due to the non-deposit of the deducted tax by the deductors. The petitioners relied on Section 205 of the Income Tax Act, 1961, which bars the recovery of such tax from the deductee.
Delivering the judgment, Justices B. P. Colabawalla and Firdosh P. Pooniwalla emphasized that once it is established that tax has been deducted at source, the Income Tax Department must grant appropriate TDS credit to the deductee. The court noted that the department cannot recover the tax from the deductee, as the deduction signifies that the deductee no longer has control over the withheld amount.
The court also addressed the issue of evidence required for proving TDS deduction in the absence of Form 16 or Form 16A, stating that other reliable evidence such as salary slips, bank statements, and payment advices can establish the deduction. It directed the Income Tax Department to verify claims and ensure that demands related to uncredited TDS are not enforced against the deductees.
Furthermore, the court issued administrative directions to the Income Tax Department to mark demands related to TDS deducted but not deposited as non-recoverable and to undertake verification procedures within six months of receipt of an application from the deductee.
This ruling is expected to provide significant relief to taxpayers who have faced undue demands due to the defaults of their deductors and is a step towards ensuring fairness and justice in the tax deduction process.
Bottom Line :
Income Tax - Tax Deducted at Source (TDS) - Credit of TDS cannot be denied to the deductee for the deductor's failure to deposit the deducted tax with the Government, Section 205 of the Income Tax Act, 1961, bars recovery of such tax from the deductee.
Statutory provision(s): Income Tax Act, 1961 Sections 199, 205
