The Delhi High Court recently allowed a writ petition filed by an individual, referred to as the Assessee, and quashed a demand notice raised against them by the Revenue for tax deducted at source (TDS) by their employer, Kingfisher Airlines, which was not duly deposited. The Court held that the Assessee cannot be called upon to pay tax that has been deducted at source from their income, even if it has not been deposited by their employer, as per Section 205 read with CBDT Instruction dated 01.06.2015.
In this case, the Assessee was an employee of Kingfisher Airlines, and for the assessment year 2012-13, their employer had withheld Rs. 13.98 Lacs as withholding tax payable on salary, which was reflected in Form 16. However, the Revenue found that the employer had not deposited the withholding tax for the relevant assessment year and served the Assessee with a notice raising a demand of Rs. 11.62 Lacs. The Revenue did not grant the Assessee a refund of Rs. 1.94 Lacs due to them for assessment year 2015-16 because of the outstanding demand concerning assessment year 2012-13 and set off the said refund against the demand.
The Assessee, aggrieved by this, preferred a writ petition, and the Delhi High Court perused Section 205, which provides that the Assessee shall not be called upon to pay the tax to the extent to which tax has been deducted from their income. The Court also analyzed CBDT Instructions dated 01.06.2015, which provides that since the Act places a bar on a direct demand regarding the deductee, the same cannot be enforced coercively. The Court held that Section 205 read with CBDT instruction dated 01.06.2015, clarifies that the Assessee cannot be called upon to pay tax that has been deducted at source from their income.
The Court further observed that the adjustment of the demand against future refund amounts to the indirect recovery of tax, which is barred under Section 205. The Court opined that the instruction merely provides that no coercive measure will be taken against the Assessee, which falls short of what is put in place by the legislature via Section 205 of the Act. The Court held that neither the demand for tax withheld by the deductor nor the same amount can be recovered from the Assessee, nor can it be adjusted against the future refund, if any, payable to the Assessee.
Therefore, the Court quashed the demand notice and reasserted that the Revenue is not entitled in law to adjust the demand raised for assessment year 2012-13 against any other assessment year. The Court allowed the Assessee’s claim for the refund of Rs. 1.94 Lacs for assessment year 2015-16, which was not disputed by the Revenue.
In summary, the Delhi High Court held that the Assessee cannot be called upon to pay tax that has been deducted at source from their income, even if it has not been deposited by their employer, and the Revenue cannot adjust the demand against future refunds. The Court clarified that this is in line with Section 205 of the Act and CBDT Instruction dated 01.06.2015. The Court allowed the Assessee’s claim for the refund and quashed the demand notice.
Sanjay Sudan v. ACIT [TS-93-HC-2023(DEL)] – Date of Judgement : 17.02.2023 (Del)]
