We all are aware that the main method of collecting taxes is through TDS or Tax deducted at source. Based on the transactions as well as the nature of payments by various sections like 194A, 194B, or 194C and the like, the TDS will vary. From the numerous sections related to TDS, one of the important ones covering the TDS on payments from Nonresidents is Section 195. The world has grown in terms of economy and the boundaries do not extend to businesses; in fact, the world has become boundary-less for businesses. Due to this, even the tax laws are different. In India, section 195 is quite peculiar as it identifies the tax rates as well as deductions on the business transactions taking place with the nonresidents regularly.
However, one of the major problems that we face these days is that of a mismatch – of what is deducted at source and what actually gets remitted to our Government by the deductor which is indicated in Form 26AS. So, in case a tax deductor fails to make the remittance of the TDS to the government, who is the one who bears the brunt? As per section 205 of the IT Act, 1961, it is specified in clear words that wherever the tax has been deducted at source, the assessee is not going to be called upon so as to make payment of the tax on his own, to the level to which the tax has got deducted from the income. This indicates that if TDS has got deducted from the income, the assessee has to get credit for the same, even though the deductor has failed to remit the same to the Government.
There have been instances where the deductee has been denied the credit of payment of TDS, due to the non-remittance of the same by the tax deductor. For example, you can take the case of Aricent Technologies Holdings Ltd vs. ACIT (ITAT Delhi), wherein the TDS had already been deducted from the revenue of the assessee. In this case, the TDS was reflecting in the Tax department’s records and the Assessing Officer was ordered to give the due credit to the assessee.
Conclusion- Assessee cannot be held responsible for tax Payment that has been deducted by the deductor at the source
If TDS has been done as per the IT Act, and it has been remitted to the Central Government, then according to section 199(1), the same will be treated as tax payment made in lieu of the individual from whose income, this deduction has been made. Also, as per section 205, the assessee cannot be held responsible for the tax payment that has already been deducted by the deductor at the source. In simple words, once the deductor has deducted the TDS, the tax cannot be collected from deductee irrespective of whether the tax has been deposited by the deductor to the Central government or no.