It has been held by the Hon’ble Gujarat High Court in the case of Sumit Devendra Rajani vs. Assistant Commissioner of Income Tax, Special Civil Application No. 2349 of 2014, that the department cannot deny credit of the tax deducted at source in connection with the amount for which Form No.16A issued by the employer deductor has been furnished by the assessee.
It was further held by the Hon’ble High Court that TDS credit cannot be denied to an assessee for non-matching with 26AS if such assessee produces the TDS Certificate issued by his employer deductor.
Facts of the case:
The assessee filed the Special Civil Petition before the Hon’ble Gujarat High Court against the grievance regarding the fact that the deductor ¬employer Amar Remedies Limited had deducted TDS amounting to Rs.5, 86,606/- from the assessee for which they had already issued Form 16A, but the department denied credit of the said amount to the petitioner assessee. When the assessee has claimed such deduction, the same was not granted.
The assessee also raised the issue before the High Court that in case the deductor had deducted the TDS and the deductor has issued Form no.16 A, whether TDS credit can be refused merely on the ground that such credit is not reflected in the ITD system of the department or it does not match with the ITD system of the department.
Issuance of Form no.16 A by the deductor:
According to Section 204 of the Income Tax Act the liability to deduct TDS is upon the employer or deductor. As per provisions of Section 205 of the Act, the assessee cannot be called upon to pay income tax himself to the extent to which tax has been deducted from him. Whereas the deductor has to issue Form no.16 A providing the details in connection with the amount of tax deducted at source in the relevant assessment year.
Contentions of the assessee:
In the instant case, the petitioner stated that a total sum of Rs.5, 86,606/- was deducted by the deductor Amar Remedies Limited for which Form no. 16 A was issued by the deductor. It was also stated that out of the total salary of Rs.21, 60,000/- the assessee received salary after deducting the TDS from M/s. Amar Remedies Limited for which form no.16 A was issued.
Under sections 204 and 205, when the deductor, who is liable to deduct the TDS as per chapter XVII, deducts the TDS and issues form no.16A, the deductee shall be entitled to credit of the said TDS.
If the deductor after deducting the TDS fails to deposit the same with the department, in such situation, the department should recover the said amount from the deductor and deductee cannot be denied the credit of the same.
Similar issue was raised before the Bombay High Court in Yashpal Sahni (supra). After considering Section 205 of the Act, the Bombay High Court observed that as per the IT Act, 1961 there are two modes for collection and recovery of tax, one is directly from the assessee and the other is indirectly by deduction of tax at source. In the said case, the second mode of recovery that is recovery by deduction of tax at source was applicable.
The Bombay High Court relied upon the decision of the Om Prakash Gattani (supra) wherein the Gauhati High Court after considering the relevant provisions of Chapter XVII held that an assessee is supposed to do nothing except that he has to accept the payment of the salary amount after deduction of income tax at source. It was also observed that the assessee only gets a certificate to that effect by the employer who is responsible to deduct the tax.
It was held by the Hon’ble Gujarat High Court that where TDS has been deducted by the employer under the statutory provisions, the assessee has no control over the said sum. In case of default by the employer in handing over the amount to the account of the Government, it is obviously the deductor and not the deductee who is responsible for the same.
The responsibility of such person is only that he is an assessee in default in connection with the tax. This responsibility has been imposed upon him as per Section 201 of the Income Tax Act. It was also pointed out that it was not a fact that the employer has not deducted the amount at all. It has been deducted but not handed over to the Government. The actual dispute was the failure on behalf of the deductor in depositing the said amount in the account of the Government.
It was observed that the Department made enquiries about the date of payment to the Central Government which Chandra Agencies failed to furnish stating that the papers were forwarded to their chairman. In such a situation it was held that the amount of tax could be recovered by the Department from the person who was responsible to deduct TDS and the deductor was considered as an assessee in default in respect of the amount. It would not be justified to recover the amount of tax from the assessee.
The Hon’ble Gujarat High Court completely agreed with the views of the Bombay High Court and Gauhati High Court. Applying the decisions of the Bombay High Court and the Gauhati High Court and after considering the facts of the case as well as provisions of Section 205 of the Act, it was held that the act of the respondent in not allowing the credit of the TDS for which form no.16 A was produced by the assessee as well as the impugned demand notice issued under Section 221(1) could not be sustained. The respondent was directed to give credit of tax deducted at source to the assessee of the amount for which form no.16 A was produced. For the said reasons the petition succeeded and the impugned demand notice was accordingly set aside.