The Delhi High Court observed that the Income Tax Act, 1961 does not cast a burden on deductee with regard to deposit of money, retained as tax by payer. Ruchir Bhatia, senior standing counsel, who appeared on behalf of the appellant/revenue, while conceding that no direct recovery could be made against the respondent/assessee concerning the tax at source deducted by the Koutons Group amounting to Rs.2,04,96,655/-, said that credit for the said amount, sought by the respondent/assessee, could not be given since the deductor, i.e., Koutons Group had not deposited the said amount with the appellant/revenue.
A Division Bench of Justices Rajiv Shakdher and Girish Kathpalia observed that “Specifically, the grossing up principle finds statutory recognition in Section 198 of the Act. This is a principle, whereby, income which is payable, say, under any agreement/arrangement [in a case not referred to in Section 192(IA), and the tax chargeable on that income is required to be deducted by the payor, then the income is increased by the payor/deductor and offered to tax inclusive of the tax deducted at source.”
The Court further went on to add that the Income Tax Act does not seem to cast a burden on the deductee/payee with regard to the deposit of money, which is retained as tax, by the payer i.e., the deductor. Therefore, insofar as the deductee/payee is concerned, once the payer/deductor, who acts as an agent of the Central Government, has retained money towards tax, credit for the same cannot be denied, having regard to the consequences and the modes available for recovering the said amount from the payer/deductor.
“Once the deductee adheres to the statutory regime and allows the deductor to retain money towards tax, the nature of the amount cannot change and, therefore, the deductee, in our view, would be entitled to the credit of the amount retained by the deductor towards tax. Any other view would result in a situation where even though the assessee would have grossed up his income [by including the tax deducted at source] and offered the same for taxation, he would be denied the benefit of having the resultant tax demand adjusted against tax deducted at source by the payer” the Bench concluded.