The Delhi High Court has held that recovery proceedings under Income Tax Act, 1961 must be against the deductor when fails to pay Tax at Source (TAS) to the Government. It was made clear that no recovery towards Tax at Source (TAS) can be made towards the deductee even if the deductor is undergoing the Corporate Insolvency Resolution Proceedings.
BDRFinvest Pvt Ltd, the petitioner applied to challenge the order passed by respondent no.4 under Section 154 of the Income Tax Act, 1961 [“Act”]. The said order was passed under a rectification application filed by the petitioner concerning the Return of Income (ROI) dated 10.08.2019. Through the rectification application, the petitioner sought to stake a claim concerning the tax which had been deducted at source on the interest paid by its borrower, namely, Ninex Developers Ltd. [“Ninex”] which was dismissed via the aforesaid order.
The petitioner through the writ petition has sought a direction for being given credit Rs.29,16,674/- qua the tax deducted at source by Ninex. Mr Zoheb Hossain, senior standing counsel, accepted notice on behalf of the respondents/revenue. Mr Hossain stated that since there is no debate concerning the factual aspects of the matter, he does not wish to file a reply. It was found that Ninex is, undergoing CIRP and a Resolution Professional (RP) has been appointed by the concerned bench of the National Company Law Tribunal (NCLT).
The RP/respondent no.3 has issued a certificate dated 05.01.2021 which indicates that TAS was deducted by Ninex. Although Ninex deducted TAS amounting to Rs.29,16,674/-, it did not deposit the aforementioned amount with the revenue. It was argued that no recovery towards TAS can be made towards the petitioner i.e., the deductee, in view of the provisions of Section 205 of the Act.
It was submitted that unless the tax deducted at source is “paid” to the Central Government, no credit can be given to the deductee, i.e., the petitioner in this case. As would be evident upon perusing the extract culled out from the judgement rendered in Sanjay Sudan’s case, this very submission was raised by the respondents/revenue, which, after being considered, was rejected. The TAS deducted at source is part of the asssseee’s income and therefore, the gross amount is included in the total income and offered to tax. It is on this premise that the tax deducted at source would have to be treated as tax paid on behalf of the assessee. The TAS is deducted before the assessment is completed.
The court viewed thatthe argument that credit for TAS deducted in the present case by Ninex should not be given to the petitioner fails to recognize the fact that the amount retained against remittance made by the payer is nothing but tax which the assessee/deductee has offered for tax by grossing up the remittance. If credit is not given, the respondents would end up doing indirectly what they cannot do directly i.e., recover tax directly from the assessee i.e., the deductee. The agent for collecting the tax under the Act is the deductor i.e., Ninex in the present case. Since the agent/Ninex failed to deposit the tax with the government, recovery proceedings can only be initiated against the agent/Ninex.
A division bench comprising of Justice Rajiv Shakdher and Justice Girish Kathpalia disposed of the writ petition with the direction that the petitioner will be given credit for TAS amounting to Rs.29,16,674/-, even though it is not reflected in Form 26AS. It was held that “since the petitioner has lodged a claim with the RP if it were to receive any amount, it will deposit the amount not exceeding TAS deducted at source by Ninex with the revenue forthwith. The petitioner will ensure that, for whatever its worth, its claim about TAS deducted by Ninex is pressed before the RP.”