AO can’t recover taxes from assessee if tax deducted on his income wasn’t deposited by deductor: HC

Case details: Ashok Kumar B. Chowatia v. JCIT - [2021] 128 taxmann.com 230 (Madras)

Judiciary and Counsel Details

• • C. Saravanan, J.
  • T.V. Lakshmanan for the Petitioner.

Facts of the Case

Assessee challenged the demand notice on the ground that the tax which was demanded from him was already deducted by way of TDS. However, the deductor didn’t submit said tax the credit of the Central Government. Therefore, the assessee cannot be fastened with the tax liability as the deductor was an assessee in default within the meaning of Section 201.

High Court held

On writ, Madras High Court held that to the extent tax was deducted by the deductor and not remitted by him to the Income-tax Department, recovery can be only directed against deductor as he was the assessee in default. Deductee couldn’t be made to pay tax two times on same income. Recovery of any of such tax deducted at source but not remitted by deductor has to be recovered only from him.

Accordingly, the Madras High Court quashed the demand notices issued against assessee. Further, it was made clear that to the extent tax was deducted but not remitted, no demand shall be made against assessee. If deductor had failed to remit the tax to the credit of the Income-tax Department, it was however open to the department to recover the same from the deductor in the manner known to Law. Balance of tax if any, which had escaped payment alone could be recovered from assessee by issuing suitable notice under the provisions of the Income-tax Act, 1961.