• Notification Date: 24-03-2023
  • Notification No: N/A

Delhi HC declines Adjusting Refund on Ground of Non-Deposit of TDS by Employer

The Division Bench of Delhi High Court, while disposing the writ petition has held that the refund could not be adjusted on the ground of non-deposit of Tax Deducted at Source (TDS) by the employer.  The petitioner SANJAY SUDAN was an employee of Kingfisher Airlines Limited (KAL) from 12.01.2008 up until 10.02.2012. In the AY 2012- 13 the petitioner’s employer (KAL) had withheld, towards withholding tax payable on salary. The record showed that the withholding tax was reflected in Form 16A issued by the petitioner’s employer. It has also come to fore that KAL did not deposit the withholding tax and, hence, a demand was raised by the revenue, for AY 2012-13. According to the petitioner, because of the outstanding demand concerning AY 2012-13, the refund payable to him for AY 2015-16 was not paid to him, and instead, set-off against the said demand.  The petitioner had articulated his grievance via an application dated 05.02.2019, but the revenue, quashed the said application, indicating that since the withholding tax amount was not reflected in Form 26AS, the demand would remain outstanding, as reflected in the impugned order. 

Shashi Mathews on behalf of the petitioner submitted that the issuing notice amounted to compelling the petitioner to pay the demand, which was not recoverable from him, as per the provisions of Section 205 of the Income Tax Act, 1961. In support of this plea, he relied upon the instruction dated 01.06.2015 issued by the Central Board of Direct Taxes (CBDT).  Sanjay Kumar, on behalf of the revenue submitted that the credit for withholding tax could only be given in terms of Section 199 of the Act, when the amount was received in the Central Government account. He further submitted that as no coercive measure could be taken against the petitioner, the demand would remain outstanding. The Division Bench Justice Rajiv Shakdher and Justice Tara Vitasta Ganju quashed the impugned order and held that the revenue are not entitled in law to adjust the demand raised for AY 2012-13 against any other AY observing that the petitioner was right inasmuch as neither could the demand qua the tax withheld by the deductor/employer be recovered from him, nor could the same amount be adjusted against the future refund, if any, payable to him. The adjustment of demand against future refund amounts to an indirect recovery of tax, was barred under Section 205 of the Act, the Bench further observed.