Assessee cannot be saddled with tax liability if tax deducted on his income wasn't deposited by the deductor

Last updated: 28 July 2021

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The Madras High Court has ruled that an individual cannot be held responsible for tax liability if the Tax Deducted at Source (TDS) on their income was not deposited into the government's account by the deductor. The court stated that the deductor is the one in default and should be pursued for the unremitted tax. The assessee should not have to pay the tax twice.

Court :
Madras High Court

Brief :
In Ashok Kumar B. Chowatia v. Joint Commissioner of Income Tax (TDS), Chennai [W.P. Nos. 31167, 31170, 31172, 31174 of 2018, W.M.P. Nos. 36373, 36376 and 36379, 36380 of 2018 dated April 16, 2021]. Ashok Kumar B. Chowatia ('the Petitioner') challenged the demand notices for clearance of the arrears of tax purportedly due from the Petitioner.

Citation :
W.P. Nos. 31167, 31170, 31172, 31174 of 2018, W.M.P. Nos. 36373, 36376 and 36379, 36380 of 2018 dated April 16, 2021

In Ashok Kumar B. Chowatia v. Joint Commissioner of Income Tax (TDS), Chennai [W.P. Nos. 31167, 31170, 31172, 31174 of 2018, W.M.P. Nos. 36373, 36376 and 36379, 36380 of 2018 dated April 16, 2021]. Ashok Kumar B. Chowatia ('the Petitioner') challenged the demand notices for clearance of the arrears of tax purportedly due from the Petitioner.

The Petitioner contended that the tax which was demanded from the Petitioner was already deducted by way of Tax Deducted at Source ('TDS'). However, the deductor didn't deposit TDS to the credit of Central Government. Therefore, the Petitioner can't be saddled with the tax liability as the deductor was an assessee in default as per the provisions of the Section 201 of the Income Tax Act, 1961 ('the IT Act').

The Hon'ble Madras High Court quashed the demand notices and held that recovery can only be made against deductor who is the assessee in default, to the extent tax was deducted by the deductor and not remitted to the Income-tax Department ('the IT Department').

Further, stated that the Petitioner can't be made to pay tax two times on same income. Balance of tax, if any, which had escaped payment alone could be recovered from the Petitioner by issuing suitable notice under the provisions of the IT Act.

FAQ :

No, the Madras High Court has ruled that you cannot be saddled with the tax liability if the deductor failed to deposit the TDS to the credit of the Central Government. The deductor is considered the assessee in default.

The deductor is responsible and considered the assessee in default for failing to deposit the deducted TDS to the government.

The court quashed demand notices and held that recovery of unremitted TDS can only be made against the deductor, not the assessee from whom the tax was deducted.

No, the court stated that an assessee cannot be made to pay tax twice on the same income due to the deductor's failure to deposit the TDS.

The tax department can only recover any remaining balance of tax that escaped payment from the assessee, by issuing a suitable notice under the Income Tax Act.