IMPORTANT POINT
Employees cannot claim credit for TDS not remitted to the Income Tax Department, as credit is contingent upon actual payment to the government.

JUDGMENT

[WP(C) Nos.26492, 26493, 26520, 39367 and 39376 of 2024]

These writ petitions have been filed by the employees of an entity known as ‘Attinad Software Pvt. Ltd.’, the 2^nd respondent in all these writ petitions. According to the petitioners, they were employees of the aforesaid entity, and they are now facing demands from the Income Tax Department because the Tax Deducted at Source (TDS) from the salaries paid to them has not been remitted by the aforesaid entity to the Income Tax Department.

2. Sri. S Adarsh, the learned counsel appearing for the petitioners in these cases placed reliance on the judgment of the Supreme Court in CIT v. Eli Lilly & Company (India) (P) Ltd.; (2009) 15 SCC 1, Sanjay Sudan v. Asst. CIT ; (2023) 452 ITR 107 (Delhi) , CIT v. Om Praksh Gattani , (2000) 242 ITR 638 , Chintan Bindra v. CIT ; 2023 SCC OnLine Del 7539 and the unreported judgment of the Bombay High Court in Aslam Checkar v. Income Tax Officer ( Judgment dated 10.09.2024 in Writ Petition (L) No. 2442 of 2024 and connected cases) to contend that the employee should not be mulcted with any liability for the amount of TDS deducted from their salaries by their employer even if such amounts have not been remitted to the Income Tax Department.

3. Sri. Keerthivas Giri, the learned Standing Counsel appearing for the Income Tax Department would submit that credit can be given only to the extent of money received by the Income Tax Department even on the authority of the judgment of the Supreme Court in Eli Lilly (supra). It is submitted that while it may be open to the Income Tax Department to proceed against the entity for not having remitted the amount of TDS (if any) deducted from the salaries paid to employees like the petitioners, that does not mean that the petitioners are straight away entitled to credit of those amounts, without such amounts having been received by the Income Tax Department.

4. Though notices have been issued to the 2^nd respondent, the same has been returned with the endorsement 'Door Locked and no such institution is working in Techno Park Company'.

5. Having heard the learned counsel appearing for the petitioners in these cases and the learned Standing Counsel appearing for the Income Tax Department, I am of the view that the learned Standing Counsel for the Income Tax Department is right in contending that the Income Tax Department can give credit of TDS only to the extent of receipt. This is clear from a reading of Section 199 of the Income Tax Act 1961 (hereinafter referred to as the ‘1961 Act’). Section 199 of the 1961 Act reads thus:-

199. Credit for tax deducted.—(1) Any deduction made in accordance with the foregoing provisions of this chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or of the depositor or of the owner of property or of the unit-holder, or of the shareholder, as the case may be.

(2) Any sum referred to in sub-section (1-A) of Section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made.

(3) The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this chapter, make such rules as may be necessary, including the rules for the purposes of giving credit to a person other than those referred to in sub- section (1) and sub-section (2) and also the assessment year for which such credit may be given.”

In the light of the express provisions of Section 199 of the 1961 Act what can be the effect of the provisions contained in Section 205 of the 1961 Act? This is the pertinent question to be answered. Section 205 of the 1961 Act reads thus:-

“205. Bar against direct demand on assessee:— Where tax is deductible at the source under the foregoing provisions of this chapter the assessee shall not be called upon to pay the tax h