Delhi HC Rules: Worker Cannot Be Denied TDS Credit Due to Employer's Non-Deposit of Tax
Introduction
The Delhi High Court has delivered a significant judgment reinforcing the principle that an employee cannot be deprived of Tax Deducted at Source (TDS) credit merely because the employer failed to remit the deducted tax to the Income Tax Department. This landmark ruling in the case of Venkatachalam Thangavelu Vs ITO addresses a critical issue affecting numerous employees whose employers defaulted in depositing TDS despite deducting it from salaries.
The Court's decision emphasizes that an assessee-employee should not bear the consequences of an employer's failure to fulfill statutory obligations. This judgment provides much-needed relief to workers who face double taxation due to their employer's defaults.
Factual Background of the Case
The matter arose when the petitioner, an employee of Kingfisher Airlines, received an intimation dated 07.06.2013 issued under Section 143(1) of the Income Tax Act, 1961. Through this intimation, the Income Tax Department raised a demand of ₹12,28,508 against the assessee.
The primary reason for this demand was the refusal to grant TDS credit amounting to ₹10,34,982, which had been deducted from the petitioner's salary by his employer, Kingfisher Airlines. The Revenue authorities denied this credit on the grounds that the employer had not deposited the deducted amount with the department.
Timeline of Events
The sequence of events in this matter unfolded as follows:
- Kingfisher Airlines deducted TDS from the petitioner's salary during the relevant assessment year
- The employer failed to deposit the deducted tax with the Income Tax Department
- The petitioner filed his income tax return claiming credit for the TDS deducted
- The Department issued an intimation under
Section 143(1)denying the TDS credit - A demand of ₹12,28,508 was raised against the assessee
- The Revenue recovered a substantial portion of this demand by adjusting it against refunds due to the petitioner
- The petitioner filed a writ petition challenging the denial of TDS credit
Contentions Advanced by the Petitioner
The petitioner's legal team presented compelling arguments before the Delhi High Court. The primary contention was that an employee cannot be held responsible or penalized for defaults committed by the employer in depositing TDS with the government treasury.
Reliance on Precedent
The petitioner placed strong reliance on an earlier judgment of the same Court dated 01.10.2024 in the case of Satwant Singh Sanghera v. Assistant Commissioner of Income Tax & Anr.. It was argued that this precedent squarely covered the legal issue involved in the present case and had settled the law on the matter.
Recovery Already Effected
The petitioner further highlighted that the Department had already recovered a substantial portion of the disputed demand by adjusting it against refunds that had become due to the petitioner in subsequent years. This recovery was challenged as illegal and arbitrary.
Relief Sought
Based on these contentions, the petitioner sought the following reliefs:
- Quashing of the intimation issued under
Section 143(1)dated 07.06.2013 - Declaration that the consequential demand notice was illegal
- Refund of the amounts already recovered through adjustment of refunds
- Payment of applicable interest on the refundable amount
Revenue's Response and Jurisdictional Objection
The Revenue Department, represented through its Senior Standing Counsel Mr. Agarwal, did not contest the factual matrix or the legal position advanced by the petitioner. However, a preliminary objection was raised regarding the territorial jurisdiction of the Delhi High Court to entertain the writ petition.
Jurisdictional Challenge
The Revenue contended that the appropriate forum for filing the writ petition was Bangalore and not Delhi. This objection was based on the assertion that the petitioner's Assessing Officer was located in Bangalore, and therefore, the writ petition should have been filed before the Karnataka High Court.