TDS Deduction on Loan Interest Can Extend Limitation Period for Recovery Suits: Delhi High Court
Overview of the Judgment
The Delhi High Court, in Amit Gupta Vs Sandeep Gupta, adjudicating petitions filed under Article 227 of the Constitution of India in CM(M) 1345/2019 & CM APPL. 40567/2019, delivered its judgment on 24.08.2026, dismissing challenges to the Trial Court's refusal to reject loan recovery suits at the preliminary stage. The ruling carries significant implications for how limitation periods are computed in debt recovery matters where TDS has been deducted and deposited on interest payments.
Background Facts
The dispute traces its origins to a friendly loan advanced by the respondent to the petitioner in 2008, with no formal documentation executed at the time. Over the ensuing years, the petitioner:
- Deducted TDS on the interest accruing on the loan amount
- Deposited the said TDS to the credit of the respondent with the Income Tax Department
- Executed signed balance confirmations acknowledging the outstanding dues at the close of each financial year — continuing up to March 2014
- Continued TDS deductions up to 31.03.2015, evidenced through Form 26AS and Form 16-A for financial year 2014-15
When the petitioner eventually stopped making payments, the respondent served a legal notice dated 29.05.2017 and thereafter filed civil recovery suits — CS No. 1854/2017 and CS No. 1853/17 — before the Additional District Judge, South East, Saket Courts, New Delhi.
Petitioner's Challenge: Application Under Order VII Rule 11 CPC
During pendency of the suits, the petitioner moved an application under Order VII Rule 11 read with Section 151 of the Code of Civil Procedure, 1908, seeking outright rejection of the plaint on the ground of limitation.
Core Arguments of the Petitioner
The petitioner advanced the following contentions:
Ex facie bar of limitation: The loan was advanced in 2008, and under Article 19 of the Limitation Act, 1963, the prescribed limitation period of three years expired in 2011. The suit filed in 2017 was thus filed six years after expiry of limitation.
TDS certificate not an acknowledgment: Relying on the Bombay High Court decisions in S.P. Brothers v. Biren Ramesh Kadakia [2008 SCC OnLine Bom 1599] and ACTAL v. India Infoline Ltd. [2012 SCC OnLine Bom 1507], it was argued that a TDS certificate is merely a document issued in discharge of statutory obligations under the income tax framework and does not amount to an acknowledgment of any subsisting liability under the debt, nor does it extend limitation.
Clever drafting must not circumvent limitation: Invoking Ramisetty Venkatanna v. Nasyam Jamal Saheb [2023 SCC OnLine SC 521], the petitioner urged that a plaint creating an illusory cause of action through artful drafting must be rejected at the threshold under Order VII Rule 11 of the CPC.
Bombay HC precedent on TDS certificates: An additional order dated 25.01.2024 in Kirtikumar Shantilal Chandan v. Hitesh Pawanraj Mehta [Commercial Recovery Suit No. 11 of 2022] (Bombay High Court) was placed on record, reiterating that issuance of TDS certificates does not constitute an acknowledgment of debt and referring to the Full Bench view in Jyotsna K. Valia v. T. S. Parekh and Co.
Respondent's Counter-Arguments
The respondent opposed the petition on the following grounds: