Facts of the Case

The petitioner, Harshdip Singh Dhillon, was employed as Associate Vice-President with Tulip Telecom Ltd. from November 2011 to May 2013. During his employment, the employer deducted Tax Deducted at Source (TDS) from his salary for relevant assessment years. However, the employer failed to deposit the deducted TDS with the Income Tax Department and also did not issue the requisite TDS certificate.

Subsequently, the Income Tax Department issued an intimation raising a tax demand of approximately ₹15.77 lakh against the petitioner for Assessment Year 2013-14. Despite the petitioner making representations explaining that the tax had already been deducted by the employer, the department issued another demand notice dated 04.02.2019 raising a tax demand of ₹15.36 lakh.

The petitioner approached the Delhi High Court under Article 226 of the Constitution of India seeking quashing of the demand notice and credit of the TDS deducted by his employer.

Issues Involved

  1. Whether the Income Tax Department can recover tax from an assessee when the employer has already deducted TDS but failed to deposit it with the government.
  2. Whether credit of TDS can be denied to an assessee when the deducted tax has not been deposited by the deductor.
  3. Whether such recovery violates the statutory protection provided under the Income Tax Act.

Petitioner’s Arguments

  • The petitioner contended that tax had already been deducted from his salary by his employer.
  • Once tax is deducted at source, the responsibility to deposit it with the government lies with the employer.
  • The petitioner had no control over the employer’s failure to deposit the TDS.
  • Raising a tax demand against the petitioner despite deduction of TDS is contrary to the provisions of the Income Tax Act. 

Respondent’s Arguments

  • The Revenue argued that credit for TDS can only be granted under Section 199 of the Income Tax Act when the deducted tax is actually deposited into the Central Government account.
  • Since the employer had not deposited the tax, the department claimed that the petitioner was not entitled to TDS credit.
  • Therefore, the tax demand against the petitioner was valid.

 

Court Findings

The Delhi High Court held that once tax is deducted at source from the income of an assessee, the assessee cannot be required to pay the same tax again.

The Court relied on Section 205 of the Income Tax Act, which provides that where tax has been deducted at source, the assessee cannot be called upon to pay that tax again.

  • Sanjay Sudan v. Assistant Commissioner of Income Tax (2023)
  • BDR Finvest Pvt. Ltd. v. DCIT (2023)
  • Shri Chintan Bindra v. DCIT (2023)
  • PCIT v. Jasjit Singh (2023)

These decisions clarify that once TDS is deducted, the responsibility to deposit the amount with the government lies with the deductor (employer), and the deductee cannot be penalized for the deductor’s default.

 

Court Order

  • The impugned demand notice dated 04.02.2019 was set aside.
  • The Income Tax Department was directed to grant credit of the TDS deducted by the employer for Assessment Year 2013-14.
  • The petitioner cannot be made liable for the employer’s failure to deposit the deducted tax.

 

Important Clarification by the Court

  • Under the Income Tax Act, the employer acts as a tax collecting agent of the government.
  • If the employer deducts tax but fails to deposit it, the Revenue may proceed against the employer under the law.
  • However, the deductee/employee cannot be penalized or asked to pay tax again when TDS has already been deducted from his income.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/60804012024CW108282019_151829.pdf

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