Tax Deduction at Source Liability of Deductee in Case of NonPayment of TDS by Deductor

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The Tax Publishers Income Tax--Tax Deduction at Source Liability of Deductee in Case of Non-Payment of TDS by Deductor CS. Preeti Satyani In this article, the learned author aims at discussing an issue as to whether a deductee can be burdened with tax liability, in case of default in payment of TDS on the part of deductor, i.e. whether the deductee can be penalized for default committed by the deductor. 1. Introduction TDS is basically tax deducted at source from some specific payments mentioned under Income Tax Act, 1961 ('the Act'), by the persons making such payments. The person deducting the tax is deductor and the person, from whose income, the tax is deducted, is deductee. Sections 192 to 195 of the Act, lay down provisions of tax deduction at source. As per said provisions, the deductor has to deposit TDS with Government within the specified due date. However, if the deductor failed to do so, whether the deductee would be liable to any tax liability or not, is the issue for our discussion. For answering such question, we have to look into the provisions of section 205 of the Act, which puts bar against direct demand on assessee. Section 205 provides that, where tax is deductible at source under specified provisions of Chapter of the Act, the assessee shall not be called upon to pay tax himself to the extent to which tax has been deducted from that income. 2. Departmental clarifications The above issue has also been considered by the CBDT in its Instruction No. 275/29/2014-IT-(B), dtd. 1-6-2015 and in Office Memorandum dtd. 11-3-2016 Vide Instruction No. 275/29/2014-IT-(B), dtd. 1-6-2015, the CBDT has clarified that as per section 199 of the Act, credit of TDS is given to the person only if it is paid to Central Government Account. However, as per section 205 of the Act, the assessee shall not be called upon to pay the tax to the extent tax has been deducted from his income, where the tax is deductible at source under the provisions of Chapter-XVII. Thus, the Act puts a bar on direct demand against assessee in such cases and demand on account of tax credit mismatch, cannot be enforced coercively. In Office Memorandum F.No.275/29/2014-IT(B), dtd. 11-3-2016, the CBDT has directed AOs not to impose demands on tax deductees on account of mismatch of credit due to non-payment of TDS amount to the credit of Government by tax deductor. The said memorandum reads as follows: '1. Vide a letter, dtd. 1-6-2015, the Board issued directions to field officers that in case of an assessee, whose tax has been deducted at source but not deposited to Government's account by deductor, the deductee-assessee shall not be called upon to pay the demand to the extent tax has been deducted from his income. It was further specified that section 205 of Income Tax Act, 1961 puts a bar on direct demand against the assessee in such cases and the demand on account of tax credit mismatch in such situations cannot be enforced coercively. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Income Tax--Tax Deduction at Source

Liability of Deductee in Case of Non-Payment of TDS by Deductor

CS. Preeti Satyani

In this article, the learned author aims at discussing an issue as to whether a deductee can be burdened with tax liability, in case of default in payment of TDS on the part of deductor, i.e. whether the deductee can be penalized for default committed by the deductor.

1. Introduction

TDS is basically tax deducted at source from some specific payments mentioned under Income Tax Act, 1961 ('the Act'), by the persons making such payments. The person deducting the tax is deductor and the person, from whose income, the tax is deducted, is deductee. Sections 192 to 195 of the Act, lay down provisions of tax deduction at source. As per said provisions, the deductor has to deposit TDS with Government within the specified due date. However, if the deductor failed to do so, whether the deductee would be liable to any tax liability or not, is the issue for our discussion.

For answering such question, we have to look into the provisions of section 205 of the Act, which puts bar against direct demand on assessee. Section 205 provides that, where tax is deductible at source under specified provisions of Chapter of the Act, the assessee shall not be called upon to pay tax himself to the extent to which tax has been deducted from that income.

2. Departmental clarifications

The above issue has also been considered by the CBDT in its Instruction No. 275/29/2014-IT-(B), dtd. 1-6-2015 and in Office Memorandum dtd. 11-3-2016

Vide Instruction No. 275/29/2014-IT-(B), dtd. 1-6-2015, the CBDT has clarified that as per section 199 of the Act, credit of TDS is given to the person only if it is paid to Central Government Account. However, as per section 205 of the Act, the assessee shall not be called upon to pay the tax to the extent tax has been deducted from his income, where the tax is deductible at source under the provisions of Chapter-XVII. Thus, the Act puts a bar on direct demand against assessee in such cases and demand on account of tax credit mismatch, cannot be enforced coercively.

In Office Memorandum F.No.275/29/2014-IT(B), dtd. 11-3-2016, the CBDT has directed AOs not to impose demands on tax deductees on account of mismatch of credit due to non-payment of TDS amount to the credit of Government by tax deductor. The said memorandum reads as follows:

'1. Vide a letter, dtd. 1-6-2015, the Board issued directions to field officers that in case of an assessee, whose tax has been deducted at source but not deposited to Government's account by deductor, the deductee-assessee shall not be called upon to pay the demand to the extent tax has been deducted from his income. It was further specified that section 205 of Income Tax Act, 1961 puts a bar on direct demand against the assessee in such cases and the demand on account of tax credit mismatch in such situations cannot be enforced coercively.