Bombay High Court Directs Income Tax Department to Grant TDS Credit Despite Wrong Deposit by Bank

The Bombay High Court has provided significant relief to Orbit Investment Securities Services PLC by directing the Income Tax Department to treat tax of Rs.1.33 crore deposited by the payer bank as tax deducted at source (TDS), even though the amount had mistakenly been deposited as advance tax instead of withholding tax.

The dispute arose when Bank of New York Mellon deducted tax on payments made to Orbit Investment Securities Services PLC but, instead of depositing the amount with the Income Tax Department as TDS, deposited it under the head of advance tax. As a result, the petitioner was unable to obtain credit of the tax deducted or claim the corresponding refund. The bank also did not claim any credit for the amount deposited.

Before the Bombay High Court, the petitioner sought a direction to the tax authorities to recognize the amount as TDS and allow the corresponding refund along with applicable interest. The Revenue did not dispute that the amount had been paid to the department, nor was it disputed that the bank itself had not claimed any benefit of the tax deposited.

A Division Bench comprising Justice B.P. Colabawalla and Justice Firdosh P. Pooniwalla noted that the tax amount of Rs.1,33,54,933 had already reached the Income Tax Department and that the payer bank had not claimed any credit in respect of the payment. In these circumstances, the Court held that the tax authorities should treat the amount as tax withheld on behalf of the petitioner.

Accordingly, the Court directed the Income Tax Department to recognize the amount as TDS deducted on behalf of Orbit Investment Securities Services PLC. The petitioner was further directed to file its return of income claiming the refund within four weeks from the uploading of the order. The Court expressly condoned any delay in filing the return and directed the tax authorities to process the return in accordance with law and determine the refund entitlement.

While granting relief, the Court clarified that it had not expressed any opinion on the merits of the petitioner’s tax liability and that the Income Tax Department would remain free to examine the refund claim during processing of the return.

The ruling underscores that a taxpayer should not be deprived of legitimate TDS credit merely because the deductor incorrectly deposited the tax under a different head, particularly when the amount has already reached the government treasury and no competing claim exists.

To Read Full Judgment, Download PDF Given Below.