Employee cannot be held liable for Non Deposit of TDS deducted from his salary [Read Order]

The High Court of Delhi in the matter HARSHDIP SINGH DHILLON Vs. UNION OF INDIA has ruled out that the Employee cannot be held liable for Non Deposit of TDS deducted from his salary.

By way of this petition brought under Article 226 of the Constitution of India, the petitioner has prayed for setting aside a demand letter dated 04.02.2019 qua outstanding tax liability pertaining to the Assessment Year 2013-14 and for allowing credit to the petitioner against the Tax Deducted at Source (TDS) for the assessment year 2013-14 by his employer. On notice of the petition, the respondent entered an appearance through counsel and filed a counter affidavit.

The petitioner was employed with Tulip Telecom Ltd. (hereinafter referred to as “the employer”) as Associate Vice-President during the period from November 2011 to May 2013 and resigned from service on 07.05.2013 with effect from 09.05.2013. For assessment years 2011-12 and 2012-13, the employer of the petitioner deducted Tax at Source (TAS) on the salaries paid to the petitioner but the deducted tax pertaining to the assessment year 2012-13 was not deposited by the employer with the Income Tax authorities. The employer of the petitioner also failed to issue the requisite TDS certificate, so the petitioner informed the concerned Income Tax Officials about the default, but no action was taken.

The petitioner filed a petition seeking the winding up of the employer company by way of Company Petition No. 192/2014 under Section 433(e) and (f) read with Section 434 of the Companies Act, in which a liquidator was appointed. Instead of granting credit of the TDS pertaining to the assessment year 2012-13, the respondent/revenue issued an intimation dated 03.12.2015, thereby raising the demand of Rs.15,77,240 against the petitioner towards outstanding tax liability. In response, the petitioner made various representations to the respondent/revenue informing them about the defaults on the part of his employer. Ultimately, the respondent/revenue issued the impugned demand notice dated 04.02.2019, thereby again raising a tax demand of Rs.15,36,220 against the petitioner. Since the respondent/revenue did not clarify the situation despite being approached by the petitioner, the present petition was filed.

The respondent/revenue in its counter affidavit did not dispute that the petitioner had received salary after the deduction of tax. But the stand taken by the respondent/revenue in the counter affidavit is that the amount due to the petitioner towards salary for the months of December 2012, January 2013 and March 2013 was not actually paid to the petitioner by his employer, so the employer had no obligation to deduct tax at source and consequently the respondent/revenue is under no obligation to allow credit of the same.

On behalf of the revenue, it was also contended that the petitioner cannot be allowed a credit of tax because the credit has to be given in view of Section 199 of the Act only when the tax deducted at source is paid to the Central Government, which admittedly was not so paid in this case. This contention was raised also in the case of Sanjay Sudan (supra) but not accepted by this court.

As held by this court in the case of Shri Chintan Bindra vs DCIT, 2023:DHC:8483-DB, the petitioner, having accepted the salary after deduction of income tax at source, had no further control over it in the sense that thereafter it was the duty of his employer, acting as tax collecting agent of the revenue under Chapter XVII of the Act, to pay the deducted tax amount to the Central Government in accordance with law; and for the employer of the petitioner having failed to perform his duty to deposit the deducted tax with the revenue, petitioner cannot be penalized. It would always be open for revenue to proceed against the employer of the petitioner for recovery of the deducted tax in accordance with the law.

The irresistible conclusion in view of the aforesaid is that since the petitioner accepted-salary after deduction of income tax at source, it is his employer who is liable to deposit the same with the revenue authorities and on this count, the petitioner cannot be burdened. We find no substantial question of law to be considered by us in this appeal. Therefore, the petition is allowed and consequently, the impugned demand notice dated 04.02.2019 is set aside and the respondent/revenue is directed to allow credit of TDS deducted by his employer for the Assessment Year 2013-14 to the petitioner.

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