TDS Deducted but Not Deposited by Employer: HC Bars Double Recovery from Employee

The petitioner, Hiren Vajubhai Bhingradia, a pilot by profession and former employee of M/s Kingfisher Airlines, challenged multiple demand notices issued by the Income Tax Department for Assessment Years 2011-12, 2012-13 and 2013-14. During the relevant years, Kingfisher Airlines had deducted tax at source from the petitioner’s salary amounting to Rs. 4,16,752, Rs. 5,17,463 and Rs. 2,10,538, respectively but failed to deposit the deducted amounts with the Central Government.

Despite the deduction of TDS, the respondent did not grant credit of such tax and raised demands with interest under Section 143(1), followed by further recovery notices.

Issue Before HC: Whether the Income Tax Department can deny TDS credit and recover tax from an employee when tax has been deducted by the employer but not deposited with the Government.

HC’s Order: The High Court held that once tax has been deducted at source from the income of the assessee, the Department is barred under Section 205 of the Income-tax Act from recovering the same tax again from the employee. The Court reiterated that failure to deposit TDS is the responsibility of the deductor, who can be treated as an assessee in default under Section 201 of the Act.

Relying on Devarsh Pravinbhai Patel and Om Prakash Gattani, the Court ruled that the Department cannot deny TDS credit to the petitioner. The impugned demand notices were set aside, credit of TDS was directed to be granted, and any amount already recovered or adjusted was ordered to be refunded with statutory interest within eight weeks.

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