IN HIGH COURT OF JUDICATURE AT MADRAS DATED:11.08.2014 CORAM HON'BLE MR.JUSTICE R. SUDHAKAR AND HON'BLE MR.JUSTICE G.M. AKBAR ALI T.C.A.No.388 of 2008 and M.P.Nos.1 of 2007 and 1 of 2014 Executors of Estate of S. Shanmuga Mudaliar No.17, Smith Road, Chennai-600 002 Appellant vs 1. Assistant Commissioner of Income Tax, City Circle VII, Chennai-600 034 Respondent 2. Official Liquidator, High Court, Madras M/s Union Motors Services Limited (Amended as per order in MP No.1 of 2014 dated 11.8.2014) 2 Prayer: Appeal under Sec.260A of Income Tax Act, 1961, against order of Income Tax Appellate Tribunal "Bench, Chennai dated 6.10.2006 passed in Income Tax Appeal No.1381(Mds)/2004. For Appellant : Ms.S. Elambharathi For 1st respondent: Mr.J. Narayanasami For 2nd respondent: Mr.B. Dhanaraj JUDGMENT ( Delivered by G.M. AKBAR ALI, J.) Appeal filed against order of Income Tax Appellate Tribunal "Bench, Chennai dated 6.10.2006 passed in Income Tax Appeal No.1381(Mds)/2004. 2. brief facts of case is as follows: Assessee is landlord, who had rented out building to tenant viz., Union Motors Services Limited, who had deducted tax while paying rent, but failed to issue TDS Certificate as well as credit amount to Income Tax Department. 3 3. Assessee, while filing return, submitted that tenant has not furnished TDS Certificate as per requirement of Income Tax Act and therefore, they are entitled for such deduction as it has already been deducted to tune of Rs.2,75,700/-. 4. However, Assessing Officer has not given credit to said amount being tax deducted at source by Union Motors Services Limited as appellant did not furnish TDS Certificate for this amount. assessee has filed appeal against such Assessment Order before Commissioner of Income Tax (Appeal). Commissioner of Income Tax(Appeal) also found that without TDS Certificate, tax cannot be deducted and confirmed order passed by Assessing Officer and also held that appellant has no appellate remedy, but only administrative remedy and dismissed appeal, against which, assessee had filed appeal before Income Tax Appellate Tribunal. 5. Tribunal found that order of Appellate Authority is sustainable, however, modified that if assessee so desires, can approach 4 Assessing Officer and file all necessary evidence to show that tax has already been deducted at source, against which, present appeal is filed. 6. On Admission, following substantial questions of law were raised: 1. Whether Tribunal was right in Law in holding that Appeal against Assessment Order dated 27.11.2003 of Respondent under Section 143(1) of Income Tax Act is not maintainable? 2. Whether Tribunal is right in Law in holding that remedy for Appellant is not appellate remedy but administrative remedy especially when Appellant has exhausted said remedy? 3. Whether on facts and circumstances of case, Section 205 of Income Tax Act would apply and is Appellant liable to pay tax to extent to which tax has been deducted? 5 4. Whether Tribunal is right in Law in holding that it is for Appellant to obtain TDS Certificate and submit same to Assessing Officer? 7. Though above questions of law are raised, We are inclined to take third substantial question of law, which will answer other questions. 8. Pending appeal, Official Liquidator, High Court, Madras was impleaded as party in view of litigation proceedings initiated against Union Motors, who was tenant. 9. learned counsel for assessee submitted that there is bar under Sec.205 of Income tax Act, demanding any tax from assessee, when tax has already been deducted at source. learned counsel relied on following case laws: (2005) 278 ITR 206 (Smt.Ansuya Alva vs Deputy Commissioner of Income Tax) 6 (2007) 293 ITR 539 (Bom) (Yashpal Sahni vs Rekha Hajarnavis, Asst. CIT (Bom.) 10. On other hand, learned counsel for Revenue would submit that appeal itself is not maintainable as appellant has administrative remedy, not appellate remedy, as held by authorities below. 11. learned counsel for Revenue also pointed out that if tax deducted is not paid to Government, Assessing Officer has authority to demand tax and impose penalty under Sub sec.(2) of Sec.272 of Income Tax Act. 12. learned counsel, who is appearing for Company in Liquidation, would submit that Company was put on liquidation only in year 2004. and Assessment Period is 2001-2002 and therefore, Company, in liquidation, is not under obligation to discharge liability.. 13. Heard both sides and perused materials available on record. 7 14. It is not disputed that tax was deducted at source by tenant Union Motors Services Limited and they have issued some Certificates which has been given credit to by Department. present dispute relates to failure of non issuance of TDS certificates by tenant. mandate is on tenant to deduct tax at source and remit amount to Government and also issue certificate to assessee. 15. Sec.205 of Income Tax Act reads as follows: "205. Bar against direct demand on assessee._ Where tax is deductible at source under sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D, section 194E, section 195 and section 196A, assessee shall not be called upon to pay tax himself to extent to which tax has been deducted from that income". 16. plain reading of section makes it clear that whenever tax 8 is deductible under provisions of this Act and where tax has already been deducted, no demand can be raised on deductee. This implies that to extent of TDS, demand cannot be raised on deductee. However, for failure on part of deductor, suitable provisions are available in section 201 and other sections mentioned supra. 17. This has been dealt with by Bombay High Court in case of (Yashpal Sahni vs Rekha Hajarnavis, Asst. CIT (Bom.) reported in (2007) 293 ITR 539 (Bom), wherein Bombay High Court has held as follows: "15. Chapter XVII of Income Tax Act, 1961, provides for collection and recovery of tax by two modes. They are (one) directly from assessee and (two) indirectly by deduction of tax at source. In present case, we are concerned with second mode of recovery, namely, recovery of tax by deduction at source. 17. Sec.201 of Act, inter alia, provides that where company bound to deduct tax at source fails to deduct tax or after having deducted fails to pay said tax to credit of Central 9 Government within stipulated time, then Company shall be deemed to be assessee in default in respect of tax and said company shall be liable to pay simple interest at 12 per cent per annum on TDS amount from date on which such tax was deductible upto date on which such tax is actually paid to Central Government. Section 201(2) of Act further provides that till TDS amount with interest, as stated above, is paid to Central Government, there shall be charge upon all assets of company. Moreover, section 221 of Act, inter alia, provides for levy of penalty and section 276B of Act, inter alia, provides that where person fails to pay to credit of Central Government, tax deducted at source, such person shall be punishable with rigorous imprisonment for term which shall not be less than three months but which may extend to seven years and provides for levy of fine. Thus, Act provides for complete machinery to recover tax deducted at source from person who has deducted it. 10 18. At this stage, we may also note that every person deducting tax at source is required to issue certificate under section 203 of Act specifying amount of tax deducted, rate at which tax has been deducted and such other particulars as may be prescribed. Section 199 of Act provides that any tax deducted at source under provisions of Chapter XVII and paid to Central Government shall be treated as payment of tax on behalf of person from whose income deduction was made and credit shall be given to him for amount so deducted on production of TDS certificate issued under section 203 of Act. Section 205 of Act provides that where tax is deductible at source under Chapter XVII of Act, assessee shall not be called upon to pay tax himself to extent to which tax has been deducted. Section 205 of Act, as it stood at relevant time, read thus: 205. Bar against direct demand on assessee._ Where tax is deductible at 11 source under sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D, section 194E, section 195 and section 196A, assessee shall not be called upon to pay tax himself to extent to which tax has been deducted from that income". 20. From language of section 205, it is clear that once tax is deducted at source, same cannot be levied once again on assessee who has suffered deduction. Once it is established that tax has been deducted from salary of employee, bar under section 205 of Act comes into operation and it is immaterial as to whether tax deducted at source has been paid to Central Government or not, because elaborate provisions are made under Act for recovery of tax deducted at source from person who has deducted such tax. 18. Following this judgment, learned Single Judge of Karnataka High Court in case of (Smt.Ansuya Alva vs Deputy Commissioner of 12 Income Tax) reported in (2005) 278 ITR 206 , interpreting sec.205, has held as follows: "9. I am of view that this understanding and such interpretation of Section 205 of Act is also in consonance with general principles of law, particularly principles of Law of Principal and Agent. If we look at scheme for provision of deduction of tax at source, it becomes obvious that such person is acting on behalf of Revenue, i.e.,as agent of Revenue. In fact, person is enabled statutorily to make deduction and remit amount to Central Government, though in instant case, person who has deducted amount may be tenant or lessee of petitioner and there is such inter se relationship as between two, insofar as deduction of tax at source representing 20 per cent of monthly rent payable as envisaged under Section 194-I of Act is concerned, deduction is under 13 statutory obligation and on behalf of Rvenue and because of compulsion herein. It is not as if petitioner could prevent such deduction. When person like tenant acts as representative or agent of Revenue for such deduction and if there is any violation on his/her part, consequence should fall only on Revenue and that cannot be foisted on assessee. It is no doubt true that assessee if pays tax in terms of tax liability, i.e., under assessment order and to extent of amount is not paid to Government remains liability on assessee also and could look upto tenant to recover amount for reimbursement. question in light of provisions is that, should assessee be driven to that plight? I thank that provision is to provide protection to assessee and to prevent Revenue from embarking on recovery proceedings in respect of such amount. If such being object of provision, it is not possible to understand word 'deduct' occurring in 14 Section 205 as 'deducted and remitted'. 10. Even on general principles of law, Law of Principal and Agent, as discussed above, for default of agent of Revenue, petitioner-assessee, who is third party in relation to such relationship cannot be penalised. In circumstances, I am of view that Revenue is to be definitely restrained in terms of Section 205 of Act from enforcing any demand on assessee- petitioner insofar as demand with reference to amount of tax which had been deducted by tenant of assessee in present case, and assuming that tenant had not remitted amount to Central Government. only course open to Revenue is to recover amount from very person who has deducted and not from petitioner." 19. facts and circumstances of above case is similar to facts of present case. Therefore, we have no hesitation to hold that 15 bar under Sec.205 of Income Tax Act prevents department from demanding tax deducted at source from assesee who has suffered deduction. Further more, now liability rests with Official Liquidator. Therefore, Department is at liberty to proceed against company in liquidation in hands of Official liquidator by filing claim for amount in question. 20. In result, appeal is allowed and order of Income Tax Appellate Tribunal " "Bench, Chennai dated 6.10.2006 passed in Income Tax Appeal No.1381(Mds)/2004 is set aside. No costs. Consequently, connected MP is closed. (R.S.J.,) (G.M.A.J.,) 11-08-2014 sr Index:yes website:yes 16 To 1. Assistant Commissioner of Income Tax, City Circle VII, Chennai-600 034 2. Official Liquidator, High COurt, Madras R. SUDHAKAR, J., 17 and G.M. AKBAR ALI,J., sr TCA No.388 of 2007 11.08.2014 Executors of Estate of S. Shanmuga Mudaliar v. Assistant Commissioner of Income-tax, City Circle-VII, Chennai / Official Liquidator