PERSONAL TAX: No worry if TDS cut but not paid to govt

A taxpayer whose company went bankrupt, filed his return of income for assessment year 2012-13 on July 31, 2012, that is, within the applicable due date. During the relevant period, the company had deducted Tax at Source (TDS) totalling to Rs 2.68 lakh from the salary payments made to the taxpayer. On account of bankruptcy, the company did not deposit this tax amount with the government. However, in his return of income, the taxpayer claimed credit for this TDS as this amount was deducted from his salary and was never received by him.

During the course of assessment, the tax officer objected to the taxpayer's claim for credit of the TDS on salary and raised a demand for the equivalent amount and added interest on the same. This demand was not acceptable to the taxpayer. He was further aggrieved when the tax officer adjusted a refund of Rs 47,140 for assessment year 2013-14 against the above demand.

At various appellate levels, authorities ruled in favour of the tax officer. When the matter came up for decision before the Gujarat High Court, the question came up whether the tax officer was in his right to recover the tax amount from the taxpayer? Alternatively, was the taxpayer correct in contending that since he had already suffered deduction of TDS, but the same not being deposited by the company, it did not permit the tax officer to recover the said amount from the taxpayer.

The taxpayer relied on decisions issued by Bombay High Court and Gauhati High Court in similar cases. In both these cases, the high courts had held that once the tax has been deducted and the taxpayer has the applicable TDS certificate issued to him by the deductor; then the tax officer cannot deny the credit for such TDS to the taxpayer. However, if the tax officer is of the opinion that the deductor has not deposited the said amount of TDS, it is always open for the department to recover the same from the deductor. The Income Tax Act has defined rules and procedures to that extent.

Given similar facts in the current case, the Gujarat High Court ruled that the taxpayer be allowed credit for the TDS deducted on his salary and even directed that any recovery or adjustment made out of refunds of later years to be refunded to the taxpayer along with applicable interest.

This decision pertains to a period when all of the TDS procedures had not been made online. Since then, along with payments, the issuance of TDS certificates (Form-16 and Form-16A) have also been linked to online downloads.

In other words, the TDS certificate can be made available to the taxpayer, if and only if, the corresponding TDS has been deposited with the government by the deductor. This implies that in a case, with facts as described above, the taxpayer would not receive any TDS certificates, which can be submitted to the tax officer for the purposes of claiming credit. However, the premise remains the same; in such cases, the taxpayers should maintain other documentation like payslips, full and final settlement slips, etc, which can provide evidence of deduction of tax from the proceeds received. These documents will also aid taxpayers' right to claim credit for taxes deducted.

The writer is a Sebi-registered investment adviser