The Delhi High Court observed that the recovery towards tax at source (TAS) cannot be made on deductee when deductor Is undergoing Corporate Insolvency Resolution Process (CIRP).
This application has been filed to challenge the order dated 25.06.2020 passed by respondent no.4 under Section 154 of the Income Tax Act, 1961. By the rectification application, the petitioner sought to stake a claim with respect to the tax which had been deducted at source on the interest paid by its borrower, namely, Ninex Developers Ltd. [“Ninex”].
The application was dismissed via the aforesaid order. The petitioner, however, did not carry the matter any further by way of an appeal and instead through the accompanying writ petition has sought a direction for being given credit Rs.29,16,674/- qua the tax deducted at source by Ninex.
In Financial Year (FY) 2018-19, the petitioner had advanced a loan to Ninex at an agreed rate of interest, amounting to Rs.25,79,570/- per month. Concededly, the interest was remitted to the petitioner, albeit, after deducting TAS amounting to Rs.2,57,957/- per month. Thus, cumulatively in the AY in issue, Ninex had deducted, as noticed above, TAS amounting to Rs.29,16,674/-.
Concededly, when the petitioner filed its ROI on 10.08.2019, it initially did not claim credit for the TAS deducted by Ninex. 12.1. It appeared that the credit for TAS deducted by Ninex was claimed by the petitioner in its revised return filed on 12.12.2019.
A Division Bench of Justices Rajiv Shakdher and Girish Kathpalia observed that “We may make it clear that since the petitioner has evidently lodged a claim with the RP, if it were to receive any amount, it will deposit the amount not exceeding TAS deducted at source by Ninex with the revenue forthwith. The petitioner will ensure that, for whatever its worth, its claim with regard to TAS deducted by Ninex is pressed before the RP.”
The Court also noted that he deductee, i.e., the petitioner followed the regime framed in the Act, for collecting TAS albeit through an agent of the government, i.e., the deductor. It was the agent, i.e., Ninex who was required to deposit the tax with the government. In this case, the agent is, as noticed hereinabove, undergoing CIRP, therefore, possibly the ability of the Central Government to recover the amount from the agent may seem remote.
“In our view, Section 199 of the Income Tax Act cannot come in the way of granting the deductee being granted credit of TAS deducted by Ninex” the Court concluded.
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