Recently, the Delhi High Court in a bench comprising Justice Rajiv Shakdher and Justice Girish Kathpalia held that a deductee cannot be subjected to the recovery of Tax at Source (hereinafter referred to as “TAS”), even in cases where the deductor is undergoing the Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”). The court noted that the deductee, represented by the petitioner, adhered to the framework outlined in the Act for TAS collection, utilizing an agent (hereinafter referred to as “Ninex”) acting on behalf of the government as the deductor. It was the responsibility of the agent to remit the tax to the government.
Brief Facts of the Case:
The case involved a dispute between BDR Finvest Pvt Ltd, the petitioner, and the Deputy Commissioner of Income Tax & Others. The petitioner challenged an order dated 25th June 2020, issued by respondent No. 4 under Section 154 of the Income Tax Act, 1961. This order dismissed a rectification application filed by the petitioner, which sought to address TAS on interest payments made by its borrower, Ninex Developers Ltd.
Contentions of the Parties:
The petitioner, represented by Ms Kavita Jha, Mr Vaibhav Kulkarni, and Mr Himanshu Aggarwal, approached the court through a writ petition, seeking credit amounting to Rs.29,16,674/-, the sum deducted at source by Ninex. The central contention revolved around the rejection of the petitioner's claim for credit, despite Ninex undergoing CIRP, as confirmed by a Resolution Professional (hereinafter referred to as “RP”) through a certificate.
The respondent, represented by Mr Zoheb Hossain, Sr Standing Counsel, contended that the petitioner could not be granted credit for TAS as per Section 199 of the Act. Their argument was based on the premise that unless the tax deducted at source is "paid" to the Central Government, no credit can be extended to the deductee.
Observations by the Court:
The court noted that Ninex is currently undergoing a CIRP and a Resolution Professional (RP) had issued a certificate confirming the TAS deduction. The petitioner's claim for credit was initially rejected, leading to the writ petition.
The court, relying on its earlier judgment in Sanjay Sudan v. Assistant Commissioner of Income Tax [2023] 148 taxmann.com 329 (Delhi), held that no recovery towards TAS can be made against the petitioner, the deductee, under Section 205 of the Act. The judgment emphasized that the deductee followed the statutory regime for tax collection through an agent, Ninex, who, in this case, failed to deposit the tax with the government.
Addressing the issue raised by the department under Section 199 of the Act, the court reiterated that the petitioner would be granted credit for TAS, notwithstanding its absence in Form 26AS. The court set aside the order dated 25th June 2020, as the relief granted to the petitioner rendered it non-applicable.
The decision of the Court:
The court directed the petitioner to deposit any amount received from the RP, not exceeding the TAS deducted at source by Ninex, with the revenue. It emphasized that recovery proceedings against the agent, Ninex, could be initiated by the Central Government.
Case Name: BDR Finvest Pvt. Ltd. Versus DCIT
Coram: Hon’ble Mr. Justice Rajiv Shakdher and Hon’ble Mr. Justice Girish Kathpalia
Case No.: Writ Petition (C) No. 9043/2021 & CM No. 55881 of 2023
Advocates of the Petitioner: Ms Kavita Jha, Mr Vaibhav Kulkarni and Mr Himanshu Aggarwal, Advs.
Advocates of the Respondents: Mr Zoheb Hossain, Sr Standing Counsel with Mr Sanjeev Menon, Standing Counsel
Read Judgment @LatestLaws.com
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