Section 305 — Right of representative assessee to recover tax paid. Successor to s.162 of the 1961 Act.
Section 305 is in Chapter XVII — Special Provisions Relating to Certain Persons, which runs from section 302 to section 355.
Sub-section (1) gives a representative assessee who pays any sum under the Act, as such, two remedies: to recover it from the person on whose behalf it was paid, or to retain an amount equal to it out of any moneys in his possession or coming to him in his representative capacity.
Sub-section (2) works before payment: a representative assessee, or any person who apprehends that he may be assessed as one, may retain out of money payable by him to the person on whose behalf he is liable — called the principal — a sum equal to his estimated liability under this Chapter.
Sub-section (3) resolves a disagreement about that amount: the representative assessee or person may secure from the Assessing Officer a certificate stating the amount to be retained pending final settlement of the liability, and that certificate is his warrant for retaining it. Sub-section (4) caps the exposure: the amount recoverable from him at final settlement is not to exceed the amount specified in the certificate, except to the extent he then has additional assets of the principal in his hands.
A representative assessee is made liable for someone else's tax, so unless he can get the money back the liability falls on him in substance as well as in form. The section gives him a right of recovery after payment, a right of retention before it, and where the principal disputes the amount, an official certificate that both protects the retention and limits what can afterwards be demanded of him.
The retention right in sub-section (2) is the practical one, because it operates on money still in the representative's hands, does not depend on his having paid anything, and is available even to a person not yet a representative assessee who apprehends that he may be assessed as one. Where the principal disputes the estimate, the certificate under sub-section (3) is what makes the retention safe: it is expressly his warrant for retaining that amount. The certificate works in his favour a second time under sub-section (4), capping what can be recovered from him at final settlement — subject to the qualification that the cap does not protect him to the extent he then holds additional assets of the principal. The section governs the relationship between the two of them; it does not reduce the liability.
A person holds funds as a representative assessee for a principal and estimates his liability under the Chapter at Rs. 10 lakh. Under sub-section (2) he retains Rs. 10 lakh out of money payable to the principal. The principal disputes the estimate, so under sub-section (3) he obtains a certificate from the Assessing Officer stating the amount to be retained, which the certificate puts at Rs. 8 lakh; that certificate is his warrant for retaining Rs. 8 lakh. At final settlement the liability is determined at Rs. 12 lakh, but under sub-section (4) no more than the certified Rs. 8 lakh can be recovered from him, except to the extent he then holds additional assets of the principal.
In the certificate obtained from the Assessing Officer under sub-section (3), which a trustee, agent or other representative produces when the principal objects to money being held back, and in the settlement of accounts between them — not in any notice issued to the taxpayer.
the certificate so obtained shall be his warrant for retaining that amount
shall not exceed the amount specified in such certificate, except to the extent to which such representative assessee or person may at such time have in his hands additional assets of the principal
See the full 1961 to 2025 concordance.