Section 401 — Bar against direct demand on assessee. Successor to s.205 of the 1961 Act.
Section 401 is in Chapter XIX — Collection and Recovery of Tax, which runs from section 390 to section 430.
The section bars a direct demand on the recipient of income to the extent tax has already been taken out of it at source. Where tax is deductible at the source under this Chapter, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income.
Once a payer has deducted tax from a payment, the money has left the recipient's hands and the Act's machinery for getting it to the Government runs against the payer. Demanding the same tax again from the recipient would collect it twice from the person who has already borne it. The section stops that, and stops it precisely at the amount deducted.
Everything turns on the two limits in the wording. The bar operates only "to the extent to which tax has been deducted" — so it protects the amount actually deducted and no more; the balance of the liability remains the assessee's. And it needs deduction to have happened: tax being deductible is what brings the section into play, but it is deduction from that income that measures the protection, so a payer who was required to deduct and did not leaves the recipient exposed to a demand for that tax. What the section says nothing about is whether the deductor paid the money over — deduction, not deposit, is the fact it fastens on.
An individual is paid a professional fee of 10 lakh rupees from which the payer deducts 1 lakh of tax but never deposits it with the Government. On the individual's assessment the Department cannot call upon him to pay that 1 lakh himself — section 401 bars a demand to the extent of the tax deducted, and recovery on that amount lies against the deductor. If the payer had deducted nothing at all, the bar would not operate and the tax on that income would remain payable by the individual.
In a notice of demand or a recovery proceeding that seeks from the recipient tax which has already been deducted from his income. This is the section quoted in reply to such a demand.
Where tax is deductible at the source under this Chapter, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income.
See the full 1961 to 2025 concordance.
