I did not deduct TDS, but the person I paid has already paid tax on it. Can the department still recover it from me?
Reported as holding that the tax cannot be recovered twice — once the payee has paid, the deductor is not liable for the tax again. Interest may still run for the period of delay.
Decided by the Supreme Court (Supreme Court of India - S.H. Kapadia J and B. Sudershan Reddy J) on 2007-08-16, reported as (2007) 293 ITR 226 (SC); [2007] 163 Taxman 355 (SC); (2007) 211 CTR 545 (SC); Civil Appeal No. 3765 of 2007. It bears on section 201(1), section 201(1A), section 194C, section 194-I of the Income Tax Act 1961, in TDS Defaults matters.
The first line of defence in almost every short-deduction case. But note the interest limb — do not promise a clean win before checking it.
Binding on every court and authority in India.
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The assessee, a soft drinks manufacturer, paid warehousing charges to Pradeep Oil Corporation for the use of its premises for receipt, storage and dispatch of goods, and deducted tax at two per cent under s.194C as a contractual payment. By an order of 30 March 2001 the Assessing Officer held the charges to be rent within the Explanation to s.194-I, on which tax should have been deducted at twenty per cent, treated the assessee as an assessee in default for the short deduction, and levied interest under s.201(1A). The Commissioner (Appeals), the Tribunal and the High Court all upheld that. The assessee then applied under s.254(2), saying the Tribunal had not dealt with its alternative ground that the warehouser had been assessed on the same income, had paid the tax and had received a refund. The Tribunal recalled its order for that limited purpose - an order the Department did not challenge - and on rehearing held that the tax could not be recovered again, the Department itself conceding the point. The Delhi High Court reversed that, holding the Tribunal's original order had merged in the High Court's own dismissal and could not be reopened.
The appeal was allowed and the Delhi High Court's judgment set aside. The Court rested the result on CBDT Circular No. 275/201/95-IT(B) dated 29 January 1997, which declares that no demand under s.201(1) should be enforced after the deductor has satisfied the officer in charge of TDS that the taxes due have been paid by the deductee, while leaving intact the liability to interest under s.201(1A) until the deductee pays and the liability to penalty under s.271C. Here the deductor had already paid the s.201(1A) interest and it was not in dispute that the payee had paid the tax on the income, so nothing further could be recovered. The Court expressly declined to decide whether the Tribunal could have reopened the appeal under s.254(2), saying it wished to express no firm view on that.
Two things decided the appeal. First, the Tribunal's order recalling its earlier order for the limited purpose of hearing the untouched ground had attained finality, the Department not having challenged it, so the High Court could not interfere with the final order that followed. Second, and in the Court's view enough to end the controversy, the Board's own circular of 29 January 1997 directs that no demand under s.201(1) be enforced once the deductor satisfies the TDS officer that the deductee has paid the taxes due, while preserving interest under s.201(1A) up to the date of that payment and penalty under s.271C. The conditions of the circular were met: the interest had been paid, and the payee's payment of tax was not in dispute; nor was it disputed that the circular applied. The Court also recorded that the Department had conceded before the Tribunal that recovery could not be made again from the deductor where the payee had included the income in its taxable income and paid tax on it.
the tax once again could not be recovered from the appellant (deductor-assessee) since the tax has already been paid by the recipient of income
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Handle my notice → Ask a CA on WhatsAppReported as holding that the tax cannot be recovered twice — once the payee has paid, the deductor is not liable for the tax again. Interest may still run for the period of delay. This was decided by the Supreme Court (Supreme Court of India - S.H. Kapadia J and B. Sudershan Reddy J) and bears on section 201(1), section 201(1A), section 194C, section 194-I of the Income Tax Act 1961. It is reported as (2007) 293 ITR 226 (SC); [2007] 163 Taxman 355 (SC); (2007) 211 CTR 545 (SC); Civil Appeal No. 3765 of 2007. The first line of defence in almost every short-deduction case. But note the interest limb — do not promise a clean win before checking it. If it applies to you, the first step is this: Get a certificate or return copy from the payee showing the income was offered and tax paid.
The assessee, a soft drinks manufacturer, paid warehousing charges to Pradeep Oil Corporation for the use of its premises for receipt, storage and dispatch of goods, and deducted tax at two per cent under s.194C as a contractual payment. By an order of 30 March 2001 the Assessing Officer held the charges to be rent within the Explanation to s.194-I, on which tax should have been deducted at twenty per cent, treated the assessee as an assessee in default for the short deduction, and levied interest under s.201(1A). The Commissioner (Appeals), the Tribunal and the High Court all upheld that. The assessee then applied under s.254(2), saying the Tribunal had not dealt with its alternative ground that the warehouser had been assessed on the same income, had paid the tax and had received a refund. The Tribunal recalled its order for that limited purpose - an order the Department did not challenge - and on rehearing held that the tax could not be recovered again, the Department itself conceding the point. The Delhi High Court reversed that, holding the Tribunal's original order had merged in the High Court's own dismissal and could not be reopened. The matter was decided on 2007-08-16 by the Supreme Court (Supreme Court of India - S.H. Kapadia J and B. Sudershan Reddy J). On those facts the Supreme Court held as follows. The appeal was allowed and the Delhi High Court's judgment set aside. The Court rested the result on CBDT Circular No. 275/201/95-IT(B) dated 29 January 1997, which declares that no demand under s.201(1) should be enforced after the deductor has satisfied the officer in charge of TDS that the taxes due have been paid by the deductee, while leaving intact the liability to interest under s.201(1A) until the deductee pays and the liability to penalty under s.271C. Here the deductor had already paid the s.201(1A) interest and it was not in dispute that the payee had paid the tax on the income, so nothing further could be recovered. The Court expressly declined to decide whether the Tribunal could have reopened the appeal under s.254(2), saying it wished to express no firm view on that.
Two things decided the appeal. First, the Tribunal's order recalling its earlier order for the limited purpose of hearing the untouched ground had attained finality, the Department not having challenged it, so the High Court could not interfere with the final order that followed. Second, and in the Court's view enough to end the controversy, the Board's own circular of 29 January 1997 directs that no demand under s.201(1) be enforced once the deductor satisfies the TDS officer that the deductee has paid the taxes due, while preserving interest under s.201(1A) up to the date of that payment and penalty under s.271C. The conditions of the circular were met: the interest had been paid, and the payee's payment of tax was not in dispute; nor was it disputed that the circular applied. The Court also recorded that the Department had conceded before the Tribunal that recovery could not be made again from the deductor where the payee had included the income in its taxable income and paid tax on it. In the words reproduced by the source cited on this page: "the tax once again could not be recovered from the appellant (deductor-assessee) since the tax has already been paid by the recipient of income"
It was decided by the Supreme Court on 2007-08-16 and is reported as (2007) 293 ITR 226 (SC); [2007] 163 Taxman 355 (SC); (2007) 211 CTR 545 (SC); Civil Appeal No. 3765 of 2007. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 201(1), section 201(1A), section 194C, section 194-I, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was allowed and the Delhi High Court's judgment set aside. The Court rested the result on CBDT Circular No. 275/201/95-IT(B) dated 29 January 1997, which declares that no demand under s.201(1) should be enforced after the deductor has satisfied the officer in charge of TDS that the taxes due have been paid by the deductee, while leaving intact the liability to interest under s.201(1A) until the deductee pays and the liability to penalty under s.271C. Here the deductor had already paid the s.201(1A) interest and it was not in dispute that the payee had paid the tax on the income, so nothing further could be recovered. The Court expressly declined to decide whether the Tribunal could have reopened the appeal under s.254(2), saying it wished to express no firm view on that. It arises in TDS Defaults matters, on section 201(1), section 201(1A), section 194C, section 194-I of the Income Tax Act 1961, and was decided by Supreme Court of India - S.H. Kapadia J and B. Sudershan Reddy J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put it on record early — the argument is only as good as the evidence. Deal with interest separately; the tax and interest limbs are treated differently.
Still good law. Applied by the Delhi High Court in CIT-XVII v Dewan Chand (reported June 2026), which held a deductor cannot be treated as an assessee in default under s.201(1) where the payees have offered the income and paid the tax, while leaving s.201(1A) interest to separate computation. The principle has also been given statutory form: the first proviso to s.201(1) with the Form 26A/accountant's certificate mechanism (Finance Act 2012), under which interest still runs from the date tax was deductible to the date the payee filed its return. So the case is intact but the practical route is now the statutory proviso rather than the judgment. That finding was checked against a published source, which is linked on this page, on 2026-08-25. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Two limbs, and only one helps you. The tax cannot be recovered twice, but interest under s.201(1A) survives as compensatory - and note that here the deductor had already paid that interest and never disputed being an assessee in default. The decision rests on CBDT Circular No. 275/201/95-IT(B) dated 29 January 1997, which is binding on the department; the burden is on the deductor to satisfy the TDS officer that the payee actually paid. The Court expressly left open whether the Tribunal could reopen the appeal under s.254(2), so this is not authority on rectification. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed and the Delhi High Court's judgment set aside. The Court rested the result on CBDT Circular No. 275/201/95-IT(B) dated 29 January 1997, which declares that no demand under s.201(1) should be enforced after the deductor has satisfied the officer in charge of TDS that the taxes due have been paid by the deductee, while leaving intact the liability to interest under s.201(1A) until the deductee pays and the liability to penalty under s.271C. Here the deductor had already paid the s.201(1A) interest and it was not in dispute that the payee had paid the tax on the income, so nothing further could be recovered. The Court expressly declined to decide whether the Tribunal could have reopened the appeal under s.254(2), saying it wished to express no firm view on that.
TaxSphere, “Hindustan Coca Cola Beverage P Ltd v CIT”, https://taxnotice.vittsphere.com/caselaw/case/hindustan-coca-cola-beverage-v-cit/ (validity last checked 2026-08-25)
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