Section 205

Section 205 — the law in short

What the courts have decided on section 205, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Manohar Ramabtar Jhunjhunwala v PCIT High CourtHelps taxpayerNo later treatment found
  My employer deducted tax but never deposited it, so the credit was denied on processing, a demand now sits on the portal and my later years' refunds are being eaten by it. Do I get the credit and the refund, or only a promise that nobody will recover from me?
  You get the credit and the refund, not merely a bar on recovery. A Division Bench of the Bombay High Court, hearing a batch of such petitions with the assistance of an amicus, held that where an assessee establishes that tax was in fact deducted at source, the Department must grant appropriate TDS credit and cannot recover the corresponding amount from the deductee directly or indirectly, that the consequential relief including refund must follow, and that pending disposal of a credit application the demand must be marked in the system as stayed or not recoverable so that no coercive recovery or refund adjustment takes place.
• Incredible Unique Buildcon P Ltd v ITO High CourtHelps taxpayerHigh Courts differ
  My customer deducted TDS on my bills and deposited almost none of it, and I have no Form 16A. Can I still get the credit and stop the demand?
  Yes. The Court held that the bar in s.205 operates as soon as it is established that tax was deducted at source, whether or not the deductor deposited it and whether or not a TDS certificate was issued. Form 16A is not the only evidence of deduction; other reliable material — the return disclosures supported by ledger accounts — will do.
• Sanjay Sudan v ACIT High CourtHelps taxpayerHigh Courts differ
  My employer deducted TDS but never deposited it. The department has raised a demand on me and set my later refund off against it. Can it do that?
  No. s.205 bars a direct demand on the person from whose income the tax was deducted, and the Court held that adjusting a later year's refund against that demand is an indirect recovery of the same tax. The demand notice and the adjustment were quashed and the refund directed to be released.
• Kartik Vijaysinh Sonavane v DCIT High CourtHelps taxpayer
  My employer deducted TDS from my salary and never deposited it. The portal shows nothing in 26AS, I do not even have Form 16 for one of the years, and the department has adjusted my later refunds against the demand. Can they do that?
  No. Where the employer has in fact deducted the tax, the department is precluded from denying the deductee credit for it, and any recovery or adjustment already made must be refunded with statutory interest. The absence of the entry in the departmental system, and the absence of a Form 16 for one of the years, were both raised by the Revenue and neither saved the demand.
• Devarsh Pravinbhai Patel v ACIT High CourtHelps taxpayer
  My employer deducted tax from my salary but never paid it over. Can the department recover it from me and adjust my refunds?
  No. The Gujarat High Court held that the department cannot deny the benefit of tax deducted at source by the employer, and directed that credit be given for the relevant years. It followed its own Division Bench decision in Sumit Devendra Rajani, which construed section 205 and agreed with the Bombay and Gauhati High Courts that where the deductee produces Form 16A the credit must be given and a demand cannot be sustained. Any recovery or adjustment already made out of later years' refunds was to be returned with statutory interest. The department remains free to recover the tax from the deductor.
• Yashpal Sahni v Rekha Hajarnavis, ACIT High CourtHelps taxpayer
  My employer deducted TDS from my salary, never paid it to the Government and never gave me a Form 16. The Department is now recovering that tax from me. Can it?
  No. The Bombay High Court held that section 205 bars a direct demand on the assessee to the extent tax has been deducted at source, and the bar operates the moment deduction is established. Whether the deductor paid the money over, and whether a Form 16 was issued, are both irrelevant to the bar. The Act gives the Department complete machinery against the deductor - section 201 default, interest, a charge on its assets, penalty under section 221 and prosecution under section 276B - and that is the only route open. Rs 17,89,587 recovered by attaching the employee's bank account was ordered refunded with interest at six per cent.
• Anusuya Alva v DCIT High CourtHelps taxpayer
  My tenant deducted tax from my rent but never paid it over or gave me a Form 16A. The department is now recovering it from me - can it?
  No. The Karnataka High Court quashed the demand to that extent. Section 205 bars a direct demand on the assessee to the extent tax has been deducted from her income, and the section says nothing about the deducted tax having been remitted. The word deduct in section 205 cannot be read as deducted and remitted. The person deducting acts as an agent of the Revenue under a statutory compulsion the payee cannot resist, so his default cannot be visited on her. The Revenue must recover from the deductor, and was restrained from enforcing the demand against the landlord by any coercive method.
• ACIT v Om Prakash Gattani High CourtCuts both ways
  The deductor deducted my tax and never deposited it. The Assessing Officer says he cannot give me credit until the money reaches the treasury, and has attached my bank account. Is he right on both counts?
  He may be right on the first and is wrong on the second. This is the foundational decision holding that s.205 bars any recovery from the deductee once tax has in fact been deducted, whether or not the deductor paid it over - the garnishee notices under s.226(3) were quashed - while at the same time holding that credit under s.199 is contingent on the tax being paid to the Central Government, so the Assessing Officer's note withholding credit until proof of payment was allowed to stand.
• CBDT Office Memoranda of 1 June 2015 and 11 March 2016 — TDS credit mismatch CBDT Circulars & InstructionsHelps taxpayer
  Is there anything binding on the assessing officer that stops him enforcing a demand caused by my deductor's failure to deposit?
  Yes. The Board told field officers in terms that s.205 bars a direct demand where tax has been deducted from the assessee's income, and that a demand on account of tax credit mismatch cannot be enforced coercively. It had to say it twice — the 2016 Office Memorandum was issued because officers were not following the 2015 letter.
• Statutory position — s.209(1)(d) and its proviso: credit against advance tax for tax deductible but not actually deducted CBDT Circulars & InstructionsCuts both ways
  My client is a payee whose income should have suffered TDS but the payer deducted nothing. Can he still reduce his advance tax by that tax when computing his liability, and does it matter which year it is?
  It depends entirely on which side of 1 April 2012 the financial year falls. Clause (d) of s.209(1) reduces the income-tax computed under clause (a), (b) or (c) by 'the amount of income-tax which would be deductible or collectible at source during the said financial year' on income taken into account in the computation — words wide enough to cover tax that was deductible but never deducted; but the proviso inserted in clause (d) by s.83 of the Finance Act, 2012 removes that reduction where 'the person responsible for deducting tax has paid or credited such income without deduction of tax', so from the financial year 2012-13 onwards a payee who was in fact paid gross cannot use the deductible-but-not-deducted amount to wipe out his advance tax.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.