No Recovery Towards TAS Can Be Made Towards Deductee Even If Deductor Is Undergoing CIRP: Delhi High Court

The Delhi High Court has held that no recovery towards Tax at Source (TAS) can be made towards the deductee even if the deductor is undergoing the Corporate Insolvency Resolution Process (CIRP).

The bench of Justice Rajiv Shakdher and Justice Girish Kathpalia has observed that the deductee (petitioner) followed the regime framed in the Act for collecting TAS through an agent (Ninex) of the government, i.e., the deductor. It was the agent who was required to deposit the tax with the government. The agent is undergoing CIRP; therefore, possibly, the ability of the Central Government to recover the amount from the agent may seem remote.

The petitioner/assessee has challenged the order passed by respondent no. 4 under Section 154 of the Income Tax Act, 1961.

The order was passed pursuant to a rectification application filed by the petitioner concerning the return of income (ROI). Via the rectification application, the petitioner sought to stake a claim with respect to the tax that had been deducted at source on the interest paid by its borrower, namely, Ninex Developers Ltd. The application was dismissed.

The Resolution Professional (RP) has issued a certificate evidencing that Tax at Source (TAS) was, in fact, deducted against interest paid by Nenex for the loan extended to it. Although the petitioner has sought credit for a slightly greater amount,

The issue raised was whether any recovery towards TAS could be made against the petitioner (deductee).

The petitioner contended that no recovery towards TAS can be made towards the petitioner, i.e., the deductee, in view of the provisions of Section 205.

The respondent or department contended that no credit for tax can be given, having regard to the provisions of Section 199. Unless the tax deducted at source is “paid” to the Central Government, no credit can be given to the deductee.

The court held that the petitioner will be given credit for TAS, notwithstanding the fact that it is not reflected in Form 26AS. Since the petitioner has evidently lodged a claim with the RP, if it were to receive any amount, it would deposit the amount not exceeding TAS deducted at source by Ninex with the department.

Counsel For Petitioner: Kavita Jha

Counsel For Respondent: Zoheb Hossain

Case Title: BDR Finvest Pvt. Ltd. Versus DCIT

Citation: 2023 LiveLaw (Del) 1166

Case No.: W.P.(C) 9043/2021 & CM No.55881/2023

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