Madanlal B.chowatia v. The Joint Commissioner Of Income Tax (Tds) Tds Cell, Range -I

IN THE HIGH COURT OF JUDICATURE AT MADRASRESERVED ON: 01.04.2021 DELIVERED ON: 16.04.2021 CORAM: THE HONOURABLE MR.JUSTICE C.SARAVANAN W.P.Nos. 31167, 31170, 31172 and 31174 of 2018 and 2.Madanlal B.Chowatia ... Petitioner (In W.P. No.31170 of 2018)3.Chandenben ... Petitioner (In W.P. No.31172 of 2018)4.Aruna C. Chowatia ... Petitioner (In W.P. No.31174 of 2018) Vs. 1.The Joint Commissioner of Income Tax (TDS) TDS Cell, Range -I, 121, M.G. Road, Nungambakkam, Chennai – 600 034. 2.The Influence Enterprises (India) Pvt. Ltd. No.4, Blackers Road, 4[th] Floor, Near Casino Theatre, Anna Salai, Chennai – 600 002. 3.The Deputy Commissioner of Income Tax, Non-Corp Cir 9(i//c) Chennai, 211, Wanaparthy Block II Floor, 121, M.G. Road, Nungambakkam, Chennai – 600 034. 4. Income Tax Officer, Office of the ITO, TDS Ward-2(2), Ist Floor, Room No.109, BSNL Building, Tower 1, No.16, Greams Road, Chennai – 600 006. ... Respondents Common Prayer: Writ Petitions are filed under Article 226 ofthe Constitution of India praying for to calling for therecords on files of the 3[rd] respondent in his proceedings inFile Nos.(i) DCIT NCC-9/2016-17 dated 03.08.2017 (ii)C.No.CHE108C1/106/AADPC68591 dated 25.01.2018, (iii) DCIT NCC-https://hcservices.ecourts.gov.in/hcservices/9/2016-17 dated 03.08.2017 (iv) C.No.CHE108C1/107/AADPC6861 dated 25.01.2018 and quash the same directing the 1[st]respondent to reflect the amount which has been deducted bythe 2[nd] respondent while paying the rent and treat the 2[nd]respondent as the defaulter and recover the due from themunder the provision of Income Tax Act,1961 for the years 2011-12, 2012-13, and 2013-14. For Respondents: Mr. Karthik Ranganathan Standing Counsel for R 1,3 and R4in all cases R2: No appearance in all cases By this common order all the four writ petitions arebeing disposed. The respective petitioners have challenged therespective impugned demand notices which called upon them toclear the arrears of tax purportedly due from them. 2.These demand notices are challenged by the respectivepetitioners on the ground that the tax that has been demandedas arrears of tax from the petitioners Tax Deducted at Sourceby the second respondent but was not paid the credit of theCentral Government and therefore the petitioners cannot befastened with the tax liability as the second respondent is anassessee in default within the meaning of Section 201 of theIncome Tax Act, 1961. 3.It is further submitted that earlier W.P.Nos. 28199-205of 2015 were filed before this court where the petitionersalong with others had faced demands from the respondent IncomeTax Department. 4.It is submitted that this court after considering thegrievance of the petitioners therein which included writpetitioners herein passed the following orders:-“5. There is no dispute that the 2[nd]respondent was a tenant under the petitionersherein. Now, the petitioners claim that the 2[nd]respondent vacated the premises long back. Itis the specific case of the petitioners thatthough the 2[nd] respondent company effected TDS,it had failed to remit the same into the accountof the Income Tax Department. This is adisputed fact which cannot be resolved in thiswrit petition without any material and in theabsence of the 2[nd] respondent. Having regard tohttps://hcservices.ecourts.gov.in/hcservices/the fact that the deduction of TDS from the 4.It is submitted that this court after considering thegrievance of the petitioners therein which included writpetitioners herein passed the following orders:-“5. There is no dispute that the 2[nd]respondent was a tenant under the petitionersherein. Now, the petitioners claim that the 2[nd]respondent vacated the premises long back. Itis the specific case of the petitioners thatthough the 2[nd] respondent company effected TDS,it had failed to remit the same into the accountof the Income Tax Department. This is adisputed fact which cannot be resolved in thiswrit petition without any material and in theabsence of the 2[nd] respondent. Having regard tohttps://hcservices.ecourts.gov.in/hcservices/the fact that the deduction of TDS from the amount payable to the petitioners towards rentas well as remittance of the same were to bemade by the 2[nd] respondent, this Court deems itappropriate to direct the respondents 1 and 3 toconsider the letter/representation of thepetitioner in this regard after issuingnecessary notice to the 2[nd] respondent and toconduct an enquiry and to pass appropriateorders on merits and in accordance with law.The said exercise shall be completed within aperiod of four weeks from the date of receipt ofa copy of this order“. 6. The writ petitions are disposed of withthe above directions. No costs. Consequently,connected Mps are closed.” 5. It is submitted that an enquiry was conducted pursuantto which three separate orders dated 16.01.2018 for thefinancial years 2010-11, 2011-12, & 2012-13 were passedby the 4[th] respondent against the 2[nd] respondent wherein theundertaking of the second respondent was also recorded. 6. It is submitted that it is not open for therespondents namely the 3[rd] respondent/Deputy Commissioner ofIncome Tax, to issue demand notice to the petitioner to demandtax vide impugned demand notice dated 03.08.2017, 02.11.2017 &25.01.2018 in respect of these Assessment Years. 7. It is submitted that pursuant to the aforesaid orderof this Court on 13.10.2015, the Income Tax Officer (TDS Ward2), Chennai has also passed consequential orders by holdingthat the 2[nd] respondent was tenant and an assessee in defaultand therefore liable to pay the deducted amounts for theAssessment Years 2010-2011, 2011-2012, 2012-2013 dated16.01.2018. 8.Hence, full tax having been deducted by the 2[nd]respondent, the 2[nd] respondent alone was liable to tax. The 2[nd]respondent did not fully cooperate in the enquiry before 4[th]respondent as is recorded in the above mentioned order. 9.It is further submitted that since for other years TDShas been deposited with the department, the issue isoutstanding only for the financial year 2010-11 where also theliability is partially admitted by the 2[nd] respondent. However,the department in its counter has taken a stand that TDS wasnot deposited with the department hence petitioners would alsobe liable to pay tax. https://hcservices.ecourts.gov.in/hcservices/ 10.It is submitted that this stand is against the objectand purpose of Sec 205 of Income Tax Act, 1961. Further, basedon clause 4(c) of the MOU dated 30.7.2014, signed between thepetitioner and the 2[nd] respondent, the contention of thedepartment that there was no actual deduction is contrary tothe finding of the 4[th] respondent in orders dated 16.01.2018,which was based on an undertaking as adverted to in the orderat Pg No.77 of typed set of papers. 11.It is further submitted, as per section 194-I of theIncome Tax Act, 1961, TDS of rents does not contemplatepayment of rent by cash alone. Hence, adjustment is alsopermitted as actual payment of cash is not the only mode.Therefore, going by the finding of the 4[th] respondent and theundertaking the TDS was in fact deducted. Thus, the 3[rd]respondent should have applied Section 205 and not proceededagainst the petitioners. 11.It is further submitted, as per section 194-I of theIncome Tax Act, 1961, TDS of rents does not contemplatepayment of rent by cash alone. Hence, adjustment is alsopermitted as actual payment of cash is not the only mode.Therefore, going by the finding of the 4[th] respondent and theundertaking the TDS was in fact deducted. Thus, the 3[rd]respondent should have applied Section 205 and not proceededagainst the petitioners. 12.It is submitted that corresponding corrections havenot been carried out in website, which continues to show themismatch. Further, petitioners have also been issued with theimpugned demand notices arbitrarily and unreasonably. 13.It is further contention of the petitioner in thesewrit petitions that the second respondent having Deducted Taxat Source from and out of payments made to the petitioners,the petitioners cannot be saddled with tax liability as it wasthe duty of the Income Tax Department to recover such TaxDeducted at Source (TDS) from the second respondent. 14.Defending the impugned demand proceedings, the learnedstanding counsel for the Income Tax Department submits thatthe second respondent has made certain payments during thependency of the writ petition and therefore the petitioners were liable to pay the balance. 15. Defending the impugned order, the learned seniorstanding counsel for the Income Tax Department submits thatthe tax deduction at source by the 2[nd] respondent for theAssessment Years 2011-2012 & 2012-2013 has been remitted bythe 2[nd] respondent and therefore, the balance period the amounthas to be paid by the petitioners. 16. It is further submitted that there was a disputebetween the respective petitioners who are the owners/land-lords of the property with the 2[nd] respondent/tenant which wasrented out to the 2[nd] respondent/tenant and that Memorandum ofunderstanding was signed between them on 30.07.2014 as perhttps://hcservices.ecourts.gov.in/hcservices/which the respective petitioners have secured their interest by asking the 2[nd] respondent to deposit the amount deductedtowards tax. In case such amount is not paid, the 2[nd]respondent had given cheque to cover the same. 17. It is submitted that no amount was deducted as noamounts were paid and therefore question of invoking Section205 of the Income Tax Act, 1961 did not arise at all. Hefurther submits that under Section 191 of the IT Act, in caseof income in respect of which provision is not made under theprovisions of the IT Act for deducting income-tax at the timeof payment, and in any case where income-tax has not beendeducted in accordance with the provisions of the income-taxshall be payable by the assessee directly. 18.That apart, it is submitted in the counter filed bythe first and the third respondent that under section 194 I ofthe Income Tax Act, 1961 while making payment of rental incomeinto recipients account, such person is required to deduct taxat source at the rates prescribed by the Central Governmentand remit the same to the credit of the Central Government bythe seventh of the succeeding month as per Rule 30 (2) of theIncome Tax Rules. 19. It is further submitted that, it is the duty of theperson deducting tax under section 203 of the Income Tax Act,1961 to furnish certificate for Tax Deducted at Source to theperson to whose account credit has been given and that as persection 200 (3) the person deducting tax has to preparestatement for such period giving the details of the TaxDeducted at Source and remitted in the prescribed form and ifsuch a person fails to remit the same to the credit of theCentral Government, then he would be treated as a defaulterunder section 201 (1) of theIncome Tax Act, 1961. 19. It is further submitted that, it is the duty of theperson deducting tax under section 203 of the Income Tax Act,1961 to furnish certificate for Tax Deducted at Source to theperson to whose account credit has been given and that as persection 200 (3) the person deducting tax has to preparestatement for such period giving the details of the TaxDeducted at Source and remitted in the prescribed form and ifsuch a person fails to remit the same to the credit of theCentral Government, then he would be treated as a defaulterunder section 201 (1) of theIncome Tax Act, 1961. 20. It is submitted that assessments were completed undersection 143 and were modified under section 154 of the IncomeTax Act, 1961 and if the petitioners were so aggrieved by anywrong adjustments made in the Assessment Orders as rectifiedunder section 154 of the Income Tax Act, 1961, it was open forthe petitioners to file an appeal before the Commissioner ofIncome Tax (Appeals). It is therefore submitted that the writpetitions were without any merits and were liable to bedismissed cost. 21.I have considered the arguments advanced by thelearned counsel for the petitioners in the respective writpetitions and the learned counsel for the respondent IncomeTax Department.https://hcservices.ecourts.gov.in/hcservices/ 22.The second respondent was a tenant of the petitionersand few others who belong to the same family. The 2[nd]respondent had committed default in making payments to thepetitioners. Though copy of the lease agreement signed betweenthe parties is not available for perusal, a copy of theMemorandum of Understanding dated 30.7.2014 signed on behalfof the petitioners and other owners with the second respondentcompany has been filed. 23.As per the said Memorandum of Understanding, thesecond respondent was in arrears of lease rental to thepetitioners and that as on the date of the said Memorandum ofUnderstanding on 30.07.2014, the second respondent was inarrears of Rs. 64,96, 650/- to the Land-lords. Against theaforesaid arrears, the petitioners along with other ownersadjusted the interests free deposit of Rs.34,53,640/- leavinga balance of Rs.30,43,010/-to be paid to the petitioners bythe 2[nd] respondent on or before 31.8.2014. Rs. 30,43,010/-which included the rent payable up to the said date. To thateffect, the second respondent is supposed to have given apost-dated cheques drawn on Axis Bank, Anna Salai, Chennai. 24.That apart in Para 4(a) of the said Memorandum ofUnderstanding, it is recorded that the second respondent hadnot remitted Tax Deducted at Source on the payments madeearlier to the petitioners and others for an amount ofRs.33,16,192/- as per annexure II to the said Memorandum ofUnderstanding. 25. Annexure II of the said Memorandum of Understandingdetails, the Tax Deducted at Source by the second respondentfor the Financial years 2010-11 (Assessment year 2011-12),Financial year 2011-12 (Assessment years 2012-13), Financialyear 2012-13 (Assessment year 2013-14), Financial year 2013-14(Assessment year 2014-15) and Financial year 2014-15(Assessment year 2015-16) but not paid to the credit of theIncome Tax Department. 26. That apart in Para 4(c) of the said Memorandum ofUnderstanding also records that during the Financial year2011-15, the second respondent had not paid Tax Deducted atSource to the credit of the Income Tax Department for a sum of Rs.14,21,617/- and that the second respondent undertook topay the same together with interest thereon to the Departmenton or before 31.8.2014 and that Certificate in Form 16-A wouldalso be issued to the petitioners and others who were theowners of the property. 26. That apart in Para 4(c) of the said Memorandum ofUnderstanding also records that during the Financial year2011-15, the second respondent had not paid Tax Deducted atSource to the credit of the Income Tax Department for a sum of Rs.14,21,617/- and that the second respondent undertook topay the same together with interest thereon to the Departmenton or before 31.8.2014 and that Certificate in Form 16-A wouldalso be issued to the petitioners and others who were theowners of the property. 27. To secure the interest of the petitioners, the secondrespondent also enclosed in cheque for the aforesaid amountdrawn on the same bank and if the amount was not paid to thecredit of the Income Tax Department by the the aforesaidcheque also would be presented for being encashen.https://hcservices.ecourts.gov.in/hcservices/ 28.The aforesaid Memorandum of Understanding also refersto another Memorandum of Understanding dated 11.5.2010 whereinit is acknowledged by the second respondent the secondrespondent and failed to remit Tax Deducted at Source for anamount of Rs. 18,94,875/- and that the aforesaid amount hadnot been paid by the second respondent and that the secondrespondent would pay the same to the credit of the Income TaxDepartment by 30.9.2014 and to secure the payment to thecredit of the Income Tax Department, the second respondent hadalso issued a post-dated -cheque for the aforesaid amount infavour of the petitioners which was to be presented, as thesecond respondent failed to make such payments to the creditof the Income Tax Department within such time. 29.There is some confusion in the amount that was to bededucted and actually deducted by the second respondent. InAnnexure II to the Memorandum of Understanding Dated30.7.2014, for the Financial Year 2010-11 [correspondingAssessment Year 2011-12] total tax to be deducted has beenshown as Rs.3,,89, 680/- for each of the petitioners whereasthe tax that was credited to the account of the Income TaxDepartment has been shown as only Rs.55, 457/-. 30. Details of the tax that was remitted the credit ofthe Central Government as per the aforesaid Memorandum ofUnderstanding is as under:- Whereas, the respective demand notices quantify theamounts due from the petitioners as follows:- https://hcservices.ecourts.gov.in/hcservices/ 31.The counters filed by the first and the thirdrespondent also do not give the exact amount of tax that wasallegedly due from the petitioners which ought to have beenpaid by the petitioners as per the assessments completed forthe respective petitioners under section 143 of the Income TaxAct, 1961 as modified by orders passed under section 154 oftheIncome Tax Act, 1961. 32.Further, during the intervening period, orders havebeen passed under section 201(i) and 201(IA) of the Income TaxAct, 1961 against the second respondent by three separateorders dated 16 01.2018 for the assessment years 2011-12,2012-13 and 2013-14 as mentioned above. These have to befactored while demanding arrears of tax to the petitioners. 33.To the extent tax was deducted by the secondrespondent and not remitted by the second respondent to theIncome Tax Department, recovery can be only directed againstthe second respondent as the second respondent is the assesseein default. The petitioner cannot be made to pay tax twice.Recovery of any of such Tax Deducted at Source but notremitted by the second respondent has to be recovered onlyfrom the second respondent. 33.To the extent tax was deducted by the secondrespondent and not remitted by the second respondent to theIncome Tax Department, recovery can be only directed againstthe second respondent as the second respondent is the assesseein default. The petitioner cannot be made to pay tax twice.Recovery of any of such Tax Deducted at Source but notremitted by the second respondent has to be recovered onlyfrom the second respondent. 34.Therefore, I am inclined to quash the respectivedemand notices and direct the third respondent to issue freshdemand notices to the petitioners after taking note of thesubsequent developments and payments made by the 2[nd]respondent. It is made clear that to the extent Tax wasDeducted by the second respondent but not remitted, no demandshall be made against the petitioners. If the secondrespondent had failed to remit the tax to the credit of theIncome Tax Department, it is however open to the department torecover the same from the 2[nd] respondent in the manner known toLaw. Balance of tax if any, which has escaped payment alonecan be recovered from the Petitioners, by issuing suitablenotice under the provisions of the Income Tax Act, 1961. Suchnotice may be issued within a period of four weeks from thedate of receipt of copy of this order. 35. This Writ Petitions stand disposed of with the aboveobservations. No costs. Consequently, connected writpetitions are closed. -s/d- Assistant Registrar(CS-IV) True Copy lbm Sub-Assistant Registrar To 1.The Joint Commissioner of Income Tax (TDS) TDS Cell, Range -I, 121, M.G. Road, Nungambakkam, Chennai – 600 034.2.The Deputy Commissioner of Income Tax, Non-Corp Cir 9(i//c) Chennai, 211, Wanaparthy Block II Floor, 121, M.G. Road, Nungambakkam, Chennai – 600 034. 3. Income Tax Officer, Office of the ITO, TDS Ward-2(2), Ist Floor, Room No.109, BSNL Building, Tower 1, No.16, Greams Road, Chennai – 600 006.W.P.Nos. 31167, 31170, 31172 and 31174 of 2018 andW.M.P.Nos.36375, 36376, 36372, 36373, 36379 and 36380 of 2018AK(CO)EU 4.6.2021