In the case of Satwant Singh Sanghera vs. The Assistant Commissioner of Income Tax [W.P.(C) 13765/2024 & CM APPL. 57690/2024], the Delhi High Court addressed a significant issue concerning the liability of an employee for Tax Deducted at Source (TDS) that was deducted by the employer but not deposited with the government.​

Background

Satwant Singh Sanghera, a former co-pilot with Kingfisher Airlines Ltd., was employed from April 1, 2008, to December 15, 2011. During his tenure, the airline deducted TDS from his salary for the Assessment Years (AYs) 2009-10, 2010-11, and 2011-12. These deductions were reflected in Form 16A issued by the employer. However, the airline failed to deposit the deducted TDS amounts with the Income Tax Department.​

Subsequently, the Income Tax Department issued notices under Section 245 of the Income Tax Act, 1961, adjusting outstanding demands totaling ₹11,07,970 against Sanghera’s future tax refunds.

Court’s Findings

The Delhi High Court, comprising Justices Vibhu Bakru and Swarana Kanta Sharma, held that under Section 205 of the Income Tax Act, if tax has been deducted at source from an assessee’s income, the assessee cannot be held liable for its payment if the deductor fails to deposit it with the government. The court also referenced the Central Board of Direct Taxes (CBDT) instruction dated June 1, 2015, which clarifies that no demand should be enforced on the assessee in such scenarios. ​

The court further noted that the issue was covered by its earlier decision in Sanjay Sudan v. The Assistant Commissioner of Income Tax & Another (2023), where it was held that the tax department cannot recover TDS amounts from the employee if the employer has deducted but not deposited the tax.​

Judgment

In light of these findings, the Delhi High Court set aside the demand notices and adjustments pertaining to AYs 2009-10, 2010-11, and 2011-12. The court directed the Income Tax Department to pass necessary consequential orders and process any refunds due to Sanghera that had been adjusted against these demands. ​

Implications

This judgment reinforces the principle that employees should not be penalized for the non-compliance of their employers regarding TDS deposits. It provides relief to taxpayers facing similar issues where TDS has been deducted but not deposited by the employer.

For those interested in reading the full judgment, click on Indian Kanoon