1. Recent Order from Bombay High Court provides relief to employees of companies who received notices related to Income Tax. The Bombay High Court in an order dated September 10, 2024, has held that the tax department cannot penalise employees such as ‘Byjus’ and ‘TCS’ for employer’s [undergoing resolution under the Insolvency and Bankruptcy Code (IBC)] failure to deposit tax deducted (TDS) from salary.
2. The Court ruled, “When an obligation to deposit the tax, as in the present case, is on the employer and if the employer has defaulted, the liability to pay such tax cannot be put on the employees.
3. The High Court in its ruling cited the provisions of section 205 and a Central Board of Direct Taxes office memorandum of March 11, 2016.
Sec 205: Bar against direct demand on assessee
This provision states that where tax is deductible at the source under sections 192 to 195 the assessee shall not be called upon to pay the tax himself to the extent to which tax has been already deducted from that income.
4. Furthermore, it has been emphasized in CBDT Office memorandum no. F.NO.275/29/2014-IT(B) that the Income Tax Officers shall not enforce demands created on account of mismatch of credit due to non-payment of TDS amount to the credit of the Government by the deductor.
Conclusion: This judgement comes at a crucial time and would be beneficial to many salaried employees, where their erstwhile employers have defaulted in the remittance of payroll withholding tax to the Income Tax Department.
