TDS Deductor cannot be held liable as ‘assessee in default’ if department has not proved that tax could not be recovered from the recipient of income.

TDS Deductor cannot be held liable as ‘assessee in default’ if department has not proved that tax could not be recovered from the recipient of income.

Assesse, a public sector bank could not deduct tax on interest on deposit made thus held assessee in default u/s 201/210(IA), however ITAT Agra held that Assessee cannot be held liable unless department has discharged that tax could not be recovered from recipient of income or recipient has also failed to pay tax directly.

A short deduction of tax at source, by itself does not result in a legally sustainable demand u/s 201(1) and u/s 201(1A) because S. 201(1) seeks to make good any loss to revenue on account of lapse by the assessee tax deductor. However, the question of making good the loss of revenue arises only when there is indeed a loss of revenue and the loss of revenue can be there only when recipient had a liability to pay the tax and he has not paid tax

Thus onus is on the revenue to demonstrate that the taxes have not been recovered from the person who had the primarily liability to pay tax, and it is only when the primary liability is not discharged that vicarious recovery liability can be invoked. 

Once all the details of the persons to whom payments have been made are on record, it is for the Assessing Officer, who has all the powers to requisition the information from such payers and from the income tax authorities, to ascertain whether or not taxes have been paid by the persons in receipt of the amounts from which taxes have not been withheld.

 Case-

Allahabad Bank vs. ITO (ITAT Agra)