Commissioner of Income Tax vs M.P. Agro Morarji Fertilizers Ltd.

G.G. Sohani, Actg. C.J.

By this reference u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), the Income Tax Appellate Tribunal, Indore Bench, has referred the following question of law to this court for its opinion ;

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that where regular assessment of an employee has been completed and the amount of tax fully paid by him, the Income Tax Officer, Salary Circle (TDS), has no jurisdiction u/s 201 of the Income Tax Act, 1961, to demand further tax from the employer in respect of the tax short-deducted relating to such employee ?"

The material facts giving rise to this reference, briefly, are as follows :

In compliance with the provisions of Section 206 of the Act, the assessee filed the annual return of salary income in respect of its employees showing the amount of tax deductible u/s 192 of the Act. The Income Tax Officer (TDS), Bhopal, after examining the return, found that the tax deductible u/s 192 was not properly deducted by the assessee in respect of some of its employees. The Income Tax Officer, therefore, recomputed the income and demanded u/s 201 of the Act, the additional tax that should have been deducted at source. Aggrieved by the order passed by the Income Tax Officer, the assessee preferred an appeal. That appeal was allowed by the Commissioner of Income Tax (Appeals), The Revenue, therefore, preferred an appeal before the Tribunal, but that appeal was dismissed. Aggrieved by the order passed by the Tribunal, the Revenue sought reference and it is at the instance of the Revenue that the aforesaid question of law has been referred to this court for its opinion.

Having heard learned counsel for the Revenue, we have come to the conclusion that the reference must be answered in the affirmative and against the Revenue. In Gwalior Rayon Silk Co. Ltd. Vs. Commissioner of Income Tax, , a Division Bench of this court has held that the provisions of Section 201 of the Act are attracted in the case of an employer only when that employer does not deduct tax at source or after deducting fails to pay the tax as required by the Act. It has further been held in that case that if the estimate made by the employer is incorrect, this fact alone, without anything more, would not inevitably lead to the inference that the employer has not acted honestly and fairly. In Commissioner of Income Tax Vs. Divisional Manager, New India Assurance Co. Ltd., , this court has also held that where the regular assessment of an employee had been completed and the amount of tax was fully paid by him, the Income Tax Officer (TDS) had no jurisdiction u/s 201 of the Act to demand further tax from the employer in respect of the tax short-deducted relating to such employee. We see no reason to differ from the views taken by this court in the aforesaid decisions. Following those decisions, it must, therefore, be held that the Tribunal was right in law in holding that where the regular assessment of an employee had been completed and the amount of tax fully paid by him, the Income Tax Officer, Salary Circle (TDS), had no jurisdiction u/s 201 of the Act to demand further tax from the employer in respect of the tax short-deducted relating to such employee.

Our answer to the question referred to this court is, therefore, in the affirmative and against the Revenue. In the circumstances of the case, parties shall bear their own costs of this reference.