In a significant ruling protecting salaried taxpayers, the Delhi High Court has held that an employee cannot be denied credit of Tax Deducted at Source (TDS) merely because the employer failed to deposit the deducted tax with the Income Tax Department.
The Court quashed a ₹12.28 lakh demand raised against the petitioner and directed the refund of amounts already recovered along with statutory interest, reaffirming that the consequences of a deductor’s default cannot be shifted onto the deductee.
The judgment was delivered on 20 January 2026 in Venkatachalam Thangavelu v. Income Tax Officer, Ward 70(1), Delhi.
Background of the Dispute
The petitioner challenged an intimation dated 07.06.2013 issued under Section 143(1) of the Income Tax Act, 1961, by which a demand of ₹12,28,508 was raised for Assessment Year 2012-13. The demand arose because:
- ₹10,34,982 had been deducted as TDS from the petitioner’s salary by Kingfisher Airlines
- The employer failed to deposit the deducted TDS
- As a result, the credit was denied to the petitioner, inflating his tax demand
The Department had already recovered a substantial portion of the demand by adjusting refunds due to the petitioner.
Petitioner’s Case
The petitioner contended that:
- He could not be penalised for the employer’s statutory default
- Once tax is deducted from salary, the employee’s obligation stands discharged
- Denial of TDS credit violates settled law
Reliance was placed on the Delhi High Court’s earlier judgment dated 01 October 2024 in Satwant Singh Sanghera v. Assistant Commissioner of Income Tax & Anr., which had conclusively settled the issue in favour of employees.
Revenue’s Stand and Jurisdiction Objection
The Revenue did not dispute the legal position or facts but raised a preliminary objection on territorial jurisdiction, arguing that the writ petition ought to have been filed in Bangalore, where the petitioner’s Assessing Officer was later transferred. The petitioner clarified that:
- At the time of filing the return and the writ petition (08.01.2026),
- He was a resident assessee in Delhi, and
- His Assessing Authority was also located in Delhi
The shift of jurisdiction to Bangalore occurred subsequently, after the filing of the petition.
Court’s Findings on Jurisdiction
The Court rejected the preliminary objection, holding that:
- Jurisdiction must be determined as on the date of filing of the writ petition
- A subsequent transfer of the Assessing Officer cannot divest the Court of jurisdiction
- The petitioner could not be non-suited on this technical ground
Ruling on Merits: Employee Not Liable for Employer’s Default
On merits, the Court reiterated that:
- While the Revenue may take action against the defaulting deductor
- The employee cannot be deprived of legitimate TDS credit
- Deduction of tax from salary completes the employee’s tax obligation
The Court followed its earlier ruling in Satwant Singh Sanghera and held that denial of TDS credit in such cases is illegal and unsustainable.
Relief Granted by the Court
Accordingly, the Delhi High Court:
- Quashed the intimation dated 07.06.2013 to the extent it denied TDS credit
- Declared the consequential demand and recovery illegal
- Directed the Revenue to refund the recovered amount with interest under:
- Section 244(1), and
- Section 244(1A) of the Income Tax Act, 1961
- Ordered that the refund be made within three months
The Court clarified that its ruling was confined only to the TDS deducted by Kingfisher Airlines, and any other independent tax demand would remain unaffected.
Key Takeaway
“Once tax is deducted from an employee’s salary, the failure of the employer to deposit such tax cannot result in denial of TDS credit to the employee.”
Significance of the Judgment
The ruling:
- Reinforces taxpayer protection in TDS matters
- Prevents unjust enrichment of the Revenue through recovery from innocent deductees
- Strengthens judicial consistency on employer–employee TDS disputes
Serves as an important precedent for cases involving defunct or defaulting employers
Source: Delhi HC Judgement dated 20/01/2026 in Venkatachalam Thangavelu v. ITO