1. By this reference under Section 256(1) of the I.T. 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 a regular assessment of an employee has been completed and the amount of tax fully paid by him, the Income-tax Officer, Salaries Circle (TDS), has no jurisdiction under Section 201 of the Act to demand further tax from the employer in respect of the tax short deducted relating to such employee ?"
2. The material facts giving rise to this reference briefly are as follows:
In compliance with the provisions of Section 206 of the Act, the Divisional Manager, New India Insurance Co., Ltd., Bhopal, filed for the assessment year 1977-78, the annual return of salary income in respect of its employees showing the amount of tax deductible under Section 192 of the Act. The ITO, Salaries Circle (TDS) examined the said return and found that the tax deductible under Section 192 of the Act was not properly deducted by the assessee in respect of some of its employees. He, therefore, recomputed the income and demanded under Section 201 of the Act, the additional tax that should have been deducted under Section 201(1A) of the Act. Aggrieved by this order, the assessee preferred an appeal. It was urged on bebalf of the assessee that the revision of chargeable income from salary was mainly due to the fact that the ITO (TDS) had disallowed various exemptions and deductions which were being claimed in respect of certain employees, and the ITO was not justified in demanding from the assessee additional tax. The Commissioner (Appeals) accepted this contention urged on behalf of the assessee. He held that for the purpose of Section 192 of the Act, the chargeable income had to be computed by the employer in accordance with his own understanding and judgment. He, therefore, held that if the employer made a bona fide estimate of the income chargeable under the head "Salary" and deducted tax accordingly, he had discharged his obligation under the law. The ITO (TDS) was accordingly directed to review his computation of chargeable income and to re-determine the chargeable income of the employees under Section 192 of the Act. The Commissioner also held that the ITO was not competent to recover the tax deductible at source from the employer after the assessment of the employee had been completed and resultant tax had been paid by him. Aggrieved by the order passed by the Commissioner (Appeals) the Department preferred an appeal before the Tribunal. The Tribunal upheld the order passed by the Commissioner (Appeals) and dismissed the appeal. Hence, at the instance of the Department, the aforesaid question of law has been referred to this court for its opinion.
3. In CIT v. Manager, M. P. State Co-operative Development Bank Ltd. [1982] 137 ITR 230 (MP), we had occasion to consider the question as to whether the Tribunal was right in law in holding that where a regular assessment of an employee had been completed and the amount of tax fully paid by him, the ITO, Salaries Circle (TDS) had no jurisdiction under Section 201 of the Act, to demand further tax from the employee in respect of the tax short deducted relating to such employees. In this connection it was observed as follows (p. 231):
"Section 4 of the I.T. Act is the charging section which provides that income-tax should be charged for every assessment year in respect of the total income of the previous year of every person.
Sub-section (2) of Section 4 provides that income-tax shall be deducted at the source or paid in advance where it is so deductible or payable under any provision of the said Act. The principal liability for payment of income-tax is, therefore, that of the person who receives income. Chapter XVII of the Act provides for deduction of tax at source. Section 192(1) lays down that any person responsible for paying any income chargeable under the head 'Salaries' shall, at the time of payment, deduct income-tax computed on the basis of the rates in force, on theiestimated income of the assessee under this head for that financial year. Section 201(1) of the Act provides that if such person (person responsible for paying salary and deducting tax at source), does not deduct or, after deducting, fails to pay tax, he will be deemed to be an assessee in default in respect of the tax. In the case under reference, it was not the case of the Department that the assessee, i. e., the Manager, M.P. State Co-operative Development Bank Ltd., Bhopal, did not deduct tax at source from the salary paid to his employees. The ITO in charge of TDS, however, was not satisfied with the various deductions which were taken into consideration at the time of computing the tax payable at source. Further, as the statement of case shows, the regular assessment of the employees had been completed and the amount of tax was fully paid by them. The ITO, Salaries Circle (TDS), could not, therefore, demand further tax from the employer in respect of the income of the employees, which was the salary of the employees chargeable to tax, when the same had been fully paid."
4. In view of our aforesaid decision, it must be held that the Tribunal was right in law in holding that where a regular assessment of an employee had been completed and the amount of tax fully paid by him, the ITO, Salary Circle (TDS), had no jurisdiction under Section 201 of the Act to demand further tax from the employer in respect of the tax short deducted relating to such employee.
5. In our opinion, therefore, our answer to the question referred to us is in the affirmative and against the Department. In the circumstances of the case, parties shall bear their own costs.