The Hindu Business Line : Articles of confusion

A company has 50 employees from whose salaries tax has been deducted at source during 2003-04 (up to December 31, 2003) and paid into government account. In March 2004, five employees furnished evidence to the company, which entitle them to tax rebate under Section 88 of the Income-Tax Act, 1961. If the tax rebate is taken into account, the tax deducted at source (TDS) from the salaries of these employees is found to be Rs 10,000 in excess. The TDS to be deducted in March 2004 from the salaries of the other 45 employees works out to Rs 50,000.

The issue for consideration is whether in March, the company can deposit Rs 40,000 on account of TDS after adjusting the excess deduction of Rs 10,000 in the case of the five employees and refund the excess amount paid by these employees from the tax to be collected from others.

The legal provision that has relevance in the context of the issue raised is sub-section (3) of Section 192 of the Act."The person responsible for making the payment referred to in sub-section (1) or sub-section (IA) or sub-section (2) or sub-section (2A) or sub-section (2B), may, at the time of making any deduction, increase or reduce the amount to be deducted under this section for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year." Sub-section (1) of Section 192 stipulates that the amount of tax shall be calculated on the `estimated income of the assessee' under the head `salary' for that financial year. In sub-section (2), the word used is `an assessee'. Similarly, the words used in sub-sections (2A) and (2B) are also `the assessee' and `an assessee'.

The reply to the query posed will depend on the interpretation of the terms `the assessee'/`an assessee' used in sub-sections (1), (1 A), (2), (2A) and (2B) of Section 192.

In Black's Law Dictionary, the word `the' has been explained thus:

"An article, which particularises the subject spoken of, in construing statute definite article `the' particularises the subject, which it precedes, and is word of limitation as opposed to indefinite or generalising force `a' or `an'."

The word `a' has been considered in this dictionary to mean singular, saying that if it is placed before nouns of the singular number, it denotes an individual object or quality individualised, though it has also been said that `a' is not necessarily a singular term. The word `an' has been described as equivalent to `one' or `any', seldom used to denote plurality.

In the sub-sections in question, the word `a' has not been used. Only the words `the' and `an' have been mentioned.

Thus, the emphasis in the sub-sections referred to in sub-section (3) is on individual assessee — not on `group of assessees' — and, consequently, the adjustment referred to in sub-section (3) (supra) would apply assessee-wise and not collectively for `group of assessees' drawing income under the head `salary'.

Thus, in the case under discussion, the company will have to deposit a tax of Rs 50,000 and not Rs 40,000. Consequent to the benefit available under Section 88, the five employees, in whose case excess tax has been worked out, will have to file returns for claiming refund.

However, the company can make a claim for refund in terms of CBDT's Circular No. 285 (F.No.275/77/79 IT (B) of October 21, 1980). This circular prescribes the procedure for regulating refund of amounts paid in excess of tax deducted or deductible.

As per this circular, the excess payment has to be the difference between the actual payment made by the deductor and the tax deducted at source or that which is deductible, whichever is more.

This amount has to be adjusted first against the existing tax liability (of the deductor) under any of the direct tax legislation. After meeting such liability, the balance amount, if any, can be refunded to the assessee (meaning the claimant).

The employees from whose salary excess tax has been deducted can be paid back the extra amount deducted from out of the refund received by the company from the I-T Department.

In sum, by invoking Section 192(3), inter se adjustment of TDS, taking the salaried employees as a group, is not permissible.

(The author is a former chairman of CBDT.)