Calcutta High Court: No Amount can be Deducted as TDS from the Decretal Sum

Calcutta High Court: No Amount can be Deducted as TDS from the Decretal Sum

The Calcutta High Court has observed that the settled position in law is that, no amount can be deducted as tax at source from the decretal sum and that the judgment-debtor is not entitled to pay only the balance amount to the decree-holder.

The singe judge Justice Moushumi Bhattacharya has ruled in favor of M/s. Neo Built Corporation (award-holder) in a dispute with the Union of India/Metro Railway (award-debtor). The High Court directed the award-debtor to make the payment of the balance amount of Rs. 38,98,848 to the award-holder.

In the present case an order dated 20 April, 2023 recorded that the petitioner/award-holder had received payment of approximately Rs. 3.5 crores and that the award-debtor had disbursed an amount of Rs. 3.88 crores.

The grievance of the award-holder was that instead of Rs. 3.88 crores which was recorded in the order dated 4 May, 2023, the award-holder received an amount of only Rs. 3.5 crores. The difference of about Rs. 38 lakhs were a result of the award-debtor deducting TDS on the said amount. This was the express stand taken on behalf of the award-debtor.

Learned counsel appearing for the award-debtor/Metro Railway produced a Sanction Memorandum dated 19th April, 2023 which recorded that an amount of Rs. 3,88,98,848/- was released by the respondent in favor of the petitioner.

Counsel also produced a Memo dated 5 March, 2008 of the Railway Board, Ministry of Railways, on the applicability of TDS provisions in respect of certain transactions/ payments made by the Railways. Item 18 of the document related to ‘Arbitration Award’ which provided for a corresponding deduction of 10% under Section 194A of the Income Tax Act, 1961.

Therefore, the issue before the Court was whether the award-debtor Metro Railway could have deducted 10% from the awarded amount of Rs. 3.88 crores as TDS and paid the balance amount of Rs. 3.50 crores to the award-holder/petitioner.

The Court referred to the case of All India Reporter Ltd. vs. Ramchandra D. Datar (1960), wherein the Supreme Court had held that a judgment-debtor cannot satisfy a third party’s claim against the judgment-creditor and pay only the balance to the latter without a specific direction in the decree.

The Court also noted that the Income Tax Act does not permit the debtor to deduct income tax, which may become due and payable to the judgment-creditor.

The Judge also placed reliance on the case of S.S. Miranda Ltd. vs. Shyam Bahadur Singh (1984), where the division bench of the Calcutta High Court had directed the appellant, to take steps for recovery of the amount from the Income Tax Authority.

While applying the principles passed in the above precedents, the Court concluded that the decretal amount should be paid in its entirety to the award-holder as it constituted a ‘judgment-debt’.

The Court observed, “The action of the award-debtor Metro Railway in deducting 10% from the awarded amount of Rs. 3.88 crores as TDS and paying the balance amount of Rs. 3.50 crores to the petitioner/award-holder are hence contrary to the settled position of law. The award-debtor’s reliance on the Notification dated 5th March, 2008 is also contrary to law and the award-debtor cannot seek recourse to the same for depriving the petitioner of the balance amount of approximately Rs. 38 lakhs.”

Accordingly, the High Court directed the award-debtor- Union of India/Metro Railway to make the payment of the balance amount of Rs. 38,98,848 to the award-holder within three weeks from date.