If an Employer has made Fair and Honest estimate of taxable salary and deduced and paid tax thereon, he cannot be treated as an Assessee in Default

In the instant case, the employer had deducted and paid tax on the amount of salary income of its employees by estimate. The ITO has not found that the estimate by the employer was not fair or honest. The Commissioner (Appeals), while dealing with this matter, found that the estimate made by the employer was bona fide. The Tribunal has not reversed that finding. The Tribunal has merely held that the employer did not correctly estimate the salary income in accordance with the provisions of the Act, the Rules and the instructions issued by the Central Govt. from time to time. The Tribunal has thus not found that the estimate of the income of its employees, for the purpose of deducting tax from their salary, made by the employer, was not fair or honest.

The question, then, that arises for consideration is whether, in such a case, the employer could be held to be an assessee in default in terms of Section 201(1) of the Act.

The provisions of Section 201 of the Act are attracted in the case of an employer only when that employer does not deduct or, after deducting, ‘ fails to pay the tax as required by the Act. We have already seen that the Act requires an employer to deduct and pay tax on the estimated income of his employee. A duty is cast on an employer to form an opinion about the tax liability of his employee in respect of the salary income. While forming this opinion, the employer is undoubtedly expected to. act honestly and fairly. But if it is found that 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. Unless that inference can be reasonably raised against an employer, no fault can be found with him. It cannot be held that he has not deducted tax on the estimated income of the employee.

Gwalior Rayon Silk Co. Ltd. vs Commissioner Of Income-Tax (Madhya Pradesh High Court)


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