Income Tax 2025

Appearance

Right of representative assessee to recover tax paid. ​

305(1) ​

Every representative assessee who, as such, pays any sum under this Act, shall be entitled to recover the sum so paid from the person on whose behalf it is paid, or to retain out of any moneys that may be in his possession or may come to him in his representative capacity, an amount equal to the sum so paid.

305(2) ​

Any representative assessee, or any person who apprehends that he may be assessed as a representative assessee, may retain out of any money payable by him to the person on whose behalf he is liable to pay tax (herein referred to as the principal), a sum equal to his estimated liability under this Chapter.

305(3) ​

In the event of any disagreement between such principal and such representative assessee or person with regard to the amount to be so retained as referred to in sub-section (2), such representative assessee or person may secure from the Assessing Officer a certificate stating the amount to be so retained pending final settlement of the liability, and the certificate so obtained shall be his warrant for retaining that amount.

305(4) ​

The amount recoverable from such representative assessee or person shall not exceed the amount specified in such certificate, except to the extent to which such representative assessee or person may at such time have in his hands additional assets of the principal.

Explanation

Section Summary: ​

Section 305 of the Income Tax Act provides a mechanism for a representative assessee (someone who is responsible for paying taxes on behalf of another person, referred to as the principal) to recover the tax they have paid or retain funds to cover their estimated tax liability. This section ensures that the representative assessee is not financially burdened by paying taxes on behalf of the principal and provides a legal framework for resolving disputes over the amount to be retained or recovered.

Key Changes: ​

This section is not a new provision but clarifies the rights and processes for representative assessees under the new income tax law. The key focus is on:

  1. Recovery of Tax Paid: The representative assessee can recover the tax paid from the principal or retain funds from money held in a representative capacity.
  2. Retention of Funds: The representative assessee can retain funds equal to their estimated tax liability from money payable to the principal.
  3. Dispute Resolution: In case of disagreement, the representative assessee can obtain a certificate from the Assessing Officer specifying the amount to be retained.

Practical Implications: ​

  1. For Representative Assessees: This section protects representative assessees (e.g., agents, trustees, guardians) from bearing the financial burden of tax liabilities on behalf of the principal. They can recover or retain funds to cover the tax paid or anticipated.
  2. For Principals: Principals must ensure that their tax liabilities are settled, as their representative assessee has the right to withhold funds or recover taxes paid on their behalf.
  3. For Assessing Officers: They play a role in resolving disputes by issuing certificates specifying the amount to be retained.

Critical Concepts: ​

  1. Representative Assessee: A person who is legally responsible for paying taxes on behalf of another person (the principal). Examples include trustees, guardians, or agents.
  2. Principal: The person on whose behalf the representative assessee is paying taxes.
  3. Certificate from Assessing Officer: A formal document issued by the tax authority that specifies the amount a representative assessee can retain to cover tax liabilities.

Compliance Steps: ​

  1. Recovery of Tax Paid: If a representative assessee pays tax on behalf of the principal, they should:
    • Recover the amount from the principal directly.
    • Retain an equivalent amount from funds held in a representative capacity.
  2. Retention of Funds: If the representative assessee anticipates a tax liability:
    • Estimate the liability and retain an equivalent amount from funds payable to the principal.
  3. Dispute Resolution: In case of disagreement:
    • Approach the Assessing Officer for a certificate specifying the amount to be retained.
    • Use the certificate as legal justification for retaining the specified amount.

Examples: ​

  1. Scenario 1: A trustee (representative assessee) pays ₹1 lakh in taxes on behalf of a beneficiary (principal). The trustee can recover ₹1 lakh from the beneficiary or retain ₹1 lakh from funds held in trust for the beneficiary.
  2. Scenario 2: An agent anticipates a tax liability of ₹50,000 on behalf of the principal. The agent can retain ₹50,000 from payments due to the principal. If the principal disputes the amount, the agent can obtain a certificate from the Assessing Officer specifying the exact amount to be retained.

This section ensures clarity and fairness in the relationship between representative assessees and principals, safeguarding the rights of both parties.