Can refund collected from the Income-tax Department by fabricating TDS certificates be treated as income and subject to tax?

CIT v. K. Thangamani (2009) 309 ITR 0015 (Mds.)

On this issue, the Madras High Court observed that the income-tax authorities are not concerned about the manner or means of acquiring income, and allowing tainted income to escape the tax net would be nothing but a premium or reward to the person for doing illegal trade. The Income-tax Act treats the income earned legally as well as illegal income alike. In the event of taxing the income of only those who acquire the same through legal manner, the tendency of those who acquire income by illegal means would increase.

Therefore, even if the assessee has been prosecuted by the law enforcing authorities for commission of  offence, the income earned by him would be an income liable for assessment. It would not be a defence in  such cases that the State is also becoming a party to the illegal act by sharing the ill-gotten wealth. Illegality  tainted with the earning has no bearing on its taxability.

Therefore, where the assessee has filed bogus TDS certificates and collected refund from the Income-tax

Department, income received by the assessee by getting refund from the Income-tax Department is taxable under the residuary head Income from other sources .


The Contributor is CA. Priya Subramanian