Whether merely because assessee has got separate TAN for Head Office and field office, certificate for lower TDS deduction issued u/s 197(2) would become redundant - NO: HC

THE issues before the Bench are - Whether merely because the assessee has got separate TAN for its Head Office and a field office, the certificate for lower TDS deduction issued u/s 197(2) would become redundant and Whether when such certificate is addressed to the principal officer of the assessee at its HO, other officers of the assessee company located at other places can also grant lower TDS benefits to contractors covered u/s 194C. And the verdict goes against the Revenue.

Facts of the case

Assessee had given contract for executing the works to various persons, making it liable to deduct tax on the rate prescribed under Section 194C of the Act. Eight of the contractors furnished certificates as contemplated under Section 197 (2) of the Act addressed to Parle Biscuits Pvt. Ltd., Mumbai for deduction of tax on lower rate than the specified in Section 194C

of the Act. The assessee made a deduction of tax at the rates so specified in such communications acting on certificates issued by the Assessing Officer of the contractors. The Assessing Officer found that there was short deduction of tax as the Parle Biscuits Pvt. Ltd., Mumbai had a separate Tax Deduction Account Number (TAN) than the Parle Biscuits Pvt. Ltd., Bahadurgarh, which implied that the assessee and Parle Biscuits Pvt. Ltd., Mumbai were separate entities for the purpose of deduction of tax at source. Consequently, the AO passed an order of raising demand against the assessee for the violations of Section 194C of the Act.

The CIT(A) returned a finding that since the geniuneness of the issue of certificates under Section 197 of the Act had not been doubted by the Assessing Officer, therefore, there was no justification to hold that the assessee was in default merely on the ground that the said certificate was not issued in the name of Bahadurgarh unit. The said order was affirmed by the Tribunal.

On appeal, the counsel for the appellant vehemently argued that it was the responsibility of the assessee to deduct tax at source in relation to the work executed, but since the tax was not deducted in terms of Section 194C of the Act, therefore, the order passed by the Assessing Officer had been wrongly set aside by the Commissioner of Income Tax (Appeals), Rohtak and upheld by the Tribunal.

Having heard the parties, the Bench held that,

++ we find that the argument raised is not tenable. In terms of Section 194C of the Act, any person responsible for paying any sum for carrying out any work, is liable to deduct tax at the time of credit of such sum to the account of the contractor. Section 197 of the Act contemplates issuance of certificate to the person responsible for paying the income for deduction of tax at the rate lower than the prescribed under Section 194C. Section 204(iii) of the Act defines the expression “person responsible for paying” appearing in Section 194C of the Act. The procedure for obtaining certificate for deduction at lower rates or lower deduction of tax is prescribed in Rule 28AA of the Income Tax Rules, 1962. Sub clause 4 of the said Rule contemplates that the said certificate issued in terms of Section 197(1) of the Act is valid only with regard to person responsible for deducting the tax and specified therein. Sub clause (5) of Rule 28AA contemplates that the certificate shall be directed to the person responsible for deducting the tax under advice to the person who made an application for issue of such certificate;

++ in terms of the said provisions, the Assessing Officer of the contractors have furnished certificate under Section 197 of the Act to the Principal Officer of the Parle Biscuits Pvt Ltd, Mumbai. Such certificate is in terms of clause (iii) of Section 204 of the Act. Such certificate mandates the persons to whom such certificate is issued to deduct tax at a rate lower than the prescribed rate under Section 194C of the Act. Merely because the assessee has got separate TAN for Bahadurgarh unit and for Mumbai unit, will not render the certificate issued under Section 197(2) as redundant. Such certificate is to be issued to the Principal Officer of the Company as the person responsible for deduction of tax and not to any other person or unit of the assessee. Therefore, the order passed by the Commissioner of Income Tax (Appeals) Rohtak and affirmed by the Tribunal cannot be said to be suffering from any illegality in any manner.

++ we do not find any merit in the present appeal.