THE issues before the HC are - Whether the issue of certificate for no TDS or lower rate u/s 197(1) is mandatory or discretionary when the assessee fulfills the conditions laid down under the rule; Whether AO is under obligation to furnish reasons if he rejects such applications and Whether when an order is challenged and found patently illegal, the petition would lie to the High Court. And the verdict goes against the Revenue.
Facts of the case
Petitioner is a Private Limited Company and a subsidiary of Serco BPO Holdings Private Limited. It was engaged in providing business support services to domestic customers through its BPO units in India. As per the market scenario, it
was observed that provision of business support services to customers in the domestic Indian market involved aggressive price competition with relatively low margins due to existence of multiple players in the market, which resulted in significant losses to the petitioner whereby assessee had estimated that the taxable income for the upcoming assessment years shall be NIL.
Delayed issuance of tax deduction certificates u/s 197 had adversely impacted the cash flow position of the petitioner, thereby causing significant financial hardship to the petitioner. Accordingly, the petitioner filed an application u/s 197 for issuance of a Nil Tax Deduction Certificate in respect of revenues receivable from its customers. A show cause notice was issued to the petitioner and it had duly filed its reply to the notice. The application u/s 197 filed by the petitioner was rejected on the ground of pendency of proceedings under sections 276B and 271C. Thus assessee filed writ petition.
Before the HC, the Revenue's counsel contended that the penalty proceedings u/s 271C and prosecution proceedings u/s 276B were pending against the petitioner for not complying with the provisions of TDS. It was also mentioned that even though the petitioner had incurred losses in the past, yet the estimated tax liability did not justify the issuance of certificate u/s 197 read with Rule 28AA and the petitioner had not availed the statutory remedy of revision u/s 264. Thus the application of writ need not be entertained. On the other hand, the petitioner's counsel submitted that u/s 197 read with Rule 28AA, the revenue department can decline issuance of Tax Deduction Certificate in case the AO was not satisfied that the recipient had justified the deduction of income tax at any lower rates or NIL rates. It was further submitted that on the basis of HC decision in Larsen and Toubro Limited and another v. ACIT (TDS) and others, any other consideration was legally not permissible and the respondent had tried to justify the rejection of application for issuance of Tax Deduction Certificate u/s 197 which was legally not justified.
Having heard the rival contentions, the High Court held that,
++ as per the provision of section 197, it is clear that where, the tax is deductible at source in terms of Sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194I, 194J, 194K, 194LA and 195 and the recipient justifies the deduction of tax at any lower rate or no deduction of tax is to be made to the satisfaction of the AO, the AO shall issue the requisite certificate. The effect of issuance of such certificate would be that the person responsible for paying the income shall or shall not deduct tax in terms of the certificate so issued. Under Sub-section (2A), Board has the powers to make rules for prescribing procedure in relation to the issue of certificates by the AO for no deduction of tax at source or deduction at a lower rate. It empowers the Board to make rules specifying (i) the cases in which and the circumstances under which, an application may be made for the grant of a certificate under sub-section (1); and (ii) the conditions subject to which such certificate may be granted and providing for all other matters connected therewith;
++ the issue of certificate under Sub-section (1) of Section 197 is mandatory on fulfilment of conditions enumerated under the rules. For determining the existing and estimated liability of the assessee where tax deduction is from income other than dividends, the AO is to be guided by Sub-rule (2) of Rule 28AA. The AO cannot be held justified to plead that though the assessee fulfills the requisite conditions stipulated under Rule 28AA or the concerned rule, but shall not grant the certificate in exercise of his discretion. The power vested in the AO is to be exercised in a judicious manner. He is required to furnish reasons while deciding the application filed by the assessee. None of the grounds raised by the petitioner's counsel validly form part of reasons for rejecting an application filed by an assessee u/s 197(1) read with Rule 28AA. The order rejecting the application of the petitioner is patently illegal being contrary to law and the AO had failed to exercise jurisdiction vested in him under the Act;
++ the objection raised by the Revenue with regard to alternative remedy of revision available under Section 264 of the Act as held by the High Court in Larsen and Toubro Limited 's case cannot act as a complete bar to the exercise of writ jurisdiction of this Court. The Apex Court in Ram and Shyam Company v. State of Haryana and others, pointed out that ordinarily it is true that the Court has imposed a restraint in its own wisdom on its exercise of jurisdiction under Article 226 where the party invoking the jurisdiction has an effective, adequate alternative remedy. More often, it has been expressly stated that the rule which requires the exhaustion of alternative remedies is a rule of convenience and discretion rather than rule of law. At any rate it does not oust the jurisdiction of the Court. It was further observed that where the order challenged is patently illegal or invalid as being contrary to law, the petition would lie to the High Court;
++ thus, the order for declining issuance of certificate in terms of section 197 read with Rule 28AA cannot be legally sustained. While allowing the writ petition, a direction is thus, issued to the AO to re-decide the application within a period of two weeks from the date of receipt of certified copy by passing a fresh order in accordance with law.
No comments:
Post a Comment