Section 203 of the Income-tax Act 1961 (“the Act”) read with the Rule 31 of the Income-tax Rules 1962 (“the IT Rules”) requires the deductor to issue certificate of tax deduction at source (TDS) to the deductee. The relevant form for such TDS certificate is Form No.16 in case of deduction under section 192 and Form No.16A for deduction under any other provisions of Chapter XVII-B of the Act. TDS certificate in Form No.16 is to be issued annually whereas TDS certificate in Form No.16A is to be issued quarterly.
While the department had allowed authentication of Form 16 by using digital signature vide circular no 2/2007 dated 21/05/2007, no such specific instructions existed for issuance of Form 16A. The Income tax department has now realized its folly and has issued instruction for digital authorization of Form 16A vide circular no 3 of 2011 dated 13th May 2011.
In the above context, attention is invited to section 2 (22AA) of Income Tax Act which defines documents as “an electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000)”.
According to Section 2(t) of Information Technology Act, “electronic record” means data, record or data generated, image or sound stored, received or sent in an electronic form or micro film or computer generated micro fiche; . Attention is also invited to section 5 of the Information Technology Act on legal recognition of digital signatures, which is quoted as under “Where any law provides that information or any other matter shall be authenticated by affixing the signature or any document shall be signed or bear the signature of any person then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied, if such information or matter is authenticated by means of digital signature affixed in such manner as may be prescribed by the Central Government”.
Thus, basis the above specific provisions contained in the IT Act it can be safely presumed that the deductors could have issued Form 16 A digitally signed even before these specific instructions were issued by CBDT.
However, despite the above CBDT chose to issue a specific circular (3 of 2011 dated 13th May 2011) which has bought relief to thousands of deductors (who were not aware of the provisions of the Information Technology Act) especially to those who had to issue certificates to a large number of deductees. Though, this is a step in the right direction it is not without its share of problems, as is always the case with any circular issued by the department. The circular lays down the steps to be followed mandatorily by companies including banking companies for issuing Form 16 A by downloading the file from TIN central system having unique TDS certificate number. The file downloaded from the TIN central system however does not contain any certificate in case of TDS deducted at the higher rate of 20% in case of those persons who do not posses any PAN number (sec 206AA). Thus, in case of foreign assessee TDS certificates cannot be issued by the deductor (as per para 6 of the circular) and neither can the foreign assessee can claim the credit of tax deducted in his country without possessing a valid TDS certificate issued by the deductor (Indian company).
Similar problem exists even for domestic assessee who cannot be issued TDS certificates despite a higher TDS deduction being made from their payments and also a manual certificate cannot be issued as the same will not be a valid certificate as per para 6 of the said circular.
Now, will this non issuance of TDS certificates will not amount to default on part of the deductor in complying with the provision of section 203 read with Rule 31 which requires the deductor to mandatorily issue TDS certificates for all deductions within the specified time. Will the department initiate action for non compliance?
It is high time that the department comes out either with a clarificatory circular to resolve the above issue or with amendment to the process of issuance of TDS certificates by way of suitable changes in the TIN system.
Author - Vikash Khannah
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