Manpowergroup Services India Pvt. Ltd. Vs CIT (Delhi High Court)
THE ASSESSING OFFICER CANNOT IGNORE THE MANDATE OF RULE 28AA AND PROCEED ON ANY OTHER BASIS AS THE GOVERNMENT IS BOUND TO FOLLOW THE RULES AND STANDARDS THEY THEMSELVES HAD SET ON PAIN OF THEIR ACTION BEING INVALIDATED. CONSEQUENTLY, THE IMPUGNED ORDER IS QUASHED ON THE GROUND THAT THE DECISION MAKING PROCESS IN THE PRESENT CASE IS CONTRARY TO LAW.
However, this Court is in agreement with the submission of learned standing counsel for the respondent that it is the decision making process and not the decision that can be impugned in a writ petition. To appreciate the decision making process, it is necessary to outline the provision under which the TDS rates have to be determined under Section 197 of the Act. Rule 28AA of the Income Tax Rules prescribes the procedure to be followed by the assessing officer in determining the ‘existing and estimated liability’. The relevant portion of Rule 28AA of the Income Tax Rules reads as under:-
Perusal of the aforesaid Rule shows that the considerations prescribed under clause (2) are mandatory and the department is bound to determine the yearly TDS rates on the four parameters prescribed therein.
It is settled law that the Government is bound to follow the rules and standards they themselves had set on pain of their action being invalidated [See: Amarjit Singh Ahluwalia Vs. State of Punjab & Ors.; 1975 (3) SCR 82 and Ramana Dayaram Shetty Vs. International Airport Authority of India & Ors.; (1979) 3 SCC 489]. Consequently, the assessing officer cannot ignore the mandate of Rule 28AA and proceed on any other basis.
However, in the present case, the assessing officer has not followed the aforesaid rule as there is no reference in the impugned reason to any computation carried out under Rule 28AA.
In fact, this Court vide order dated 8th December, 2020 had granted time to the respondent to place on record the computation of TDS rates under Rule 28AA, if any. Despite the said opportunity, neither any computation was filed nor was any reasonable explanation given as to why the computation under Rule 28AA was not carried out. Consequently, this Court is of the opinion that the impugned order is liable to be quashed on the ground that the decision making process in the present case is contrary to law.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
Present writ petition has been filed challenging the order dated 29 the June, 2020 passed by respondent No.2 under Section 197 of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’) refusing to grant a certificate of tax deduction at source at Nil rate to the petitioner company.
BRIEF FACTS
2 Petitioner is a wholly owned subsidiary of Manpower Holdings Inc USA and is engaged in the business of providing manpower related services. In the petition, it has been averred that the petitioner has been operating on very low profit margin and as per the latest available audited accounts for financial year (FY) 2018-19, the net margin of petitioner is @ 0.26%. It is further averred that in the case of petitioner, the ratio of tax deduction at source (hereinafter referred to as ‘TDS’) to profits has been as high as 1758% in the recent past and the petitioner company has refunds due and payable totalling to Rs. 128 crores, which have arisen essentially on account of high rate of TDS.
3. It is stated that for the financial year 2020-2021, the petitioner vide application dated 28th February, 2020 under Section 197 of the Act, gave a detailed representation to the respondent no.2 for issuance of low tax deduction certificate [hereinafter referred to as ‘LTDC’ ] at ‘Nil’ rate. The said application was decided vide order dated 29th June, 2020 (impugned order) wherein the petitioner’s request for ‘Nil’ rate certificate was rejected. The petitioner challenged the said order before this Court by way of WP(C) 4511/2020 which was disposed of vide order dated 24th July, 2020 with a direction to the respondent to furnish reasons for the impugned order. In pursuance to the order dated 24th July, 2020 passed by this Court, the respondent vide letter dated 31st July, 2020 (impugned reasons) supplied the detailed reasons to the petitioner as to why it had fixed the rate of 0.50% under Section 194C and 1.50% under Sections 194J and 194I of the Act. Being aggrieved by the impugned order and reasons, the petitioner is before this Court.
ARGUMENTS ON BEHALF OF THE PETITIONER
4. Mr. Piyush Kaushik, learned counsel for the petitioner contended that the impugned order was contrary to the rule of consistency as the 1.50% rate with respect to payment under Sections 194J and 194I of the Act specified in the impugned order was three times higher than the 0.50% rate of tax deduction at source determined in the immediately preceding year by the respondent.
5. He stated that though the respondent itself admitted in the impugned order/reasons that the estimated tax liability of petitioner for financial year 2020-21 was Nil; that the average tax rate to turnover was 0.12% for the last 3 years; that the existing TAN demand was Nil (as on the date of filing of application under Section 197) and the PAN demand was Rs.1,49,530 as against the huge outstanding refund of Rs.138 crores (as on the date of filing of application under Section 197), yet the respondent stipulated TDS rate of 1.50% under Sections 194J and 194I and TDS rate of 0.50% under Section 194C on an arbitrary basis which was not based on any working. He emphasised that it was an admitted position that vide the impugned order/reasons, the conditions of mandatory Rule 28AA were satisfied, yet the respondent had arbitrarily prescribed the aforesaid TDS rates.
ARGUMENTS ON BEHALF OF THE RESPONDENT
6. Per contra, Ms. Lakshmi Gurung, learned senior standing counsel for respondent submitted that the present writ petition was not maintainable as the petitioner had not exhausted the alternate efficacious remedy of revision available under Section 264 of the Act. She emphasized that the petitioner had availed this remedy in the immediately preceding year. She relied upon the judgment of this Court in the case of Sis Live vs. Income Tax Officer, (2011) 333 ITR 13 (Del.) wherein the Court declined to entertain a similar writ petition and directed the petitioner to file a revision petition. The relevant portion of the same is reproduced hereinbelow:-
“6. Mr. Sanjeev Sabharwal, learned counsel appearing for the Revenue, submitted that the petitioner can challenge the said order in a revision under section 264(2) of the Act.
7. In view of the aforesaid, we are not inclined to entertain the writ petition at present. However, we state that if the petitioner would file a revision within a period of two weeks challenging the order passed by the Assessing Officer on all grounds including that the said authority could not have taken recourse qua the Act, the revisional authority, namely, the Commissioner, Income-tax, shall decide the revision adverting to all the issues within a period of three weeks positively….”
7. She further submitted that the scope of judicial review of an order passed under Section 197 of the Act is limited as it is directed not against the rate prescribed in the certificate, but against the decision making process. She submitted that it is settled law that till there is a patent illegality and/or error apparent on the face of the decision or non-application of mind by the Officer, this Court would not interfere with the decision arrived at by such officer. In support of her submission, she relied upon the judgment dated 20th December, 2019 passed by this Court in National Petroleum Construction Company vs. Deputy Commissioner of Income Tax, Circle-2(2)(2).
8. Learned senior standing counsel for the respondent contended that the petitioner had misrepresented facts before this Court. She pointed out that in the application made by the Petitioner for LTDC under Section 197, it had stated that the nature of payments, for which deductions under Section 194J were claimed, was professional services – for which the statutory rate for TDS was 10%; however in the present writ petition, petitioner had changed its stand and was claiming that the payments due to it were for technical services for which a rate of 2% was applicable under the statute.
9. She emphasised that the petitioner had been provided relief by the Income Tax Department by extension of certificate for financial year 201920 upto June 2020 at the same rate as financial year 2019-20. She stated that in financial year 2019-2020 on an application filed under Section 197, the petitioner had been issued LTDC at the rate of 1% under Sections 194C and 194I(a), 4% under Section 194J and 2% under Section 194I(b).
10. She pointed out that against the said LTDC, the petitioner had filed a revision petition under Section 264 of the Act, wherein the rates were revised to 0.50% under Sections 194C, 194I(a), 194I(b) and 194J w.e.f. 07th
11. November, 2019. She submitted that the tax liability depended on the estimated profits, which in turn, depended on the turnover. She stated that in financial year 2020-21, the petitioner had itself projected a rise of more than 77.85% in the turnover. She also relied upon the impugned reasons provided vide letter dated July, 2020 to contend that there had been a drastic decrease in the profit before tax as a percentage of Gross Revenue. She stated that while in the financial year 2016-17 profit before tax was 1.66%, in the financial year 2017-2018 it was 1.51%; while in 2019-2020 it was 0.25% and the projected ratio for financial year 2020-2021 was 0.19%.
12. Since Ms. Lakshmi Gurung had relied upon para 4 of the impugned reasons framed by respondent as provided vide letter dated 31st the same is reproduced hereinbelow:-
“4. The applicant had been issued Lower Deduction certificate of 1% u/s l94C, 1% 194I(a), 4% u/s l94J, and 2% for 194I(b) for FY 2019-20 which was revised to 0.50% u/s I94C, 1941(a), 194J, 194I(b) with effect from 07.11.2019 by an order u/s 264 of the Income Tax Act, 19.61 .
