WITH computerisation gaining pace in the Income Tax Department, and the policy makers’ reliance on machine increasingly growing, the CBDT has finally decided to switch over computer-generated certificates and do away with the manual exercise for issuing withholding tax certificates under Sec 197. In its latest direction to the field formations, the CBDT topbrass has issued Instruction No 04/2010, directing Assessing Officers (AOs) to mandatorily issue Sec 197 Certificates only through the system.
Section 197 of the IT Act, 1961 provides for issue of certificate for no deduction or deduction of tax at lower rate if the Assessing Officer (AO) is satisfied that the issue of such certificate is justified in view of total income of the recipient. Till FY 09-10 the certificates u/s 197 were being issued manually by the concerned AO.
The prevailing system of issuance of certificates u/s 197 suffers from the following deficiencies:
There is no check as to whether such certificate has been issued by the authorized/competent AO having jurisdiction.
There is no information available in the system as regards number of certificates issued at Nil/Lower rate authorized by AO or the quantum of revenue involved.
Such certificates are being presently issued without any systematic reference number which could be amenable to verification. In the TDS returns, since neither reference numbers of certificates are being captured nor is it possible to compare such numbers in the light of manual issue of certificates, it is not possible to ascertain the veracity of claim, of the deductors about no/low deduction having been made on the strength of s 197 certificate actually issued by the department.
The extent of default, for FYs 2007-08 and 2008-09, generated as a result of deductors making ‘mistakes’ in ticking relevant column in TDS returns is to the extent of more than Rs 10,000 crores. This is indicative of the magnitude of revenue involved in issuance of certificates u/s 197, which are being otherwise issued by the field officers without perhaps being aware of the extent of revenue involved.
Certain advantages of issue of certificate u/s 197 through the ITD system would be that:
Entire information about the deductor and deductee, nature of payment (related section), the lower rate authorized, dates of validity of certificate and quantum of payment would be available to the department in the system.
Element of reconciliation on part of deductors and regulation in the case of field officers (so far as issuance of the certificates is concerned) would be introduced.
The information (as above) can be used while processing the TDS returns and matching the data provided by the deductor in TDS return.
The information/statistics would help the CBDT in taking an informed policy decision on the issue in future.
The non-deduction defaults detected by the system while processing the TDS returns would be substantially reduced or almost eliminated, if all certificates u/s 197 are issued compulsorily through the system.
In case due to certain reasons, if it is not possible to generate the certificate through the system on the date of its issue, the AO shall upload the necessary data on the system within 7 days of the date of issue (manually) of the certificate.
