With the advent of time, all the processes ranging from our day to day life to corporate models (work from home as observed recently), everything is becoming digital. There were the days when the process of applying Nil/lower withholding certificate (or order) under section 197 of the Income-tax Act, 1961 (‘the Act’) was manual. The Government has used the technology to streamline the process of applying/issuing lower withholding certificate and made this e-application (electronically application need to be filed), vide the notification No. 08/2018-Income Tax issued by the Central board of Direct taxes (‘CBDT’).
It was expected that this change will reduce the time for processing of such applications among other benefits. As any new change comes with new challenges, this online process is not an exception to it. There are certain issues which has still not been resolved by the Income tax department, including but not limited to – no separate certificate for separate contract (one certificate per TAN at a time), mandatory requirement of PAN by authorised signatory of foreign applicant as well, mandatory requirement to mention details of any tax deducted at source/advance tax/self-assessment tax challan even in case of new applicant; single application at a time; allocation of application to non-jurisdictional tax officer (which later required to be transferred manually in order to get processed) and so on.
The aforesaid notification has also casted onus upon Commissioner of Income-tax (‘CIT’) to approve the application in case tax forgone exceeds INR 50 lakhs. Once the decision is taken by the CIT, the application is marked back to the concerned tax officer for issuance/rejection of the certificate.
In earlier days, approval was required from the Add’l CIT (in all the cases), where intent seems reasonable that CBDT want one more set-of-eyes to review the proposal. Where a senior officer of Add’l or Joint rank is reviewing the proposal, additional approval from CIT is not required. Otherwise it will make the approval of Add’ CIT redundant/useless, as the opinion/words of CIT shall prevail in any circumstance. If CBDT wishes to have such approval process, they should reconsider the monetary limits prescribed for approval from CIT, as comparing the proposed tax (rate varies from Nil to 10%) with tax calculated at 40% tax rate will lead to tax forgone of more than INR 50 lakhs in huge number of cases. Considering the bunch of files reaching CIT for approval, this limit later increased to INR 10 crores (a relief to both applicant and CIT). However, other issues discussed above still sustain.
After putting efforts to get the application processed, if application is either rejected by tax officer or certificate is issued at an unfavorable rate without allowing any opportunity of being heard; what is the remedy available with the applicant. To my mind, appeal under section 246A of the Act is not possible since this section does not cover order/certificate passed under section 197 of the Act. In such scenario, either the only left-out remedy available with the applicant is to proceed with filing of application for revision of order under section 264 of the Act; or one might think of moving writ petition before the Jurisdictional High Court. However, in the presence of alternative remedy in form of revision under section 264 of the Act, writ petition may not be maintainable.
The CIT may argue that revision under section 264 is not available in case of rejection of application, in the absence of any order. But, it is difficult to accept that the application is rejected without application of mind by the tax officer, even though there may not be any written order passed. Rejection of application is in itself an order by tax officer made on the note sheet and should be construed as equivalent to certificate issued.
The provisions of section 264 of the Act applies in case of any order, other than order passed by authority subordinate to CIT. Hence, any order passed by the authority sub-ordinate to CIT, prejudicial to assessee whether in form of higher withholding rate or rejection of application, may be subject to revision under section 264 of the Act. The same take support from the ruling of the Bombay High Court in case of Larsen & Toubro Ltd. v. Asst. CIT  (326 ITR 514) (Bombay HC) wherein court affirmed that an order passed under section 197 of the Act is amenable to revision under section 264 of the Act.
However, after the introduction of process defined under aforesaid notification, where jurisdictional CIT himself approve the rate/ reject the application as part of process, filing of application under section 264 of the Act seems futile/empty formality.
It is worthwhile to mention that application filed under section 264 of the Act will be dealt with by the same CIT, who has approved/rejected the application filed originally. Eventually, in this scenario, the process of revision under section 264 of the Act somehow losses its effectiveness and becomes redundant/useless from applicant’s standpoint. Though the judicial authorities may take a view that step on ladder cannot be skipped i.e. if alternative remedy is available under the Act, it has to be taken/followed before opting for writ petition. It will give power to the CIT to change his view/opinion which is otherwise not allowable as per the provisions contained in the Act.
On the other hand, the Applicant may also consider to file writ petition directly before Jurisdictional High Court instead of moving application under section 264 of the Act and Courts may likely to accept the same considering that in such scenario filing 264 application is not an efficacious remedy. The remedy is there to provide relief to the plaintiff and presence of infructuous remedy is as good as ‘no remedy’. Thus, where the tax officer has passed order under section 197 of the Act which has blessings (approvals) from CIT, filing the revision application under section 264 of the Act before same rank/authority, make whole revision process ineffective. Even, Hon’ble Bombay High Court in case of Tata Teleservices had allowed writ in similar scenario, where tax officer passed rejection order under section 197 of the Act with the concurrence of CIT (TDS). The Hon’ble High Court admitted the fact that alternate remedy of revision in such case would be a futile/empty formality and not an efficacious remedy.
Though, this case pertains to financial year 2017-18, when section 197 application was used to be processed manually. Relying on the said ruling various writ petition have been filed by the applicant(s) last year before the Hon’ble High Court of Delhi.
In the appeal preferred, it was argued that certificate/order under section 197 is quasi judicial in nature and must be supported by valid and cogent reasoning. Further, it was mentioned that no appeal was preferable under the Act and revision application could not be filed as the same certificate was issued with prior approval of CIT. The Hon’ble High Court accepted the said petition and passed the order wherein it had quashed the said certificate and held that same is unsustainable and contrary to the law on account of unavailability of valid reasons for adopting a particular rate for withholding.
Thereafter, no certificate has been issued by the tax authorities (in Delhi) without providing the copy of reasons for adopting a particular rate. Acceptance of petition by the High Court is an indicator in itself that writ petition could be filed in such cases where CIT’s role is involved in issuance of certificate under section 197 of the Act. Otherwise(i.e., cases lacking CIT involvement), option available under section 264 should be first availed. Area lacking judicial precedence is now supported by multiple ruling of Delhi High court itself, which may be referred upon in similar cases in future.
Isn’t approval from CIT is making the power of Add’l CIT ineffective, leading to delay in disposal of application. Specially, where the applicants include foreign residents, who file application under section 197 of the Act to get their payment released from Indian customers. Somehow, it is unnecessarily increasing burden of Courts of law and conflicting with the other policies of Government attracting foreign investments like Make in India, single window clearance, etc.
(The author is a practicing Chartered Accountant based in Delhi and can be reached at [email protected])
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