Case Law Details
Infrastructure Development Authority vs ACIT (Patna High Courts)
In the case of Infrastructure Development Authority vs ACIT, the Patna High Court addressed the rejection of applications filed under Section 197 of the Income Tax Act by the Assessing Officer (AO), which sought a nil TDS deduction on interest income from banks. The AO’s decision, based on an outstanding tax demand for the assessment year 2018-19, led to the rejection of the application on the grounds that the pending demand precluded the granting of a lower or nil rate of TDS. However, the petitioner argued that the demand had been stayed by the Principal Commissioner of Income Tax pending the outcome of the First Appeal. The High Court emphasized that the AO’s authority under Section 197 is limited to assessing whether the total income of the recipient justifies a lower or nil tax rate. The Court determined that the existence of a pending tax demand should not automatically lead to the summary rejection of the application. Consequently, the High Court set aside the orders of the AO, ruling that they had relied on extraneous factors, and restored the application for reconsideration in line with the law. The writ petition was ultimately disposed of, ensuring the applicant’s rights to a proper evaluation of their request for a lower TDS deduction.
FULL TEXT OF THE JUDGMENT/ORDER OF PATNA HIGH COURT
1. The writ petition is filed against Annexures-P/1 and P/2 orders, which resulted in rejection of applications filed under Section 197 of the Income Tax Act, 1961. The orders are dated 14.05.2023 and 30.01.2024 respectively and relate to the same issue.
2. The petitioner had sought for deduction of TDS in the interest income earned from banks at NIL, since the petitioner’s contention was that the total income justifies such benefit under Section 197. The orders impugned only found that there was a tax demand with respect to the Assessment Year 2018-19, which is pending and hence the deduction at the lower rate/NIL rate is not possible.
3. Learned Senior Counsel appearing for the petitioner would contend that the tax demand for the year 2018-19 has been stayed by the Principal Commissioner of Income Tax till the First Appeal is disposed of.
4. De hors the stay ordered; pending First Appeal, we see that the provision under Section 197 only clothes the Assessing Officer with the power to satisfy himself that the total income of the recipient justifies the deduction of Income Tax at any lower rates or at a NIL rate. Hence, a demand pending against the assessee would not clothe the Assessing Officer with the power to summarily reject an application under Section 197. The satisfaction to be recorded under Section 197 is clearly with respect to the total income of the recipient for the subject assessment year, where the deduction is claimed at a NIL rate for the interest income earned from the fixed deposits in banks.
5. We set aside Annexures P/1 and P/2 orders for having decided the issue on extraneous considerations. The application will stand restored before the Assessing Officer and the same will be considered in accordance with law, as interpreted by us hereinabove.
6. The writ petition stands disposed of.
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