1. Proposal For Certain Amendments In Rules 28, 28AA AND 28AB To Resolve Practical Difficulties Faced By Persons Granted Certificates For Lower Deduction Under Section 197

Section 197 read with Rules 28, 28AA and 28AB prescribe guidelines and procedure for issue of a certificate for TDS at a lower rate in the case of a person, when the Assessing Officer is satisfied that the total income of such person liable to TDS justifies the deduction of income-tax at any lower rate or no deduction of Income tax.

Certain practical difficulties faced by persons who are granted such Certificates have been brought to the notice of the Committee and redressal of the same can go a long way to facilitate ease of business in such cases.

2. Considering the same, the Committee recommends suitable amendments in the Rules 28AA and 28AB, to obviate the practical difficulties as explained hereunder:

1. Acceptance of application for issue of Certificate for TDS at lower rate, three months prior to commencement of financial year and prescribing a suitable time limit for issue of the same:

(a) A common grievance of a large number of assessees, seeking the benefit of issue of Certificate for TDS at lower rate, is that the Department takes a long time for the issue of such certificate, resulting in hardship to the assessees, as their cash flow of business gets locked up in TDS, until such certificate comes to be issued. Since, as per current practice, the

Department entertains applications for issue of Certificate for lower TDS in the prescribed Form 13, only after the beginning of the concerned financial year, by the time the applicant is issued such Certificate, he has already been inflicted with avoidable TDS.

(b) Having considered this important aspect, the Committee recommends that this practical difficulty can be resolved by the following measures:

(i)        Start accepting applications from all eligible assessees in the prescribed Form 13 electronically alongwith necessary documents, details and evidence as may be prescribedin terms of a guideline, atleast three months prior to the commencement of the financial year. This would also release a lot of pressure on the TDS authorities as experienced currently, in the beginning of the financial year.

(ii)     Prescribe suitable time limit under Rules, as per commitment of the Department under its Citizens’ Charter.

(iii) The existing certificate issued by the department for immediately preceding previous year, shall continue to be valid till the issue of a fresh certificate if the assessee has filed the application for issue of a fresh certificate.

2. Need to treat Certificate for TDS at lower rate as valid, in respect of all units of the tax deductor:

(a)    When a Certificate for TDS at nil/lower rate u/s.197 is presented by a deductee to a deductor, the benefit of the same should be available to the deductee, qua all units of the deductor and not only a specific unit with a specific TAN.

(b)    Punjab & Haryana High Court has held in the case of CIT v/s Parle Biscuits P. Ltd. (2013) (351 ITR 138) that, “Where certificate is issued for deduction of tax at source at lower rate to principal officer of deductor assessee, mere fact that such certificate was issued in respect of one unit, while assessee had separate TANs for separate units, would not invalidate such certificate for another units.”

(c) It has been brought to the notice of the Committee that CPC TDS does not consider this position and if a unit of the same deductor with a separate TAN has granted benefit to the deductee based on the Certificate issued u/s. 197, TDS demand on account of short deduction is raised against the deductor in such cases.

(d) A deductee cannot be expected to obtain separate certificates in the name of the same deductor, qua different TAN units, which may run into a large number. In the interests of ease of doing business, it is desirable that the Certificate u/s.197 issued to a deductee, clearly reflecting the name and PAN of the deductor, should be treated as valid for all units of such deductor, even where TAN are different for such different units.

Some of the members also recommended that the certificate for lower deduction of tax at source being decided on the basis of assessable income (or loss) of the deductee, the department may consider issuing the certificate to the deductee, to be used for all Deductors upto a particular limit specified in the certificate, subject to checks and balances.

Source- ​Draft Report of Justice R.V. Easwar (Retd) Committee to Simplify the provisions of Income-tax Act, 1961

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