Case Law Details
Tata Teleservices (Maharashtra) Ltd. Vs DCIT (Bombay High Court)
Before issuance of certificates under section 197 of the Act, the same must be preceded by an order. That order must disclose reasons and is an order passed in exercise of quasi-judicial powers. Such an order can be assailed in revision under section 264 of the Act. Therefore, an order under section 197 of the Act must not only contain reasons but the same has also to be provided to the assessee who seeks a certificate under section 197. Otherwise, how will such an assessee assail the order in revision under section 264?
In the course of hearing, learned standing counsel submitted that respondent No.1 might have recorded reasons for issuance of certificates not at nil rate but learned counsel for the petitioner submits that petitioner has not been served with copy of any such order. The same has also not been annexed to the reply affidavit filed on behalf of the respondents.
As has already been discussed above, since the respondents are required to pass an order under section 197 of the Act either rejecting the application for such certificate or allowing such application resulting in issuance of certificates which may be at rates higher than nil rate sought for by the assessee, such an order must be supported by reasons. Not only that, copy of such an order has to be furnished to the concerned assessee who may challenge the same under section 264 of the Act if he feels aggrieved. Not passing an order to that effect or keeping such an order in file without communication will vitiate the certificates.
In the instant case, we do not know the reasons for not granting nil rate certificates to the petitioner under section 197 of the Act. The contemporaneous order required to be passed under section 197 of the Act is also not available.
Having regard to the law laid down by this Court in Larsen & Toubro (supra) as well as in Tata Teleservices (Maharashtra) Limited (supra), we have no other alternative but to set aside and quash the impugned certificates dated 07.08.2020. Matter is remanded back to respondent No.1 for passing fresh order and issuing consequential certificates under section 197 of the Act by complying with the requirements of Rule 28AA of the Rules and after giving due opportunity of hearing to the petitioner. The entire exercise shall be completed within a period of four weeks from the date of receipt of a copy of the present order which shall be communicated to the petitioner.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
Heard Mr. Nishant Thakkar, learned counsel for the petitioner and Mr. Suresh Kumar, learned standing counsel Revenue for the respondents.
2. By filing this petition under Article 226 of the Constitution of India, petitioner seeks quashing of impugned certificates dated 07.08.2020 issued by the respondents and further seeks a direction to the respondents to issue nil rate certificates to the petitioner under section 197 of the Income Tax Act, 1961.
3. Petitioner is a company incorporated under the Companies Act, 1956. It is an assessee under the Income Tax Act, 1961 (briefly ‘the Act’ hereinafter). According to the petitioner, though it has been filing its returns of income regularly, it has accumulated tax losses amounting to Rs.7953 crores (approximately) as on 31.03.2019, the details of which have been furnished in paragraph 5 of the writ petition. Estimated loss for the assessment year 2020-21 is Rs.10,94,03,45,957.00.
4. For the assessment year 2018-19, petitioner was issued nil withholding rates certificates under section 197 of the Act on 04.05.2017. However, by an order dated 23.10.2017, those certificates were cancelled. Aggrieved by such cancellation petitioner had approached this Court by filing Writ Petition No.2701 of 2017 which was allowed vide order dated 25.01.2018 whereby cancellation order dated 23.10.2017 was quashed. Thereafter fresh certificates at nil rate were issued to the petitioner for the assessment year 2018-19.
5. For the assessment years 2019-20 and 2020-21, petitioner had submitted applications for tax withholding certificates at nil rate; however, certificates under section 197 of the Act were issued at rates higher than nil rate. Petitioner has stated that it did not contest such certificates due to its pending scheme of demerger. It is stated that petitioner is focused on providing various wireline voice, data and managed telecom service and therefore had opted for demerger of the consumer mobile business. Scheme of demerger was sanctioned by the National Company Law Tribunal, Mumbai on 04.12.2018 and by the National Company Law Tribunal, New Delhi on 30.01.2019. It became effective on and from 01.07.2019. Under the scheme of demerger, the consumer mobile business of the petitioner stood transferred to Bharti Airtel Limited.
6. However, issuance of certificates under section 197 of the Act at higher rates has only aggravated the financial condition of the petitioner.
7. Petitioner filed application on 17.04.2020 seeking issuance of nil rate tax withholding certificates under section 197 of the Act on various grounds for the assessment year 2021-22. In this connection, respondent No.1 wrote to the petitioner via email on 05.05.2020 seeking certain details which were provided by the petitioner on 12.05.2020. This was followed by email dated 26.06.2020 of the petitioner requesting expeditious disposal of its application. Despite petitioner pursuing the matter, respondents failed to process the application of the petitioner. Reminder was issued by the petitioner on 30.07.2020.
8. Finally on 07.08.2020, respondent No.1 processed the application of the petitioner filed under section 197 and issued the impugned certificates. However, contrary to the request of the petitioner for nil rate certificates, respondent No.1 issued the impugned certificates at rates higher than nil rate. Petitioner has furnished the details of the higher rates in paragraph 16 of the writ petition.
9. Though petitioner sought for the order sheet / noting on the basis of which the impugned certificates were issued vide letter dated 21.09.2020 before respondent No.1, there has been no response to the same.
10. Aggrieved, present writ petition has been filed seeking the reliefs as indicated above.
11. Ranveer Singh Tanwer, Deputy Commissioner of Income Tax (OSD) (TDS)-2(3), Mumbai has filed an affidavit on behalf of the respondents. It is stated that petitioner had made an application on 17.04.2020 along with Form No.13 requesting for certificates under section 197 for the financial year 2020-21 at nil rate. After considering the application, lower rate certificates dated 07.08.2020 were issued to the petitioner. It is contended that the certificates were issued following the due procedure and considering all facts and circumstances. It is contended that for the assessment years 2019-20 and 2020-21, lower tax certificates were issued to the petitioner at similar rates but the petitioner did not object to the said rates. It is further contended that petitioner has alternative remedy of filing revision petition. Therefore, writ petition may not be entertained.
12. Thakkar, learned counsel for the petitioner submits that no reasons have been furnished by the respondents as to why instead of nil tax withholding certificates under section 197 of the Act, certificates at higher rates have been issued to the petitioner. In the absence of reasons, such an exercise would be wholly arbitrary. That apart, no order has been passed with regard to issuance of certificates under section 197 of the Act; at least no such copy was furnished to the petitioner. Further contention of learned counsel for the petitioner is that respondents have not complied with the mandate of section 197 of the Act read with Rule 28 AA of the Income Tax Rules, 1962 while issuing the impugned certificates. The factors which are statutorily required to be considered while granting such certificates have not been considered which has vitiated the impugned certificates.
12.1. Per contra, Mr. Kumar submits that the impugned certificates have been issued after due application of mind and after complying with the requirements of law. It is a voluminous exercise which the respondents have carried out with due diligence. In so far order passed by respondent No.1 under section 197 of the Act is concerned, he submits that the same may be available in the official record.
13. Submissions made by learned counsel for the parties have been considered.
13.1. Short point for consideration is whether respondents were justified in issuing lower rate tax certificates to the petitioner under section 197 of the Act for the assessment year 2021-22 corresponding to the financial year 2020-21 as against the request for such certificate at nil rate?
14. At the outset we may advert to section 197 of the Act which deals with certificate for deduction at lower rate. Section 197 is extracted
hereunder:-
“Certificate for deduction at lower rate.
197. (1) Subject to rules made under sub-section (2A), where, in the case of any income of any person or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194I, 194J, 194K, 194LA, 194LBB, 194LBC, 194M, 194O and 195, the Assessing Officer is satisfied] that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate.
(2) Where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be.
(2A) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (1) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.”
15. The procedure for issuance of certificate for deduction at lower rates or no deduction of tax from income other than dividends is laid down in Rule 28AA of the Income Tax Rules, 1962 (briefly ‘the Rules’ hereinafter) which is also quoted hereunder:-
“Certificate for deduction at lower rates or no deduction of tax from income other than dividends.
28AA. (1) Where the Assessing Officer, on an application made by a person under sub-rule (1) of rule 28 is satisfied that existing and estimated tax liability of a person justifies the deduction of tax at lower rate or no deduction of tax, as the case may be, the Assessing Officer shall issue a certificate in accordance with the provisions of sub-section (1) of section 197 for deduction of tax at such lower rate or no deduction of tax.
(2) The existing and estimated liability referred to in sub-rule (1) shall be determined by the Assessing Officer after taking into consideration the following:-
(i) tax payable on estimated income of the previous year relevant to the assessment year;
(ii) tax payable on the assessed or returned or estimated income, as the case may be, of last four previous years;
(iii) existing liability under the Income-tax Act, 1961 and Wealth-tax Act, 1957;
(iv) advance tax payment, tax deducted at source and tax collected at source for the assessment year relevant to the previous year till the date of making application under sub-rule (1) of rule 28;
(3) The certificate shall be valid for such period of the previous year as may be specified in the certificate, unless it is cancelled by the Assessing Officer at any time before the expiry of the specified period.
(4) The certificate for deduction of tax at any lower rates or no deduction of tax, as the case may be, shall be issued direct to the person responsible for deducting the tax under advice to the person who made an application for issue of such certificate:
Provided that where the number of persons responsible for deducting the tax is likely to exceed one hundred and the details of such persons are not available at the time of making application with the person making such application, the certificate for deduction of tax at lower rate may be issued to the person who made an application for issue of such certificate, authorising him to receive income or sum after deduction of tax at lower rate.
(5) The certificates referred to in sub-rule (4) shall be valid only with regard to the person responsible for deducting the tax and named therein and certificate referred to in proviso to the sub-rule (4) shall be valid with regard to the person who made an application for issue of such certificate.
(6) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall lay down procedures, formats and standards for issuance of certificates under sub-rule (4) and proviso thereto and the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) shall also be responsible for evolving and implementing appropriate security, archival and retrieval policies in relation to the issuance of said certificate.”
16. At this stage, we may also mention that as pleaded by the petitioner, it has been clarified by the central government vide instructions dated 22.12.2019 that prior administrative approval of the Commissioner of Income Tax (TDS) has to be taken where the cumulative amount of tax forgone by non-deduction / lesser rate of deduction of tax arising out of certificate under section 197 exceeds Rs.50 lakhs in stations like Mumbai etc. and Rs.10 lakhs for other stations.
17. These two provisions came up for consideration before a Division Bench of this Court in Larsen and Toubro Limited Vs. Assistant Commissioner of Income Tax (TDS), 326 ITR 514. That was a case where the petitioner had filed an application under section 197 of the Act which was however rejected by the assessing officer. Request for reconsideration was turned down. Thereafter petitioner moved the Commissioner of Income Tax (TDS) in revision under section 264 of the Act. However, Commissioner rejected the revision application by holding two things. Firstly, no approval of Commissioner is necessary when the assessing officer rejects an application under section 197. Secondly, when the assessing officer rejects an application under section 197, he does not pass an ‘order’ as envisaged in section 264 of the Act and consequently, a revision under section 264 is not maintainable. This Court elaborately examined the provisions of section 197 of the Act and rule 28 AA of the Rules, and thereafter held as follows:-
“ The Commissioner is manifestly in error when he holds that the rejection of an application under Section 197 by the Assessing Officer does not result in an order and that the revisional power which is vested in the Commissioner under Section 264 would not be attracted. Sub-section (1) of Section 197 permits an assessee to submit an application to the Assessing Officer to issue a certificate for the deduction of income tax at a lower rate or for no deduction of income tax, as the case may be, where in the case of any income of any person or sum payable to any person, income tax is required to be deducted at the time of credit or, at the time of payment at the rates in force under the provisions inter alia of Section 195. Subsection (1) of Section 195 requires deduction of tax at source in respect of payments made to a non-resident, not being a Company, or to a foreign Company. Sub-section (2) of Section 197 provides that where a certificate is granted, the person responsible for paying the income shall deduct income tax at the rates specified in the certificate or deduct no tax, as the case may be, until the certificate is cancelled. Sub-section 2A empowers the Board, having regard to the convenience of assessees and the interests of the Revenue to make Rules specifying (i) The cases in which and the circumstances under which, an application may be made for the grant of a certificate under sub-section (1); and (ii) The conditions subject to which such certificate may be granted and providing for all other matters connected therewith. In exercise of the powers conferred upon the Board by Sub-section (2A) of Section 197, Rule 28AA has been made in the Income Tax Rules, 1962. Sub-rule (1) of Rule 28AA is to the following effect :
* * * *
Rule 29B governs applications for certificates authorising receipt of interest and other sums without deduction of tax. The Assessing Officer, when he decides an application under Section 197(1) must of necessity pass an order on the application. Where the application is allowed, that application culminates in the grant of a certificate in accordance with the provisions of Sub-section (1) of Section 197. But it would be far fetched to accept the view that the rejection of an application must lie in the absolute discretion of the Assessing Officer or that the Assessing Officer is not bound to indicate reasons or a basis for the rejection of the application. The fact that Parliament has empowered the Board to frame Rules under sub-section 2A, having due regard to the convenience of assessees and the interests of the Revenue specifying the cases and circumstances under which an application can be made and the conditions subject to which such a certificate may be granted is sufficient to indicate that the exercise of powers by the Assessing Officer is intended to be structured in accordance with the provisions of Section 197 and the Rules framed by the Board under subsection 2A. The Assessing Officer cannot be heard to urge that though an assessee fulfills all the requirements which are stipulated in Rule 28AA or, as the case may be, in Rule 29B, he possesses an unguided discretion to reject the application. Consequently, the Assessing Officer when he rejects an application is bound to furnish reasons which would demonstrate an application of mind by him to the circumstances which are mandated both by the Statute and by the Rules to be taken into consideration. Hence, it would be impossible to accept the view that the rejection of an application under Section 197 does not result in an order. The expression “order” for the purposes of Section 264 has a wide connotation. Sub-section (1) of Section 264 provides that in the case of any order other than an order to which Section 263 applies, passed by an authority subordinate to him, the Commissioner may either of his own motion or on application by the assessee for revision, call for the record of any proceeding under the Act in which any such order has been passed and after making an enquiry, pass such order thereon not being an order prejudicial to the assessee as he thinks fit. Parliament has used the expression “any order”. Hence, any order passed by an authority subordinate to the Commissioner, other than an order to which Section 263 applies, is subject to the revisional jurisdiction under Section 264. A determination on an application under Section 197 requires an order to be passed by the Assessing Officer after application of mind to the circumstances which are germane under Section 197 and the Rules framed under sub-section 2A. The Commissioner was, therefore, manifestly in error when he held that there was no order which would be subject to his revisional jurisdiction under Section 264.”
18. In the case of the petitioner itself i.e., M/s. Tata Teleservices (Maharashtra) Limited Vs. Deputy Commissioner of Income Tax (TDS)-2(3), Writ Petition No.2701 of 2017, this Court after analyzing the two provisions noted that the impugned order was issued with the concurrence of Commissioner of Income Tax (TDS) which was not the case in Larsen & Toubro (supra). Therefore, contention of the respondents that petitioner should avail the alternative remedy of revision under section 264 of the Act was turned down on the ground that it would be case of ‘Caesar to Caesar’. Alternative remedy would be a futile / empty formality. Regarding the nature of order that is required to be passed under section 197 of the Act, it was held as under:-
“18. Section 197 of the Act permits / allows an assessee to make an application to the Assessing Officer, that in its case, the deduction of tax under the Sections specified therein should be at lower rates or at nil rates instead of the normal rate prescribed under the Act. The Assessing Officer, if satisfied, with the application made, bearing in mind the provisions of the Act and the Rules, is obliged to grant the certificate. Therefore, there is a right given to an assessee to apply for nil/ lower rate of withholding tax under Section 197 of the Act and an obligation upon the Assessing Officer to grant the same, if the conditions specified therein are satisfied. Thus, it is clear that the order passed under Section 197 of the Act is an order which is a quasi judicial order and must be supported by reasons. The Assessing Officer is also in terms of Section 197(2) of the Act read with Rule 28AA (3) of the Rules empowered to cancel a certificate already granted under Section 197(1) of the Act. This power of cancellation which in effect withdraws the earlier certificate to the prejudice of the Assessee would be required to stand the tests applicable to a rejection of an application made under Section 197 of the Act. It is undisputed that the cancellation of the earlier certificate will be effective only from the date, the order of cancellation is passed.”
19. Section 264 of the Act provides for exercise of revisional jurisdiction by the Principal Commissioner or by the Commissioner either suo-motu or on application of the assessee in the case of any order other than an order to which section 263 applies.
20. Therefore, what is deducible from the above is that before issuance of certificates under section 197 of the Act, the same must be preceded by an order. That order must disclose reasons and is an order passed in exercise of quasi-judicial powers. Such an order can be assailed in revision under section 264 of the Act. Therefore, an order under section 197 of the Act must not only contain reasons but the same has also to be provided to the assessee who seeks a certificate under section 197. Otherwise, how will such an assessee assail the order in revision under section 264?
21. In the course of hearing, learned standing counsel submitted that respondent No.1 might have recorded reasons for issuance of certificates not at nil rate but learned counsel for the petitioner submits that petitioner has not been served with copy of any such order. The same has also not been annexed to the reply affidavit filed on behalf of the respondents.
22. As has already been discussed above, since the respondents are required to pass an order under section 197 of the Act either rejecting the application for such certificate or allowing such application resulting in issuance of certificates which may be at rates higher than nil rate sought for by the assessee, such an order must be supported by reasons. Not only that, copy of such an order has to be furnished to the concerned assessee who may challenge the same under section 264 of the Act if he feels aggrieved. Not passing an order to that effect or keeping such an order in file without communication will vitiate the certificates.
23. In the instant case, we do not know the reasons for not granting nil rate certificates to the petitioner under section 197 of the Act. The contemporaneous order required to be passed under section 197 of the Act is also not available.
24. Having regard to the law laid down by this Court in Larsen & Toubro (supra) as well as in Tata Teleservices (Maharashtra) Limited (supra), we have no other alternative but to set aside and quash the impugned certificates dated 07.08.2020. Matter is remanded back to respondent No.1 for passing fresh order and issuing consequential certificates under section 197 of the Act by complying with the requirements of Rule 28AA of the Rules and after giving due opportunity of hearing to the petitioner. The entire exercise shall be completed within a period of four weeks from the date of receipt of a copy of the present order which shall be communicated to the petitioner.
25. Writ petition is accordingly allowed to the extent indicated above. However, there shall be no order as to costs.
26. This order will be digitally signed by the Private Secretary of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.
