2003 (3) TMI 94 - HC - Income Tax

The petitioner is a foreign company registered in Italy. The petitioner had entered into contracts with the Neyveli Lignite Corporation, the second respondent. It is claimed that the contracts were on Turnkey basis for implementation of a comprehensive power project for the second respondent. It is the contention of the petitioner that the petitioner is entitled to the benefits under section 44BBB of the Income-tax Act, 1961 - Whether the cancellation of certificate at lower rate is illegal and contrary to the provisions contained in section 197(1) and (2) read with section 44BBB of the Act and is vitiated by non-application of mind and violative of the principles of natural justice? Held, NO - I do not find any merit in this writ petition which is accordingly dismissed. It is however made clear that no opinion is expressed on the merits of the contentions with regard to the applicability of section 44BBB

Summary

Issues:
1. Cancellation of certificate under section 197(1) of the Income-tax Act, 1961.
2. Allegations of illegality and non-compliance with principles of natural justice.
3. Applicability of section 44BBB of the Income-tax Act.

Analysis:
1. The petitioner, a foreign company registered in Italy, had contracts with the Neyveli Lignite Corporation for a power project. The petitioner claimed benefits under section 44BBB of the Income-tax Act, and the Deputy Commissioner authorized tax deduction at 5%. Subsequent certificates were issued till March 31, 2003, when the certificate was canceled via an impugned communication on November 22, 2002.

2. The petitioner contended that the cancellation was illegal, violated section 197(1) and (2) along with section 44BBB of the Act, and breached principles of natural justice. The court noted that the legality of the cancellation should not be judged based on the assessment order's merits, as that is the authority's prerogative. The petitioner argued non-compliance with natural justice principles, citing a case precedent where a cancellation without a hearing was quashed. However, the court found that the petitioner was not prejudiced as information was sought, and the final tax liability would be determined in assessment proceedings.

3. The court emphasized that the withdrawal of the deduction certificate did not conclusively determine the petitioner's tax liability. If found liable for a lower tax rate later, any excess paid would be refunded. The judgment dismissed the writ petition, stating that the merits of section 44BBB's applicability would be decided by the appropriate authority. The court clarified that no opinion was given on this matter, and costs were not awarded, closing the connected miscellaneous petitions.