2013 (2) TMI 152 - HC - Income Tax

Short deduction of tax from the payment made for contract work - ITAT deleted the demand - Held that - Assessing Officer of the contractors have furnished certificate under Section 197 to the Principal Officer of the Parle Biscuits Pvt Ltd, Mumbai. Such certificate is in terms of clause (iii) of Section 204. Such certificate mandates the persons to whom such certificate is issued to deduct tax at a rate lower than the prescribed rate under Section 194C. Merely because the assessee has got separate TAN for Bahadurgarh unit and for Mumbai unit, will not render the certificate issued under Section 197(2) as redundant. Such certificate is to be issued to the Principal Officer of the Company as the person responsible for deduction of tax and not to any other person or unit of the assessee. Therefore, the order passed by the CIT (A) Rohtak and affirmed by the Tribunal cannot be said to be suffering from any illegality in any manner. No merit in the present appeal - in favour of assessee.

Summary

Issues:
1. Validity of tax deduction certificates issued under Section 197 of the Income Tax Act, 1961.
2. Interpretation of Sections 194C, 197, and 204 of the Act regarding tax deduction responsibilities and issuance of certificates.

Analysis:
1. The appeal challenged an order by the Income Tax Appellate Tribunal dismissing the Revenue's appeal, affirming the validity of tax deduction certificates issued under Section 197. The Revenue contended that the deduction of tax was short due to separate Tax Deduction Account Numbers (TAN) for different entities. The Tribunal upheld the Commissioner of Income Tax (Appeals) finding that the genuineness of the certificates under Section 197 was not in question, thus no default by the assessee was established solely based on the certificate not being in the name of a specific unit.

2. The crux of the matter revolved around the interpretation of Sections 194C, 197, and 204 of the Act. Section 194C mandates tax deduction at source for work payments, while Section 197 allows for certificates for lower tax deduction rates. The procedure for obtaining such certificates is detailed in Rule 28AA of the Income Tax Rules, 1962. The certificate issued under Section 197 is valid only for the person responsible for deducting tax, as specified, and must be directed to them under advice to the applicant.

3. The judgment emphasized that the certificate under Section 197 was correctly issued to the Principal Officer of the company responsible for tax deduction, not to specific units within the entity. Despite separate TANs for different units, the certificate remained valid as it was directed to the appropriate person responsible for tax deduction. Therefore, the order of the Commissioner of Income Tax (Appeals) and the Tribunal was upheld, dismissing the appeal challenging the validity of the tax deduction certificates.

In conclusion, the High Court dismissed the appeal, affirming the validity of the tax deduction certificates issued under Section 197 and clarifying the interpretation of relevant sections of the Income Tax Act regarding tax deduction responsibilities and certificate issuance.