2018 (3) TMI 1215 - HC - Income Tax

Application seeking nil tax deduction certificate u/s 197 - Held that - We find that the impugned order dated 18th December, 2017 has been passed without due application of mind. This is evident from the fact that, the petitioner s claim for nil tax deduction under Section 197 is based on it being assessed to nil tax under Section 11 of the Act and not under Section 10(23C) of the Act. Inspite of this aforesaid fact being specifically pointed out by the petitioner in its reply dated 20th November 2017 to the show cause notice, the impugned order makes no reference to the aforesaid submission and proceeds to confirm the notice dated 13th November, 2017. In the above view, the impugned order dated 18th December, 2017 is quashed and set aside. As the petitioner states that, a large amount of their receipts on which tax is deducted are received as interest on the deposits from banks. In the absence of Certificate being available before 31st March, 2018 a large quantum of amount would be deducted as tax at source by the banks. This in turn would create difficulties to the petitioner in expending 85% of its total income for the Assessment Year 2018-19. Assessing Officer is directed to dispose of the petitioner s application dated 17th October, 2017 as expeditiously as possible and in any case on/or before 28th March, 2018.

Summary

Issues:
Challenge to order rejecting nil tax deduction certificate under Section 197 of the Income Tax Act for Assessment Year 2018-19 by a charitable organization claiming exemption under Section 11 of the Act.

Analysis:
The petitioner, a charitable organization with valid registration under Section 12AA of the Income Tax Act, filed an application seeking a nil tax deduction certificate under Section 197 for the Assessment Year 2018-19, based on its exemption under Section 11 of the Act. However, the Assessing Officer issued a show cause notice to reject the application, citing the rejection of the petitioner's claim for exemption under Section 10(23C)(iiiab) for earlier years. The petitioner clarified that its claim was under Section 11 and not Section 10(23C)(iiiab), emphasizing that no claim under the latter section had been made since 2015-16 due to an amendment. Despite this, the Assessing Officer rejected the application on the grounds of a pending legal dispute regarding exemption under Section 10(23C), failing to consider the petitioner's submissions. The High Court found the order to be passed without due application of mind, quashing and setting it aside.

The petitioner's counsel highlighted the urgency due to a significant amount of tax deductions on interest receipts from banks, potentially affecting the petitioner's ability to expend its total income for the Assessment Year 2018-19. To address this, the Assessing Officer was directed to expedite the disposal of the petitioner's application dated 17th October, 2017, ensuring a decision by 28th March, 2018. This directive aimed to prevent adverse financial implications for the petitioner and facilitate timely resolution of the tax deduction certificate issue, considering the nature of the organization's income sources and expenditure requirements.