2018 (9) TMI 1252 - HC - Income Tax

Discretionary power u/s 197 r.w.r. 28AA of the Income Tax Rules - whether it is the Assessing Officer who has to be satisfied that the tax is to be deducted at Nil or Zero rate or Reduced rate and that satisfaction of the Assessing Officer must be reflected from his order? - Held that - The apprehension of the petitioner is that there was an exercise of a discretionary power in terms of subsection (1) of Section 197 and the deduction of income tax at the lower rate was justified earlier. Now, the rate has been fluctuating and for this year, the deduction is at the rate of 50% of the prescribed rate. This has not come about on an independent satisfaction of the Assessing Officer, but because of uncalled interference by his superior. For that reason, he would submit that we must direct the production of the original record. Revenue tendered the affidavit in reply on behalf of the respondents. That is affirmed by the Deputy Commissioner of Income Tax (TDS) Range2(3), Mumbai. He says that he is working in the office of the Commissioner of Income Tax (TDS) and urge that the Assessing Officer has recorded his satisfaction in terms of the legal provision. That is indeed to be found in the official record or file. If this is the position and the affidavit only reiterates or affirms what is stated or held by the Assessing Officer in his order, then, let that original record be produced for our perusal on the next date.We post this matter on 25th September 2018. The matter shall be listed on the Supplementary Board .

Summary

Issues:
1. Interpretation of Section 197 of the Income Tax Act 1961 and Rule 28AA of the Income Tax Rules regarding the discretionary power of the Assessing Officer to determine tax deduction rates.
2. Timely disposal of applications under Section 197(1) of the Income Tax Act 1961.
3. The authority and independence of the Assessing Officer in making decisions regarding tax deduction rates.
4. Alleged interference by a superior in the decision-making process of the Assessing Officer.
5. Requirement of producing original records to verify the Assessing Officer's satisfaction.

Analysis:

Issue 1: The petitioner contends that the Assessing Officer must be satisfied to deduct tax at 'Nil,' 'Zero rate,' or 'Reduced rate' under Section 197 of the Income Tax Act 1961, and this satisfaction should be reflected in the order. The petitioner argues that the Assessing Officer's satisfaction cannot be controlled by a superior and emphasizes the importance of reasons in the order to establish the decision-making process.

Issue 2: The petitioner highlights the significance of timely disposal of applications under Section 197(1) of the Income Tax Act 1961, stating that pending applications are not in the interest of revenue. The petitioner asserts that delays in processing applications should be avoided.

Issue 3: The petitioner raises concerns about the independence of the Assessing Officer in making decisions on tax deduction rates. It is argued that the Assessing Officer's satisfaction should not be influenced by superiors, and the decision-making process should be based on individual assessment.

Issue 4: The petitioner alleges interference by a superior in the decision to deduct income tax at a lower rate, leading to fluctuating deduction rates without independent satisfaction of the Assessing Officer. The petitioner requests the production of original records to verify the decision-making process.

Issue 5: The respondent, representing the Revenue, submits an affidavit affirming that the Assessing Officer has recorded satisfaction as per legal provisions. The court directs the production of the original record for verification on the next hearing date. If the record is not found, the court indicates that observations on the Assessing Officer's conduct during the proceedings will be made while disposing of the Writ Petition in accordance with the law.

This detailed analysis of the judgment from the Bombay High Court addresses the various issues raised by the petitioner regarding the discretionary power of the Assessing Officer, timely disposal of applications, independence in decision-making, alleged interference by superiors, and the requirement to produce original records for verification. The court's approach to ensuring transparency and adherence to legal provisions in tax deduction matters is evident in the directions given for further proceedings.