2019 (8) TMI 303 - HC - Income Tax

Application filed u/s 197 - requesting the said authority to permit the petitioner assessee not to deduct tax at source or to deduct tax at lower rates - authority has prescribed different rates of deduction of tax at source ranging from 1% to 1.5% - HELD THAT - We noticed that alongwith additional affidavit, the petitioner has produced an order sheet dated 15/5/2019, in which the Dy CIT (TDS) has recorded that there was a proposal for issuing certificate at the rate of 0.4% in relation to sections 194C, 194J, 194H and 194IB of the Act. Dy CIT (TDS) passed the impugned order, which, as can be clearly seen, was influenced by the order dated 31st May, 2019 passed under section 201 of the Income Tax Act, 1961 against the Petitioner. The said order may not be the sole basis, was undoubtedly an important element which went into the decision making process. Therefore, now that the existence of order dated 31st May, 2019 does not survive persuant to decision of this court 2019 (8) TMI 111 - BOMBAY HIGH COURT , the Dy CIT (TDS) should undertake fresh exercise and decide the rate of income tax to be deducted while making payment to the Petitioner under different provisions mentioned above. For such purpose, the impugned order is set aside. The Dy CIT (TDS) shall pass fresh order within four weeks from today in view of the changed circumstances. However, till this is done, the petitioner cannot be left to be verse of then when the impugned order was in operation. Therefore, till fresh order is passed, the Petitioner would continue to be governed by the prescription made in the impugned order. This is purely by way of interim arrangement to protect the interest of the Petitioner as well as the Revenue.

Summary

Issues:
Challenge to Certificate issued under section 197 of the Income Tax Act, 1961 - Excessive prescription of deduction rates - Breach of principle of natural justice in previous order - Fresh order to be passed by Deputy Commissioner of Income Tax (TDS) - Interim arrangement for deduction rates.

Analysis:
The High Court of Bombay heard the final disposal of a petition filed by a private limited company challenging a Certificate issued by the Deputy Commissioner of Income Tax (TDS) under section 197 of the Income Tax Act, 1961. The petitioner contested the prescription of different deduction rates ranging from 1% to 1.5% in the impugned order, arguing that such rates were excessive compared to the previous permission granted at 0.02%. The Court noted that the original proposal for deduction at 0.4% was altered after an order passed under section 201 of the Act, leading to the issuance of the impugned order.

In a separate Writ Petition, the order dated 31st May, 2019, passed by the Deputy Commissioner of Income Tax (TDS) under section 201 of the Act was challenged and subsequently quashed due to a breach of the principle of natural justice. The Court directed the proceedings to be remanded before the original authority for a fresh order. The Deputy Commissioner of Income Tax (TDS) had initially proposed a deduction rate of 0.4% but revised it to 1.14% based on projections, leading to the issuance of the impugned order influenced by the previous order under section 201.

The Court set aside the impugned order and directed the Deputy Commissioner of Income Tax (TDS) to pass a fresh order within four weeks considering the changed circumstances. However, until the fresh order is issued, the petitioner would continue to be governed by the deduction rates prescribed in the impugned order as an interim arrangement to safeguard the interests of both the petitioner and the Revenue. The Writ Petition was disposed of accordingly, ensuring a fair and just resolution of the matter.