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2019 (10) TMI 862 - HC - Income TaxIssuance of certificate u/s 197 (1) - rate of deduction of tax at source has been raised from 1% to 4% - Petitioner claims that the sudden rise of the rate at which the TDS is to be deducted is arbitrary and no reasons for the same have been communicated to the Petitioner, much less any hearing has been granted to the Petitioner - HELD THAT - While deciding Jiangdong Fittings Equipment Co. Ltd v. Deputy Commissioner of Income Tax Ors. 2019 (9) TMI 1040 - DELHI HIGH COURT we have held, after taking note of the earlier decisions in Bently Nevada LLC v. Income Tax Officer, Ward-1(1)(2), International Taxation Another 2019 (7) TMI 1503 - DELHI HIGH COURT of this Court and the decision of the Bombay High Court in Tata Teleservices (Maharashtra) Ltd v. Deputy Commissioner of Income Tax (TDS) 2018 (2) TMI 192 - BOMBAY HIGH COURT that Section 197 (1) does not require the Assessing Officer to grant personal hearing to the assessee prior to the issuance of the certificate. All that is required is that the Assessing Officer should have good reasons to issue the certificate under Section 197 (1) of the Act and the said reasons should be communicated to the assessee. As Senior Standing Counsel, on instructions, states that the standard operating procedure has now been formulated to provide that whenever there is an upward revision of the rate of deduction at source while issuing the certificate under Section 197(1) of the Act, the asseseee would be communicated the reasons for the same. We dispose of this petition with a direction to the Respondents to provide to the Petitioner, within one week, the reasons recorded for issuance of the impugned certificate fixing the rate of deduction of TDS at 4%.
Issues:
1. Issuance of certificate under Section 197(1) raising the rate of deduction of tax at source from 1% to 4% without communication of reasons or hearing to the Petitioner. Analysis: Issue 1: Issuance of Certificate under Section 197(1) without Communication of Reasons or Hearing The Petitioner raised concerns regarding the sudden increase in the rate of deduction of tax at source from 1% to 4% without being provided with any reasons or granted a hearing. The Court referred to a previous judgment in Jiangdong Fittings Equipment Co. Ltd v. Deputy Commissioner of Income Tax & Ors., where it was established that Section 197(1) does not mandate a personal hearing for the assessee before the issuance of the certificate. However, it was emphasized that the Assessing Officer must have valid reasons for issuing the certificate, and these reasons should be communicated to the assessee. The Court highlighted that the communication of reasons is crucial for transparency and fairness in such matters. The Court acknowledged the submission made by Mr. Raghvendra Singh, the learned Senior Standing Counsel, that a standard operating procedure has been established to ensure that whenever there is an upward revision in the deduction rate while issuing the certificate under Section 197(1) of the Act, the assessee will be informed of the reasons for the change. Consequently, the Court disposed of the petition with a direction to the Respondents to provide the Petitioner with the reasons recorded for the issuance of the certificate fixing the TDS deduction rate at 4%. The Petitioner was granted the opportunity to challenge these reasons if deemed necessary, ensuring the right to appeal against the decision. In conclusion, the Court addressed the grievance raised by the Petitioner by emphasizing the importance of providing reasons for decisions that impact the tax liabilities of the assessee. By directing the Respondents to disclose the reasons for the increased deduction rate, the Court upheld principles of transparency and fairness in tax assessments, allowing the Petitioner the opportunity to contest the decision if dissatisfied with the provided justifications.
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