2020 (1) TMI 511 - HC - Income Tax

TDS at lower rate u/s 197 - effective date of certificate - withholding tax certificate issued to the petitioner has been made effective from the date of issue OR from the beginning of the financial year i.e. 01.04.2019 - HELD THAT - The petitioner has placed on record the lower withholding tax certificate issued in respect of the financial year 2018-19. We find that the parties to whom the lower withholding tax certificates were issued for the financial year 2018-19 are the same. In a matter like the present one, time is of the essence since the petitioner is being subjected to higher deduction of tax at source by the parties which are transacting in business, while its claim is for lower withholding tax. The petitioner is a well established business enterprise. Though, the lower withholding tax certificates have been issued in respect of all the parties, the dispute remains with regard to the date from which the certificates should take effect since the petitioner claims that it had made the application on 18.03.2019 for the financial year 2019-20. In respect of all the parties, we are inclined to direct as an interim measure that the said certificates issued to the petitioner would be effective for the entire financial year of 2019-20, subject to further orders.

Summary

Issues:
1. Effective date of withholding tax certificate issuance.
2. Limitation on the number of parties in the application for reduced withholding tax.
3. Upgradation of the electronic system for applying for lower withholding tax.
4. Dispute regarding the effective date of certificates for lower withholding tax.
5. Interim relief for the petitioner regarding the effective date of withholding tax certificates.

Analysis:
1. The petitioner raised a grievance that the withholding tax certificate was made effective from the date of issue, not from the beginning of the financial year. The respondent sought time to provide instructions on this issue.

2. The petitioner mentioned that the system initially limited the application for reduced withholding tax to three parties. To overcome this limitation, the petitioner submitted an annexure with details of 337 parties along with the application, as the system did not allow for more than three parties initially.

3. It was argued that despite the system upgrades over the years, the certificates were granted from the date of separate applications, even though the initial application was made well in advance. The respondent was requested to confirm if the system initially restricted the number of parties in the application.

4. The respondent sought additional time to respond due to the upcoming union budget. The court noted that time was crucial as the petitioner faced higher tax deductions while claiming lower withholding tax. The dispute primarily revolved around the effective date of the certificates for the financial year 2019-20.

5. As an interim measure, the court directed that the certificates issued to the petitioner would be effective for the entire financial year of 2019-20 for all parties mentioned, pending further orders. The respondents were given four weeks to file their counter affidavits, and the case was listed for a future date.

This judgment addressed the issues of effective date of withholding tax certificates, limitations on the number of parties in applications, system upgrades for applying for lower withholding tax, and provided interim relief by directing the certificates to be effective for the entire financial year.