2020 (12) TMI 831 - HC - Income Tax

Withholding certificates u/s 197 issued at lower rate tax - Certificate for deduction at lower rates or no deduction of tax from income other than dividends - revision u/s 264 - whether respondents were justified in issuing lower rate tax certificates to the petitioner under section 197 of the Act for the assessment year 2021-22 corresponding to the financial year 2020-21 as against the request for such certificate at nil rate? - HELD THAT - Before issuance of certificates u/s 197 the same must be preceded by an order. That order must disclose reasons and is an order passed in exercise of quasi-judicial powers. Such an order can be assailed in revision under section 264 - Therefore, an order under section 197 must not only contain reasons but the same has also to be provided to the assessee who seeks a certificate under section 197. Otherwise, how will such an assessee assail the order in revision under section 264? In the course of hearing, learned standing counsel submitted that respondent No.1 might have recorded reasons for issuance of certificates not at nil rate but learned counsel for the petitioner submits that petitioner has not been served with copy of any such order. The same has also not been annexed to the reply affidavit filed on behalf of the respondents. Respondents are required to pass an order u/s 197 either rejecting the application for such certificate or allowing such application resulting in issuance of certificates which may be at rates higher than nil rate sought for by the assessee, such an order must be supported by reasons. In the instant case, we do not know the reasons for not granting nil rate certificates to the petitioner under section 197 of the Act. The contemporaneous order required to be passed under section 197 of the Act is also not available. Referring to law laid down by this Court in Larsen Toubro 2010 (4) TMI 414 - BOMBAY HIGH COURT as well as in Tata Teleservices (Maharashtra) Limited 2018 (2) TMI 192 - BOMBAY HIGH COURT we have no other alternative but to set aside and quash the impugned certificates dated 07.08.2020. Matter is remanded back to respondent No.1 for passing fresh order and issuing consequential certificates under section 197 of the Act by complying with the requirements of Rule 28AA of the Rules and after giving due opportunity of hearing to the petitioner.

Issues Involved:
1. Quashing of impugned certificates dated 07.08.2020.
2. Direction to issue nil rate certificates under section 197 of the Income Tax Act, 1961.
3. Compliance with section 197 of the Act and Rule 28AA of the Income Tax Rules, 1962.
4. Requirement of reasons for issuing certificates at rates higher than nil.
5. Availability of an alternative remedy under section 264 of the Act.

Issue-wise Detailed Analysis:

1. Quashing of Impugned Certificates:
The petitioner sought the quashing of impugned certificates dated 07.08.2020, which were issued at rates higher than nil, contrary to the petitioner's request. The court noted that the issuance of certificates at higher rates aggravated the financial condition of the petitioner. The court found that the respondents did not provide reasons for issuing certificates at higher rates, which is a requirement under section 197 of the Act and Rule 28AA of the Rules. The court set aside and quashed the impugned certificates and remanded the matter back to respondent No.1 for passing a fresh order and issuing consequential certificates under section 197 of the Act.

2. Direction to Issue Nil Rate Certificates:
The petitioner sought a direction to the respondents to issue nil rate certificates under section 197 of the Act. The court emphasized that section 197 allows an assessee to apply for nil/ lower rate of withholding tax, and the Assessing Officer is obliged to grant the certificate if the conditions specified are satisfied. The court directed respondent No.1 to pass a fresh order and issue consequential certificates after complying with Rule 28AA and giving due opportunity of hearing to the petitioner.

3. Compliance with Section 197 of the Act and Rule 28AA of the Rules:
The court highlighted the importance of compliance with section 197 of the Act and Rule 28AA of the Rules. Section 197 permits an assessee to apply for a certificate for deduction at lower rates or no deduction of tax. Rule 28AA lays down the procedure for issuance of such certificates. The court noted that the Assessing Officer must pass an order on the application, providing reasons for either granting or rejecting the application. The absence of such an order or failure to communicate it to the assessee would vitiate the certificates.

4. Requirement of Reasons for Issuing Certificates at Rates Higher than Nil:
The court stressed that the issuance of certificates under section 197 must be supported by reasons. The Assessing Officer is required to pass a reasoned order, which must be communicated to the assessee. The court found that in the present case, the reasons for not granting nil rate certificates were not provided, and no contemporaneous order was available. This lack of reasoning and communication rendered the impugned certificates invalid.

5. Availability of an Alternative Remedy under Section 264 of the Act:
The respondents contended that the petitioner had an alternative remedy of filing a revision petition under section 264 of the Act. However, the court referred to previous judgments, including Larsen & Toubro Limited and Tata Teleservices (Maharashtra) Limited, which held that the rejection of an application under section 197 results in an order that can be revised under section 264. The court concluded that an order under section 197 must contain reasons and be provided to the assessee, enabling them to challenge it under section 264. The absence of such an order and reasons would make the alternative remedy futile.

Conclusion:
The writ petition was allowed to the extent that the impugned certificates dated 07.08.2020 were set aside and quashed. The matter was remanded to respondent No.1 for passing a fresh order and issuing consequential certificates under section 197 of the Act, complying with Rule 28AA and after giving due opportunity of hearing to the petitioner. The entire exercise was directed to be completed within four weeks from the date of receipt of the order. There was no order as to costs.

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