2024 (8) TMI 826 - HC - Income Tax

Rejection of applications filed u/s 197 - orders impugned only found that there was a tax demand with respect to the AY 2018-19, which is pending and hence the deduction at the lower rate/NIL rate is not possible - petitioner would contend that the tax demand for the year 2018-19 has been stayed by the Principal Commissioner of Income Tax till the First Appeal is disposed of - HELD THAT - De hors the stay ordered; pending First Appeal, we see that the provision under Section 197 only clothes the AO with the power to satisfy himself that the total income of the recipient justifies the deduction of Income Tax at any lower rates or at a NIL rate. Hence, a demand pending against the assessee would not clothe the AO with the power to summarily reject an application u/s 197. The satisfaction to be recorded under Section 197 is clearly with respect to the total income of the recipient for the subject assessment year, where the deduction is claimed at a NIL rate for the interest income earned from the fixed deposits in banks. We set aside orders for having decided the issue on extraneous considerations. The application will stand restored before the AO and the same will be considered in accordance with law.

Summary

The High Court of Patna set aside orders rejecting applications under Section 197 of the Income Tax Act, 1961, due to pending tax demand for the Assessment Year 2018-19. The court held that the Assessing Officer cannot reject such applications solely based on pending demands, as the assessment should be based on the total income of the recipient. The orders were set aside, and the application will be reconsidered in accordance with the law. The writ petition was disposed of.