2012 (10) TMI 797 - AT - Income Tax

Non deduction of TDS - CIT(A) deleted the demand raised - Held that - Undisputedly, payment of Rs. 15 lacs had been made by the assessee company to M/s Nesco Ltd. on 01.04.2002 also clear from the copy of account of M/s Nesco Ltd. for the period from 01.04.2002 to 31.03.2003. On a query as to why the assessee had failed to deduct tax at source on such payment @ 22.44%, the assessee had submitted that the certificate u/s 197 stood already applied for by M/s Nesco Ltd. even before the date of payment, i.e., 01.04.2002. Undisputedly, the certificate u/s 197 was granted only on 23.04.2002, authorizing the assessee to deduct tax at source @ 2% plus surcharge u/s 194 from the licence and maintenance fee/rent compensation payable by the assessee to M/s Nesco Ltd. upto 31.03.2003, thus it is quite clear that it was to remain in force till 31.03.2003, unless cancelled by the ITO prior to the said date Thus, the assessee has not been shown to have committed any default in deducting the tax and depositing it. It was only because the assessee did not have the TDS certificate for low deduction @ 2% on 01.04.2002 while paying the advance rent, that the Assessing Officer treated the assessee as an assessee in default for not deducting 20% tax on 01.04.2002, on the advance rent paid to M/s Nesco Ltd - the tax having been deducted @ 2% and having been deposited before the prescribed date, by no stretch of imagination can the assessee be deemed to be an assessee in default - in favour of assessee.

Summary

Issues:
Appeal against order deleting demand raised under IT Act for Assessment Year 2003-04 based on certificate u/s 197 issued on 23.04.2002 for lower tax deduction rate of 2% instead of 20% on rental income.

Analysis:
The department appealed against the order of the CIT (A) deleting the demand raised under sections 201/201(1A) rws 194-I of the IT Act for Assessment Year 2003-04. The department contended that the CIT (A) erred in holding the certificate u/s 197 of the IT Act, issued on 23.04.2002, as valid for the financial year 2002-03. The department argued that tax should be deducted at the time of credit or payment of rental income, and no certificate u/s 197 was granted at that time. The department also pointed out the provisions of Section 197(2) of the Act regarding TDS rates specified at the time of payment or in the certificate. The department sought cancellation of the CIT (A) order and revival of the Assessing Officer's decision.

The assessee's counsel defended the CIT (A) order, stating that the Assessing Officer had ignored the certificate u/s 197 applied for before payment and granted in the same month. The counsel argued that the tax was deducted at the appropriate rate as per the certificate, and no loss was incurred by the revenue. The counsel emphasized that the CIT (A) decision was correct, and the appeal by the department should be dismissed.

The Tribunal examined the events timeline provided by the assessee, showing the application for the certificate u/s 197 before payment, the grant of the certificate on 23.04.2002, and the subsequent TDS deposit by the assessee. The Tribunal noted that the certificate was valid until 31.03.2003 and authorized tax deduction at 2% as per the certificate. The Tribunal found that the assessee had complied with the certificate's directions by deducting and depositing TDS within the statutory requirements. The Tribunal concluded that the Assessing Officer erred in treating the assessee as in default for not deducting 20% tax initially, as the certificate was valid for the relevant period. Therefore, the Tribunal upheld the CIT (A) order, dismissing the department's appeal.

In conclusion, the Tribunal upheld the CIT (A) decision, emphasizing the validity of the certificate u/s 197 and the assessee's compliance with the directed tax deduction and deposit. The Tribunal rejected the department's grounds, affirming the dismissal of the appeal filed by the department.