2013 (10) TMI 655 - HC - Income Tax

Effective date of Order issued u/s 197 for lower deduction tax at source or no TDS whether has retrospective effect or prospective effect - Penalty - Held that - Section 197 does not prescribe or state that an order will be effective from the date the order is issued - The statute does not bar the Assessing Officer from issuing the certificate for the financial year - the assessing officers take time to dispose of applications moved under Sections 195 and 197 - the order of the tribunal does not require any interference as the certificate/order dated 9th October, 2007 has not been modified or corrected - the deductee was not liable to pay tax and income tax authorities have not suffered any loss or disadvantage there was no justification for imposition of penalty - Penalty cannot be imposed once it is held that the respondent-assessee had acted in terms of the certificate Decided against Revenue. If the certificate was contrary to the circular, it was for the appellant to take steps to rectify the said certificate either under Section 154 or by way of suo motu power of revision under Section 263. An order, which is wrong, cannot be treated as void ab initio till it is corrected or rectified.

Issues:
1. Validity of the order dated 9th October, 2007 passed by the Assessing Officer (TDS) under Section 197 of the Income Tax Act, 1961.
2. Interpretation of the statutory provisions of Section 197 regarding the effective date of the order.
3. Justification for the deduction and deposit of tax made in accordance with the certificate/order dated 9th October, 2007.
4. Imposition of penalty in cases where the deductor acted in terms of the certificate.
5. Remedial steps available to rectify a certificate that is contrary to a circular.

In the judgment delivered by the Delhi High Court, the issue at hand revolved around the validity of the order dated 9th October, 2007, issued by the Assessing Officer (TDS) under Section 197 of the Income Tax Act, 1961. The appellant-Revenue contended that the order should be considered non est concerning the period from 1st April, 2007 to 31st March, 2008, as it was argued that the order could only have prospective effect. The appellant relied on a circular issued by the Central Board of Direct Taxes to support this argument. However, the court, after examining the statutory provisions of Section 197, found that the statute does not specify that an order under Section 197 must be effective from the date of its issuance. The court also noted that assessing officers often take time to process applications under relevant sections. The tribunal's order was upheld as the certificate/order dated 9th October, 2007 had not been altered and directed tax deduction and deposit in accordance with it. The court emphasized that the deductor was bound to follow the certificate/order and could not assume its invalidity. Additionally, since the deductee was not liable to pay tax, there was no loss to the income tax authorities, and tax deducted at source was considered as tax paid by the deductee. Therefore, the court found no grounds for imposing a penalty, especially when the respondent-assessee had acted as per the certificate.

Furthermore, the court highlighted that if the certificate contradicted the circular, it was the responsibility of the appellant to rectify the certificate through appropriate channels such as Section 154 or suo motu revision under Section 263. The court emphasized that an incorrect order does not automatically become void ab initio unless rectified. Acting in good faith based on a certificate should not be penalized. Ultimately, the court dismissed the appeals, citing a lack of merit in the arguments presented and upholding the validity of the certificate/order dated 9th October, 2007.

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