2020 (12) TMI 1084 - HC - Income Tax

Certificate under Section 197 denied - refusing to grant a certificate of deduction of tax at source at NIL rate, on payments to the petitioner company by its customers - HELD THAT - Rule shows that the considerations and parameters prescribed under clause (2) are mandatory and the department is bound to take the same into consideration for the purpose of computation of existing and estimated liability referred in sub-rule (1). As perused the impugned reasons furnished by the Revenue in support of the impugned Lower Tax Deduction Certificate and note that as opposed to estimation of tax liability, the assessing officer has instead rejected the estimates provided by the assessee, on a broad and generalized reasoning. Thus, in absence of determination, as provided under the above-noted Rule, the reasons for rejections cannot be termed as valid in eyes of law. Consequently, decision making process in the present case is contrary to law. This court finds that there is non-application of mind which vitiates the impugned order and reasons. Accordingly, we set aside the impugned order and reasons and remand the matter to the Assessing Officer for fresh determination in accordance with law as expeditiously as possible preferably within three weeks. In the interim, we direct that the benefit of revised TDS rates prescribed for financial year 2019-2020 (determined vide order dated 26th July, 2019) read with rebate of 25% given by Ministry of Finance on account of Covid-19 crisis from the rates applicable in the preceding year 2019-20 vide Press Release dated 13th May, 2020 be given to the petitioner.

Summary

Issues:
Challenge to Certificate under Section 197(1) of the Income Tax Act for refusal to grant NIL rate deduction, Scope of judicial review under Section 197 of the Act, Mandatory requirements of Rule 28AA for tax liability computation, Non-application of mind by the Assessing Officer, Validity of reasons for rejecting estimates provided by the assessee, Remand of the matter for fresh determination, Benefit of revised TDS rates for financial year 2019-2020.

1. Challenge to Certificate under Section 197(1) of the Income Tax Act:
The petitioner filed a writ petition challenging the Certificate dated 30th June, 2020 issued by respondent No.1 under Section 197(1) of the Income Tax Act, which refused to grant a certificate of deduction of tax at source at NIL rate on payments to the petitioner company by its customers. The petitioner sought a direction for reconsideration of the application and grant of the certificate under Section 197 of the Income Tax Act.

2. Scope of judicial review under Section 197 of the Act:
The learned standing counsel for the respondent argued that the present writ petition is not maintainable as the petitioner did not exhaust the alternative efficacious remedy available under Section 264 of the Act. Referring to a previous judgment, it was highlighted that judicial review of an order passed under Section 197 is limited to the decision-making process and not against the prescribed rates in the certificate. The court emphasized that interference is only warranted in cases of patent illegality, error apparent on the face of the decision, or non-application of mind by the Officer.

3. Mandatory requirements of Rule 28AA for tax liability computation:
The court examined Rule 28AA of the Income Tax Rules, which mandates the Assessing Officer to issue a certificate for deduction of tax at a lower rate or no deduction of tax based on existing and estimated tax liability. It was noted that the considerations and parameters under this rule are mandatory, and the department must adhere to them for computing the liability. The court found that in the present case, the assessing officer failed to determine the tax liability as required by the rule, leading to a decision-making process contrary to law.

4. Non-application of mind by the Assessing Officer:
The court observed that the assessing officer rejected the estimates provided by the assessee without proper determination of tax liability, relying on broad and generalized reasoning. This lack of proper assessment and non-application of mind by the officer were deemed as vitiating factors that rendered the impugned order and reasons invalid in the eyes of the law.

5. Remand of the matter for fresh determination:
In light of the above discussion, the court concluded that there was a clear non-application of mind in the decision-making process, which warranted setting aside the impugned order and reasons. The matter was remanded to the Assessing Officer for fresh determination in accordance with the law, preferably within three weeks.

6. Benefit of revised TDS rates for financial year 2019-2020:
As an interim measure, the court directed that the petitioner should be given the benefit of revised TDS rates prescribed for the financial year 2019-2020, along with the rebate of 25% provided by the Ministry of Finance due to the Covid-19 crisis. The respondents were instructed to ensure immediate compliance with this order. Consequently, the writ petition was allowed, and pending applications were disposed of accordingly.