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TMI Blog2023 (11) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... ied that the total income of a recipient justifies no deduction of income tax or the deduction of income tax at any lower rate. Assessing Officer, in view of the provisions of Rule 28AA (1) of the IT Rules, must record satisfaction as contemplated under Section 197(1) of the IT Act determining the existing and estimated liability of an Assessee taking into consideration [a] tax payable or estimated income of the previous year relevant to the assessment year, [b] tax payable on the assessed or returned or estimated income as the case may be for the four previous years, [c] the existing liability under the IT Act or Wealth Tax Act 1957, and advanced tax payment, and [d] tax deducted at source and tax collected at source for the assessment year relevant to the previous year till the date of making an application. AO u/s 197(1) of the IT Act will have to be satisfied objectively that the total income of a recipient justifies either deduction at a rate lower than the rates mentioned in the provisions of Section 197(1) of the IT Act or that no deduction is necessary. This objective satisfaction must be based on the determination of the existing and the estimated liability, and the estima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Property Assignment Agreement. It is undisputed that the petitioner, with the transfer of intellectual property by M/ Bitcipher under the relevant agreement, is inter alia granted license to use the application called CoinSwitch 1 on certain terms and that the petitioner also pays agreed amounts to M/s. Bitcipher as consideration. The petitioner, apart from re-licensing the use of this App to M/s Bitcipher, has also licensed the use of the app to third parties, and crucially, the petitioner does not itself operate the app enabling the use for trading. 3. The petitioner had filed similar application under Section 197 of the IT Act for the financial year 2022-23, but the respondent has rejected this application on 21.06.2022 observing that it would be at liberty to file fresh application along with the documentary evidence in support of the claim for Certificate. The petitioner has filed revision before the competent authority impugning the first respondent s order dated 21.06.2022. However, the revision is also rejected on 30.08.2022 observing that the petitioner has accepted that it did not have any existing and estimated tax liability. 4. The petitioner has thus filed the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner, submits that the provisions of Section 197 of the IT Act do not envisage classification amongst the Assessees, and the inevitable consequence of holding that the petitioner cannot avail the benefit of Rule 28AA of the IT Rules is to devise an eligibility to claim benefit paving way for classification of the Assessees. He argues that every Assessee, irrespective of whether the Returns are filed for a year or any particular number of years, will be eligible for a Certificate under Section 197(1) of the IT Act provided that the concerned Assessing Officer is satisfied that the total income justifies no deduction of income tax, or deduction at a lesser rate, and the provisions of Rule 28AA of the IT Rules cannot be read to bring about a classification and deny the benefit of these provisions to a particular class of Assessees on the ground that they have not filed ITR for a minimum period of four years. 8. Sri T. Suryanarayana, relying relies upon the decision of Bombay High Court 2 in Larsen Tourbo Ltd. v. Assistant Commissioner of Income- Tax (TDS) 2(1) Reported in [2010] 190 Taxman 373 (Bombay), argues that the Bombay High Court, after an elaborate consideration of the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not available. 9. Sri T. Suryanarayana submits that the provisions of Section 197(2A) of the IT Act stipulate that the Central Board for Direct Taxes [Board] may, having regard to the Assessees convenience and the Revenue s interest, make rules specifying the cases in which and the circumstances under which an application may be made for the grant of a Certificate under Section 197(1) of the IT Act as also the conditions subject to which such Certificate may be granted and for all other matters connected therewith. 10. Sri T. Suryanarayana contends that the Board must frame rules for the convenience of the Assessees but without prejudice to the Revenue s interest, and hence, the provisions of Rule 28AA of the IT Rules must necessarily be read accordingly; and as such, the parameters mentioned in these Rules though vital for the purposes of the Assessing Officer s satisfaction on whether a Certificate must be issued either for deduction of tax at a lower rate or no deduction, these Rules cannot be read to infer an ineligibility for an Assessee to even make an application for the Certificate under Section 197(1) of the IT Act on the ground that the concerned Assessee has not fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the IT Act is made subject to the Rules framed by the Board in exercise of the power under Section 197(2A) of the IT Act, and the Board is empowered to stipulate the conditions subject to which a Certificate under Section 197(1) of the IT Act may be granted. The Board, in exercise of such power in framing rules under Rule 28AA of the IT Rules, has stipulated that the satisfaction of the existing and estimated tax liability to justify a Certificate for deduction of income - tax at any lower rate or no deduction of income tax shall be determined taking into consideration, amongst others, the tax payable on the assessed or returned or estimated income as the case may be for the last [or previous] four years. 15. Sri K. V. Aravind argues that the stipulation that the satisfaction shall be based upon, amongst others, the tax payable on the assessed or returned or estimated income for the four previous years brings about a reasonable classification amongst the Assessees those who have filed returns for four previous years and more and those who have not filed Returns for these minimum number of financial years. The provisions of Section 197(2A) of the IT Act empowers the Board, a dele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent could have rejected the petitioner s application under Section 197(1) of the IT Act on the ground that the petitioner has not filed Returns for the four years preceding the subject financial year i.e., 2023-24. b) Whether the respondent s rejection of the petitioner s application by the impugned order is based on satisfaction that is contemplated under Section 197(1) of the IT Act and if the answer to the afore is in the negative, what is the order that should be. The first question relates to interpreting the provisions of Section 197 of the IT Act and Rule 28AA of the IT Rules, and as such, the petition is disposed of without relegating the petitioner to the admitted alternative remedy available to the petitioner. 20. It is salient that the provisions in tax statues must be interpreted strictly, and in this regard, this Court could refer to the decision of the Hon ble Supreme in Ajmera Housing Corporation Ors. v. Commissioner of Income [2010] 8 SCC 739, and this proposition is reiterated in the recent decision in Checkmate Services Pvt. Ltd. v. Commissioner of Income Tax I [reported in [2023] 6 SCC 451]. It is trite law that a taxing statute is to be construed stri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Board to devise a classification amongst Assessees while framing Rules. 23. The provisions of Section 197(2A) 4 of the IT Act stipulates that the Board, having regard to the convenience of the Assessees and the interests of revenue make Rules: [a] specifying the cases in which, and the circumstances under which, an application may be made for the grant of Certificate, [b] specifying the conditions subject to which such Certificate may be granted, and [c] providing for all the matters connected therewith. The first of the aforesaid three relate to the cases and the circumstances in which an Assessee could file an application for issuance of a Certificate under Section 197(1) of the IT Act, the second relates to the conditions subject to which such Certificates may be issued and the third relates to other matters. The Board can stipulate the conditions that the Assessing Officer will have to examine to satisfy himself/ herself that the total income of a recipient [an Assessee] justifies the deduction of income tax at a lower rate or no deduction. The Board may devise conditions which in it opinion that the Assessing Officer must consider, but those condition cannot impose a cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer s satisfaction that an Assessee s total income justifies no deduction, or deduction at a lower rate, and the determination of the existing and estimated incomes, the third aspect relates to the materials that the Assessing Officer must consider to determine the existing and estimated income to record satisfaction as aforesaid. The Assessing Office must consider the details aforementioned to determine existing liability and estimated income to arrive at a decision on being satisfied about the requirement under Section 197(1) of the IT Act. However, the details mentioned in Rule 28AA (2) of the IT Rules cannot be read to say that a Certificate under the aforesaid provisions will be issued only when the Returns for the previous four years are filed or that the tax must be paid for the previous year relevant to the assessment year inasmuch as the provisions of Rule 28AA (1) and 2(i) 2(ii) of the IT Rules contemplate estimated liability and estimated income. 26. If the contention that only if the Returns are filed for four previous years, or the payment of tax, is accepted as a condition for entertaining an application under Section 197(1) of the IT Act, it would result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the reliance upon the decision of the High Court of Punjab and Haryana in Serco BPO (P) Ltd. v. Assistant Commissioner of Income-tax, TDS Circle, Gurgaon supra is well founded. In this case, the High Court of Punjab and Haryana, where the proceedings were pending against a person who has filed the application, has opined that consideration of the outcome of the proceedings is extraneous, and in the present case, the proceedings that are referred to relate not to the petitioner but to its sister concern. Therefore, this Court must opine that the reasons assigned by the respondent to say that the petitioner will not be eligible for Certificate under Section 197 of the IT Act because of the ambiguity surrounding the transactions with the existing concern are not justified. 30. On whether the petitioner s application for Certificate must be restored for reconsideration or whether this Court must issue a direction to the respondent to issue a Certificate need not detain this Court as it is apparent from the material now placed on record that the respondent proposes to justify the decision to deny the Certificate, apart from the reasons stated in the impugned order, because of the use ..... X X X X Extracts X X X X X X X X Extracts X X X X
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