Certificate u/s 197 given by AO under dictation of superior officer bad in law. It’s a quasi-judicial decision has to be taken by the AO on objective criteria and relevant material – High Court
ABCAUS Case Law Citation:
ABCAUS 3093 (2019) (07) HC
Important Case Law relied upon by parties:
Tata Teleservices (Maharashtra) Ltd v. Deputy Commissioner of Income-Tax (TDS)
Anirudhsinhji Karsansinhji Jadeja v. State of Gujarat AIR 1995 SC 2390
The assessee had filed a writ petition challenging the “lower withholding certificate‟ issued by the Income Tax Officer under Section 197 of the Income Tax Act, 1961 (the Act) directing deduction of tax at source (TDS) @ 5% from the payments made to the Petitioner by its Indian customers.
The Hon’ble High Court observed that from the note sheet it was evident that Assessing Officer (AO) had issued the certificate u/s 197 authorising deduction @ 5% at the direction of Commissioner of Income Tax.
The Court opined that there was both arbitrariness and non-application of mind at various levels which vitiates the impugned certificate. No reasons whatsoever had been indicated as to why the CIT felt that the TDS rate should be higher instead of 1% as asked by the Petitioner and the AO mechanically followed the advice of his superior authorities.
The Hon’ble High Court stated that the settled legal position in administrative law is that orders passed by a statutory authority under “dictation” of a superior officer or anyone else is bad in law.
The Hon’ble High Court further observed that Rule 28AA of the Income Tax Rules, 1962 (Rules) prescribes the procedure to be followed by the AO who is approached with an application under Section 197 (1) of the Act. How the AO is to estimate the “existing and estimated liability” is indicated in Rule 28 AA (2) which were not kept in view. The impugned certificate simply stated that the rate of TDS should be 5%, which obviously did not satisfy the requirements of the law.
The Hon’ble High Court reiterated that decision which is quasi-judicial in nature, has to be taken by the AO under Section 197(1) of the Act on objective criteria and be based on relevant material provided by the applicant and available with the Department. It must be supported by reasons available on the file which conform to the requirement of Section 197 of the Act read with Rule 28 AA of the Rules. Those reasons must be communicated to the applicant. It cannot be taken, as in the instant case, on the dictation of an officer superior to the AO.
The Hon’ble High Court held that the impugned withholding certificate which directed TDS to be deducted at 5% on the payments made by the Indian entities to the Petitioner was unsustainable in law, inasmuch as it was not based on valid reasons and is contrary to the legal requirement spelt out in Section 197(1) of the Act read with Rule 28AA.
Accordingly, the impugned certificate was quashed and the Hon’ble High Court directed AO to once again consider the application made by the Petitioner for issuance of a lower withholding certificate under Section 197(1) of the Act afresh in accordance with law.
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