By K. B. Bhujle
Advocate
Tata Teleservices (Maharashtra) Ltd. vs. Dy.
CIT; 402 ITR 384 (Bom); Date of Order:16-25/01/2018:
A.
Y. 2018-19:
Section
197; R. 28AA of ITR 1962; Art. 226 of Constitution of India
The
assessee provided telecommunication services. For the A. Ys. 2014-15 to
2016-17, it filed return declaring loss aggregating to Rs. 1330 crore and
making a claim of refund of an aggregate sum of Rs. 121 crore. In the course of
its business, the assessee received various payments for the services rendered
which were subject to tax deduction at source (TDS) under Chapter XVII of the
Income-tax Act, 1961. According to the assessee it was not liable to pay
corporate tax in the immediate future in view of the likely loss for the A. Y. 2018-19
and the carried forward losses. Therefore, it filed an application/s. 197 of
the Act for a certificate for nil/lower TDS to enable it to receive its
payments from various parties which were subject to TDS, without actual
deduction at source. On 04/05/2017, the Dy. Commissioner (TDS) issued a
certificate u/s. 197 and directed the deduction of tax at nil rate by the
various persons listed in the certificate while making payments to the assessee
u/ss. 194, 194A, 194C, 194-I, 194H and 194J. Thereafter, the Dy. Commissioner
(TDS) communicated that he was reviewing the certificate u/s. 197 which had
been issued, in respect of cases in which outstanding tax demand was pending.
Consequently, the assessee furnished the details of tax outstanding. The Dy.
Commissioner (TDS) issued a show cause notice and granted a personal hearing to
the assessee. By an order dated 23/10/2017, the certificate dated 04/05/2017
issued u/s. 197 was cancelled on the ground that any future tax payable might
not be recoverable from the assessee and that there was an outstanding tax
demand of Rs. 6.90 crore payable by the assessee.
The Bombay
High Court allowed the writ petition filed by the assessee, quashed the order
of the Dy. Commissioner (TDS) dated 23/10/2017 cancelling the certificate and
held as under:
“i) The issuance of the certificate was the
result of an order holding that the assessee was entitled to a certificate u/s.
197. In the absence of the reasons being recorded, the certificate u/s. 197
would not be open to challenge by the Department, as it would be impossible to
state that it was erroneous and prejudicial to the Revenue. The recording of
reasons was necessary as only then it could be subject to revision by the
Commissioner u/s. 263. Therefore, there would have been reasons recorded in the
file before issuing a certificate dated 04/05/2017 and that ought to have been
furnished to the assessee before contending that the aspect of rule 28AA was
not considered at the time of granting the certificate. Further, if the Department
sought to cancel the certificate on the ground that a particular aspect had not
been considered, before taking a decision to cancel the certificate already
granted, it must have satisfied the requirement of natural justice by giving a
copy of the same to the assessee and heard the assessee on it before taking a
decision to cancel the certificate.
ii) The notices which sought to review the
certificate did not indicate that the review was being done as the certificate
dated 04/05/2017 was granted without considering the applicability of rule 28AA
in the context of the assessee’s facts. Therefore, there was no occasion for
the assessee to seek a copy of the reasons recorded while issuing the
certificate. Moreover, it was found on facts that there was no change in the
facts that existed on 04/05/2017 and those that existed when the order dated
23/10/2017 was passed. Thus, there was a flaw in the decision-making process
which vitiated the order dated 23/10/2017. The grant or refusal to grant the
certificate u/s. 197 had to be determined by parameters laid down therein and
rule 28AA and it could not be gone beyond the provisions to decide an
application.
iii) The order dated 23/10/2017 did not indicate,
what the profits were likely to be in the near future, which the Department
might not be able to recover as it would be more than the carried forward
losses. However, such a departure from the earlier view had to be made on valid
and cogent reasons. Therefore, on the facts, the basis of the order, that the
financial condition of the assessee was that any further tax payable might not
be recoverable, was not sustainable and rendered the order bad.
iv) Neither section 197 nor rule 28AA provided
that no certificate of nil or lower rate of withholding tax could be granted if
any demand, however miniscule, was outstanding. Rule 28AA(2) required the
authority to determine the existing estimated liability taking into
consideration various aspects including the estimated tax payable for the
subject assessment year and also the existing liability. The existing and
estimated liability also required taking into account the demands likely to be
upheld by the appellate authorities. The assessee’s appeal with respect to the
demand of Rs. 6.68 crore was being heard by the Commissioner (Appeals) and no
order had been passed thereon till date.
v) The order in question did not deal with the
assessee’s contention that the demand of Rs. 28 lakh was on account of mistake
in application of TRACE system nor did it deal with the assessee’s contention
that the entire demand of Rs. 6.90 crore could be adjusted against the
refundable deposit of Rs. 7.30 crore, consequent to the order dated 27/05/2016
of the Tribunal in its favour. The order dated 23/10/2017 seeking to cancel the
certificate dated 04/05/2017 was a non-speaking order as it did not consider
the assessee’s submissions. Therefore, the basis of the order cancelling the
certificate, that there was outstanding demand of Rs. 6.90 crore payable by the
assessee, was not sustainable.
vi) In the above view, the impugned order dated
23/10/2017 is quashed and set aside.”
