Commissioner of Income Tax (TDS) vs Parle Biscuits Pvt. Ltd.

Hemant Gupta, J.—The present appeal u/s 260A of the income tax Act, 1961 (for short "the Act"), is against an order dated March 7, 2012, passed by the income tax Appellate Tribunal, Delhi Bench "F", New Delhi (for short "the Tribunal"), in I.T.A. No. 100/Del/2012, whereby the Revenue''s appeal was dismissed holding that the tax deduction certificates were validly issued u/s 197, therefore, the order passed by the Commissioner of income tax (Appeals), Rohtak, does not warrant any interference. The Revenue has framed the following substantial questions of law in the present appeal:

(i) Whether, on the facts as well as in law, the hon''ble income tax Appellate Tribunal, Delhi Bench, New Delhi, has erred in law in deleting the demand of Rs. 55,80,301 created on account of short deduction of tax from the payment of Rs. 46,83,10,501 made to eight different parties of contract work done by him.

(ii) Whether, on the facts and in the circumstances of the case, the hon''ble Tribunal was, on the facts and in the circumstances of the case, the learned Commissioner of income tax (Appeals), Rohtak, has erred in law holding that the concerned Assessing Officer may not be aware of the existence of various TANs of the deductors and the concerned Assessing Officer of the deductee generally issue certificate u/s 197 on the registered office of the deductor, whereas the certificates u/s 197 is issued by the Assessing Officer in the name of the deductor only as requested by the deductee-applicant.

The assessee has given contract of executing the works to various persons, making it liable to deduct tax on the rate prescribed u/s 194C of the Act. Eight of the contractors, executing works for the assessee, furnished certificates as contemplated u/s 197(2) of the Act addressed to Parle Biscuits Pvt. Ltd., Mumbai, for deduction of tax on lower rate than the specified in section 194C of the Act. The assessee made a deduction of tax at the rates so specified in such communications acting on certificates issued by the Assessing Officer of the contractors.

The learned Assessing Officer found that there is short deduction of tax as the Parle Biscuits Pvt. Ltd., Mumbai has a separate Tax Deduction Account Number (TAN) than the Parle Biscuits Pvt. Ltd., Bahadurgarh, which implies that the assessee and Parle Biscuits Pvt. Ltd., Mumbai, are separate entities for the purpose of deduction of tax at source. Consequently, passed an order of raising demand against the assessee for the violations of section 194C of the Act.

In appeal by the assessee, the Commissioner of income tax (Appeals), Rohtak, returned a finding that since the genuineness of the issue of certificates u/s 197 of the Act has not been doubted by the Assessing Officer, therefore, there is no justification to hold that the assessee is in default merely on the ground that the said certificate was not issued in the name of the Bahadurgarh unit. The said order was affirmed by the Tribunal.

Learned counsel for the appellant has vehemently argued that it is the responsibility of the assessee to deduct the tax at source in relation to the work executed, but since the tax was not deducted in terms of section 194C of the Act, therefore, the order passed by the Assessing Officer has been wrongly set aside by the Commissioner of income tax (Appeals), Rohtak, and upheld by the Tribunal.

We find that the argument raised is not tenable. In terms of section 194C of the Act, any person responsible for paying any sum for carrying out any work, is liable to deduct tax at the time of credit of such sum to the account of the contractor. Section 197 of the Act contemplates issuance of certificate to the person responsible for paying the income for deduction of tax at the rate lower than the prescribed u/s 194C. The relevant sections read as under:

194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to-

(i) one per cent, where the payment is being made or credit is being given to an individual or a Hindu undivided family;

(ii) two per cent, where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family,

of such sum as income tax on income comprised therein....

(1) Subject to rules made under sub-section (2A), where, in the case of any income of any person or sum payable to any person, income tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194I, 194J, 194K, 194LA and 195, the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income tax at any lower rates or no deduction of income tax, as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate.

(2) Where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the Assessing Officer, deduct income that the rates specified in such certificate or deduct no tax, as the case may be.

(2A) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (1) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.

Section 204(iii) of the Act defines the expression "person responsible for paying" appearing in section 194C of the Act. The relevant clause reads as under:

(iii) in the case of credit or, as the case may be, payment of any other sum chargeable under the provisions of this Act, the payer himself, or, if the payer is a company, the company itself including the principal officer thereof;

The procedure for obtaining certificate for deduction at lower rates or lower deduction of tax is prescribed in rule 28AA of the income tax Rules, 1962. Sub-clause (4) of the said rule contemplates that the said certificate issued in terms of section 197(1) of the Act is valid only with regard to person responsible for deducting the tax and specified therein. Sub-clause (5) of rule 28AA contemplates that the certificate shall be directed to the person responsible for deducting the tax under advice to the person who made an application for issue of such certificate. The relevant provisions of the Rules reads as under:

28AA. (1) Where the Assessing Officer, on an application made by a person under sub-rule (1) of rule 28 is satisfied that existing and estimated tax liability of a person justifies the deduction of tax at lower rate or no deduction of tax, as the case may be, the Assessing Officer shall issue a certificate in accordance with the provisions of sub-section (1) of section 197 for deduction of tax at such lower rate or no deduction of tax....

(3) The certificate shall be valid for such period of the previous year as may be specified in the certificate, unless it is cancelled by the Assessing Officer at any time before the expiry of the specified period.

(4) The certificate shall be valid only with regard to the person responsible for deducting the tax and named therein.

(5) The certificate shall be issued direct to the person responsible for deducting the tax under advice to the person who made an application for issue of such certificate.

In terms of abovesaid provisions, the Assessing Officer of the contractors have furnished certificate u/s 197 of the Act to the principal officer of the Parle Biscuits Pvt. Ltd., Mumbai. Such certificate is in terms of clause (iii) of section 204 of the Act. Such certificate mandates the persons to whom such certificate is issued to deduct tax at a rate lower than the prescribed rate u/s 194C of the Act. Merely because the assessee has got separate TAN for the Bahadurgarh unit and for Mumbai unit, will not render the certificate issued u/s 197(2) as redundant. Such certificate is to be issued to the principal officer of the company as the person responsible for deduction of tax and not to any other person or unit of the assessee. Therefore, the order passed by the Commissioner of income tax (Appeals) Rohtak, and affirmed by the Tribunal cannot be said to be suffering from any illegality in any manner. Consequently, we do not find any merit in the present appeal. The same is dismissed.