Court Quashes High-Rate Certificates, Emphasizes Compliance with Tax Laws

The court set aside and quashed the impugned certificates issued at rates higher than nil, directing a fresh order for issuing consequential certificates under section 197 of the Income Tax Act. Emphasizing compliance with section 197 and Rule 28AA, the court highlighted the necessity of providing reasons for not granting nil rate certificates. It rejected the argument of an alternative remedy under section 264, stating that the absence of reasons in the order rendered the remedy futile. The matter was remanded for completion within four weeks, with no costs imposed.

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Issues Involved:
1. Quashing of impugned certificates dated 07.08.2020.
2. Direction to issue nil rate certificates under section 197 of the Income Tax Act, 1961.
3. Compliance with section 197 of the Act and Rule 28AA of the Income Tax Rules, 1962.
4. Requirement of reasons for issuing certificates at rates higher than nil.
5. Availability of an alternative remedy under section 264 of the Act.

Issue-wise Detailed Analysis:

1. Quashing of Impugned Certificates:
The petitioner sought the quashing of impugned certificates dated 07.08.2020, which were issued at rates higher than nil, contrary to the petitioner's request. The court noted that the issuance of certificates at higher rates aggravated the financial condition of the petitioner. The court found that the respondents did not provide reasons for issuing certificates at higher rates, which is a requirement under section 197 of the Act and Rule 28AA of the Rules. The court set aside and quashed the impugned certificates and remanded the matter back to respondent No.1 for passing a fresh order and issuing consequential certificates under section 197 of the Act.

2. Direction to Issue Nil Rate Certificates:
The petitioner sought a direction to the respondents to issue nil rate certificates under section 197 of the Act. The court emphasized that section 197 allows an assessee to apply for nil/ lower rate of withholding tax, and the Assessing Officer is obliged to grant the certificate if the conditions specified are satisfied. The court directed respondent No.1 to pass a fresh order and issue consequential certificates after complying with Rule 28AA and giving due opportunity of hearing to the petitioner.

3. Compliance with Section 197 of the Act and Rule 28AA of the Rules:
The court highlighted the importance of compliance with section 197 of the Act and Rule 28AA of the Rules. Section 197 permits an assessee to apply for a certificate for deduction at lower rates or no deduction of tax. Rule 28AA lays down the procedure for issuance of such certificates. The court noted that the Assessing Officer must pass an order on the application, providing reasons for either granting or rejecting the application. The absence of such an order or failure to communicate it to the assessee would vitiate the certificates.

4. Requirement of Reasons for Issuing Certificates at Rates Higher than Nil:
The court stressed that the issuance of certificates under section 197 must be supported by reasons. The Assessing Officer is required to pass a reasoned order, which must be communicated to the assessee. The court found that in the present case, the reasons for not granting nil rate certificates were not provided, and no contemporaneous order was available. This lack of reasoning and communication rendered the impugned certificates invalid.

5. Availability of an Alternative Remedy under Section 264 of the Act:
The respondents contended that the petitioner had an alternative remedy of filing a revision petition under section 264 of the Act. However, the court referred to previous judgments, including Larsen & Toubro Limited and Tata Teleservices (Maharashtra) Limited, which held that the rejection of an application under section 197 results in an order that can be revised under section 264. The court concluded that an order under section 197 must contain reasons and be provided to the assessee, enabling them to challenge it under section 264. The absence of such an order and reasons would make the alternative remedy futile.

Conclusion:
The writ petition was allowed to the extent that the impugned certificates dated 07.08.2020 were set aside and quashed. The matter was remanded to respondent No.1 for passing a fresh order and issuing consequential certificates under section 197 of the Act, complying with Rule 28AA and after giving due opportunity of hearing to the petitioner. The entire exercise was directed to be completed within four weeks from the date of receipt of the order. There was no order as to costs.

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