2010 (4) TMI 414 - HC - Income Tax

Court overturns Tax Commissioner's rejection of Section 197 application, deems error in applying Rule 28AA.

Larsen and Toubro Ltd. Versus Assistant Commissioner of Income-tax (TDS)

Larsen and Toubro Ltd. Versus Assistant Commissioner of Income-tax (TDS) - [2010] 326 ITR 514 (Bom) Issues Involved:1. Rejection of application under Section 197 of the Income-tax Act, 1961.2. Maintainability of revision under Section 264 of the Income-tax Act, 1961.Detailed Analysis:1. Rejection of Application under Section 197 of the Income-tax Act, 1961:The petitioner, a consortium of Larsen and Toubro Ltd. and Scomi Engineering Berhad, was awarded a contract for the Mumbai Monorail Project. They filed an application under Section 197 requesting a certificate authorizing MMRDA to deduct tax at a lower rate of 0.11% from payments made under the contract. The Assessing Officer rejected this application on January 5, 2010, citing two reasons: the calculation mechanism under Rule 28AA of the Income-tax Rules, 1962 fails due to the unavailability of figures for the previous three years, and no eTDS returns were filed by the assessee.The petitioner sought reconsideration, but the application was again rejected on January 13, 2010, with the same reasoning. The Commissioner of Income-tax (TDS) upheld the rejection, stating that the absence of financial statements for the previous three years invalidated the application and that the non-filing of eTDS returns was a significant issue.The court found the Assessing Officer's reasons for rejection to be erroneous. Rule 28AA provides a mode of computing the rate at which tax is to be deducted at source and is not a condition of eligibility. The court emphasized that the failure to file eTDS returns may result in independent legal consequences but cannot justify the rejection of the application under Section 197.2. Maintainability of Revision under Section 264 of the Income-tax Act, 1961:The Commissioner rejected the revision application under Section 264, arguing that the rejection of an application under Section 197 does not constitute an 'order' subject to revision. The Commissioner also stated that no hardship would be caused to the assessee because any excess tax paid would be refunded with interest.The court disagreed, stating that the rejection of an application under Section 197 does result in an order, and the expression 'order' for the purposes of Section 264 has a wide connotation. The court clarified that any order passed by an authority subordinate to the Commissioner, other than an order to which Section 263 applies, is subject to the revisional jurisdiction under Section 264.The court criticized the Commissioner's approach, emphasizing that the Assessing Officer must apply his mind to ensure the conditions for granting a certificate under Section 197 are fulfilled. The court found the rejection of the application to be done in a 'cavalier manner' without proper consideration of relevant circumstances.Conclusion:The court set aside the impugned orders passed by the Commissioner of Income-tax (TDS) on January 29, 2010, and February 9, 2010. The revision application filed by the assessee under Section 264 was restored to the Commissioner for fresh determination in accordance with the law, with an opportunity for the assessee to be heard. The Commissioner was directed to complete this exercise and pass a reasoned order within four weeks. The rule was made absolute, with no order as to costs.