By TIOL News Service
MUMBAI, MAR 23, 2018: THE issue in the writ is - Whether a certificate granting lower TDS rate can abruptly be cancelled merely on the basis that the assessee is likely to suffer huge losses in future, and without providing other valid or cogent reasons for the same. NO is the verdict.
Facts of the case
THE assessee-company is a leading provider of telecommunication services. In course of business, the assessee earns revenue from sale of post & prepaid cards, sale and lease of equipments and other value added services. In its returns for the relevant AYs, the assessee declared a loss of about Rs 1330 crores, out of which an aggregate claim for refund of Rs 121 crores had been made. Although in course of business, the assessee received various payments for services rendered which were subject to TDS, it claimed that it would not be liable to pay corporate tax in the immediate future, anticipating likely loss in the next AY and also the huge carried forward losses. Thereafter, the assessee sought lower or nil witholding taxes u/s 197 of the Act, to enable it to receive payments from parties subject to TDS, without deduction at source. The assessee claimed that its accumulated losses carried forward was over Rs 4000 crores, under both MAT and normal provisions. The assessee also pointed out that an amount of Rs 101.53 crores was receivable as refund from the Revenue. The assessee also claimed that its financial health was poor, since it had taken long term debts at huge interest payments. Thus, the assessee claimed that the amounts blocked on account of TDS aggravated its financial hardship. The assessee also claimed that an outstanding tax demand for a preceding AY had already been concluded in its favor. It further pointed out that so far as the demand for the balance amount of Rs. 28.00 Lakhs was concerned, it is on account of unsustainable demand arising from an incorrect processing of TDS statement on application of TRACES System.
The Revenue considered such submissions and granted a certificate, u/s 197 directing the deduction of tax at nil rate by the various persons listed in the certificate, while making payments to the assessee u/s 194, 194A, 194C, 194I, 194H and 194J. This would result in a relief of Rs. 238.90 Crores as the same would not be deducted as tax at source, and so obviating the need for filing of refund claim with the Revenue for the next AY. Subsequently however, the Revenue cancelled such certificate, on account of outstanding tax demands. The Revenue held that when issuing such certificate, the existing demand of Rs. 6.90 Crores was not considered on the basis that this demand was under a covered issue. The Revenue also held that such covered issue under Rule 28AA(2) of the Income Tax Rules, 1961 could not be a subject of consideration while granting the certificate. The Revenue also held that considering the assessee's financia status, any future liability arising on assessment would be impossible to recover. Hence the present writ by the assessee.
In writ, the High Court held that,
++ the Revenue's order dated 23 October 2017 cancels the certificate dated 4 May 2017 on two grounds - (a) the financial condition of the assessee is such that any future tax payable may not be recoverable from the assessee; and (b) there is outstanding tax demand of Rs. 6.90 Crores payable by the assessee. Regarding ground (a), the earlier certificate is cancelled because of the current financial health or condition of the assessee is such that it would be difficult to recover any future liability raised against the assessee. A mere averment is made to above effect without indicating any basis for the conclusion. Moreover, it was urged by the assessee that the further huge financial loss was one of the considerations which weighed with the Revenue while granting certificate dated 4 May 2017 as even if the Company were to turn the corner, the accumulated losses were so huge that it was unlikely that any taxable income would be a subject matter of tax for the subject AY. In fact, this Court had occasion in Mckinsey and Company Inc. Vs. U.O.I. to consider the exercise of powers under Section 197(2) of the Act by the AO i.e. to cancel the certificate granted earlier. This Court had observed that the Assessing Officer can exercise power under Section 197(2) of the Act for canceling the certificate which has been earlier issued/ granted. However, such a cancellation or departure from the earlier view has to be made on valid and cogent reasons, i.e. when there is material on record to justify the departure. The order does not indicate any such material, nor Revenue is able to show us any such change in circumstances which would warrant canceling certificate dated 4 May 2017.
(See 2018-TIOL-506-HC-MUM-IT)
