1. This appeal by the Revenue is directed against the order passed by the CIT(A) on 26.2.1999 in relation to F.Y. 1997-98.
2. The solitary effective ground projects the grievance of the Revenue as under: "On the facts and in the circumstances of the case the ld. CIT(A) erred in cancelling the IDS demand of Rs. 240,564/- for failure to deduct tax at source Under Section 194-C and interest charged thereon Under Section 201(1), ignoring the fact that the person responsible for making contract payments was not having any certificate/authorization for making payment without TDS for the period from 16.10.1997 to 31.12.1997." 3. Briefly stated, the facts apropos of the controversy are that the assessee is a person responsible for making payments to contractors, deducting tax at source and filing returns Under Section 206 of the Act. During the Financial Year 1997-98, return Under Section 206 was filed with the Income-tax Officer (TDS) Chittorgarh. On scrutiny of the same, it was noticed by the Assessing Officer that the assessee had made total payment of contract worth Rs. 4,16.41,107/- to one M/s Associated Transport Co., Indore. These Payments were made without deduction of tax au source. On being called upon to explain the reasons for not deducting tax at source, it was stated on behalf of the assessee that the payments were made without deduction of tax at source as a consequence of certificate issued Under Section 197(1) by the ACIT, Circle - 2, Indore. In support of this contention, the assessee furnished copies of such certificates dated 11.4.1997 and 6.1.1998. On the perusal of the first certificate, it was observed by the Assessing Officer that the assessee was authorized not to deduct tax upto the payment of Rs. 2,50,00,000/- only. This limit was found to have been exhausted on 16.10.1997. The second certificate Under Section 197(1) was issued on 6.1.1998 again authorizing payment without deduction of tax at source for a further sum of Rs. 2,50.00,000/-. On going through the details of payments made by the assessee, it was noticed that a sum of Rs. 1.20,28,205/- represented payments made from 16.10.1997 to 6.1.1998, being the period when no certificate for non deduction of tax at source was in force. Resultantly, the assessee was held to be in default for non deduction of tax at source on these payments amounting to Rs. 2,40,564/-. Interest Under Section 201(1A) was also charged on this amount. In the first appeal, the ld. CIT(A) overturned the action of the Assessing Officer.
4. Before us, the ld. D.R. strongly contested against the waiver of the amount in question by the first appellate authority by contending that the Assessing Officer had rightly worked out the quantum of amount for which the assessee was in default for non deduction of tax at source.
It was contended that after emptying the limit set out in the first certificate issued on 11.4.1997, the person responsible was duty bound to deduct tax at source. It was contended that the issuance of second certificate on 6.1.1998 for a further sum of Rs. 2.50 crores without deduction of tax at source was only prospective and no benefit of it could have been allowed to the assessee for the payments made interior to the date of issuance of the later certificate. Sounding contra note, the ld. A.R. vehemently argued that the ld. CIT(A) had rightly appreciated the facts in wiping out the demand unlawfully created by the Assessing Officer. It was contended that M/s Associated Transport Co. i.e. the recipient contractor, had filed its return of income for the relevant A.Y. with the Asstt. Commissioner of Income-tax, Indore and the payment of contract amount for which no tax was stated to be allegedly deducted, had already been taken into account and tax, if any, was also deposited. Our attention was drawn towards the finding recorded in para 5.1 of the impugned order, which was stated to have remained uncontroverted by the ld. D.R.5. We have heard the rival submissions and painstakingly perused the evidence on record in the light of precedents cited at the Bar. It is obvious that the first certificate Under Section 197(1) dated 11.4.1997 was issued in Form No. 15AA which was in force upto 31.3.1998 i.e. the close of the financial year, Para 3 of the certificate mentions a sum of Rs. 2.50 crores against column "Sums expected to be credited paid........." Thereafter, on. 6.1.1998, another certificate on the same lines was issued in Form NO. 15AA which was again to remain in force upto 31.3.1998, unless cancelled by the issuing officer. A sum of Rs. 2.50 crores is mentioned against column "Sums expected to be credited paid.........." in the succeeding certificate as well. The total payments made by the appellant to M/s Associated Transport Company, Indore, during the period 1.4.1997 to 31.3.1998 amounted to Rs. 4,16,41,107/-. The case of the Revenue is that the ceiling of Rs. 2.50 crores vanished on payments made upto 16.10.1997 and further payments made prior to the issuance of certificate on 6.1.1998 were liable for deduction of tax at source and the person responsible having not deducted tax at source was to be considered as the assessee in default. In order to appreciate the core of controversy, it would be apt to consider the provisions of Section 197 which are reproduced as under: (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, 194H, 194-I, 194J, 194K 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-tax at 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." 6. Relevant Rule No. 28AA for certificate of no deduction/or deduction of tax at lower rates from income other than dividends, reads as under: "28AA. Certificate of no deduction of tax or deduction at lower rates from income other than dividends.
(1) The Assessing Officer, on an application made by a person under Sub-rule (1) of Rule 28, may issue a certificate in accordance with the provisions of Sub-section (1) of Section 197 for deduction of tax at source at the rate or rates calculated in the manner specified below: - (i) at such average rate of tax as determined by the total tax payable on estimated income, as reduced by the sum of advance tax already paid and tax already deducted at source, as a percentage of the payment referred to in Section 197 for which the application under Sub-rule (1) of Rule 28 has been made; or (ii) at the average of the average rates of tax paid by the assessee in the last three years; whichever is higher.
(2) The certificate shall be valid for the assessment year to be specified in the certificate, unless it is cancelled by him at any time before the expiry of the specified period. An application for a fresh certificate may be made, if required, after the expiry of the period of validity of the earlier certificate.
(3) The certificate shall be valid only for the person named therein.
(4) The certificate shall be issued direct to the person responsible for paying the income under advice to the applicant.
7. From a plain reading of Sub-section (1) of Section 197, it becomes palpable that the certificate in Form No. 15AA is issued by the Assessing Officer if he is satisfied that the "total income" of the recipient justifies deduction of Income-tax at any lower rate or no deduction of Income-tax is required. Sub-section(2) clearly provides that where such certificate is issued, the person responsible shall deduct Income-tax at lower specified rate or shall not deduct any tax, as the case may be, until such certificate is cancelled by the Assessing Officer. Sub-rule (2) of Rule 28AA enshrines that the certificate shall be valid for the A.Y. to be specified in the certificate. It is further provided that the application for a fresh certificate may be made, if required, after the expiry of period of validity of earlier certificate. When Section 197 is read in conjunction with Rule 28AA, the following salient features emerge: 1. The satisfaction of the Assessing Officer for no deduction or deduction of Income-tax at lower rate is with reference to the "total income" of the recipient. Section 2(45) defines "total income" to mean the total amount of income referred to in Section 5, computed in the manner laid down in this Act. This obviously refers to the income for the whole of the year. That appears to be the reason for the fact that the certificate issued under Section 197(1) is made valid for the A.Y. in which it is issued. The sum and substance of this legal position is that the satisfaction of the Assessing Officer for issuance of certificate is arrived at with reference to the total income of the recipient, which is to be earned throughout the F.Y. Before the issuance of such certificate for deduction of tax at lower rate or for no deduction of tax at source, the Assessing Officer has further to be satisfied for no deduction or deduction at lower rate of tax by taking into consideration the expected income of the appellant assessee for the whole of the Financial Year. It cannot be understood to mean a part of the year. Having reached satisfaction for non deduction of Income-tax at source and issued certificate for the period upto the close of the F.Y., shows his understanding at that stage, that the total income of the assessee would not exceed the taxable limit warranting any deduction of tax at source for the entire previous year.
ii. On the issuance of certificate Under Section 197(1) the person responsible for paying the income is authorized to make the payments in consonance with such certificate. The bar would operate only when the certificate is cancelled by the Assessing Officer or the validity period, namely "the A.Y. to be specified in the certificate" comes to an end. It shows that unless the certificate is cancelled by the Assessing Officer, the person responsible is entitled to make the payment of income subject to no deduction of Income-tax at source or at any lower rate as provided in the certificate, for a period upto the close of the F.Y. in which this certificate is issued.
iii. An application for a fresh certificate can be made, if required, after the expiry of the period of validity of the earlier certificate. This provision as incorporated in Sub-section (2), clarifies the position that there is no need to apply for a fresh certificate during the currency of the period upto the close of the F.Y., which is stipulated in the original certificate.
iv. Rule 28AA(1)(i) refers to the 'estimated income' for the purpose of issuance of certificate by the Assessing Officer. Such certificate is issued in Form No. 15AA. Appropriate column in para 3 of this Form bears the title "Sums expected to be credited paid in pursuance of the contract during the current previous year and each of the three immediately succeeding years." It is this column, under which the amount is specified by the Assessing Officer. The obvious reference to the figure in this column is to the expected sum to be paid or credited during the current year to the account of the creditor. It nowhere contains any ceiling or cap, being the amount beyond which no payment can be made without deduction of tax at source for deduction at lower rate. The employing of the expressions "Sums expected " and "during the current previous year" clearly demonstrates that the figure mentioned in this Col. is an expected sum, which would be received by the recipient on which the Assessing Officer is satisfied that the "total income" of the recipient justifies no deduction of tax at source. Had the intention of the rule making authority been to fix a straight ceiling in this regard, it would have made out so in 'unequivocal terms, rather than using loose expression "sums expected". Further, when the language of Section 197 alongwith Rule 28AA is read in entirety, it becomes obvious that the reference has been made to the "total income" of the recipient and the certificate is issued for the whole of the F.Y. in which it is issued. If due to one reason or the other, actual contract payment exceeds the amount specified in Col. No. 3 of Form No. 15AA, it cannot be lightly said that the person responsible for making the payment has become liable to deduct tax at source for the clear reason that the certificate issued. It, therefore, transpires that the amount specified in this column is only a tentative figure and the actual amount may be more or less than that. In such later situation, the certificate for no deduction or deduction of tax at lower rate would hold good and remain in force till the close of the F.Y. in which it is issued.
8. The bone of contention in the instant case is that as per the first certificate issued on 11.4.1997, the amount not requiring deduction of tax at source was Rs. 2.50 crores, which was to remain in force upto 31.3.1998. As discussed supra, the obvious reference to the figure of Rs. 2.50 crores is to the "expected sum" if credited during the current year to the account of the contractor. It does not contain any ceiling or a cap of Rs. 2.50 crores as meant for authorizing the person responsible not to make payment without deduction of tax at source beyond this sum. Be that as it may, it is noted that the first certificate was issued on 11.4.1997 and the second was issued on 6.1.98 both bearing a sum of Rs. 2.50 crores each. Even though the limit prescribed in the first certificate got exhausted, as per the Assessing Officer as on 16.10.1997, the receipt of second certificate from the Assessing Officer authorizing the assessee to pay the contract payment upto further Rs. 2.50 crores, without deduction of tax at source, made the total entitlement of the assessee for payment without deduction of tax at source at Rs. 5 crores during the F.Y. 1997-98. As the total payment made was only to the tune of Rs. 4.16 crores, the payments made after 16.10.1997 without deducting tax at source cannot empower the Assessing Officer to treat the assessee as in default in terms of Section 201. In our considered opinion, the ld. CIT(A) was justified in overturning the action of the Assessing Officer in this regard and also consequently demolishing the levy of interest Under Section 201(1A).
We, therefore, uphold the impugned order.