TMI Blog2019 (7) TMI 1503X X X X Extracts X X X X X X X X Extracts X X X X ..... n valid reasons and is contrary to the legal requirement spelt out in Section 197(1) of the Act read with Rule 28AA of the Rules. The impugned certificate is hereby quashed. The Court directs Respondent No.1 to once again consider the application made by the Petitioner on 30th April 2019 for issuance of a lower withholding certificate under Section 197(1) afresh in accordance with law. - Till such time the fresh decision is communicated to the Petitioner, the decision in respect of TDS for the immediate earlier AY @ 1.5% will continue to apply. Requirement of reasoned order u/s 197 - application made for @ nil rate of TDS or alternative @ 1.04% - AO posted certificate @5% - no reasons communicated to assessee - Whether posting rate of TDS on Traces website is sufficient - HELD THAT:- Even if one were to accept the explanation offered by Mr. Bhatia that on the online portal only a certificate is posted and not the reasons for the decision, then surely there should be a separate written order communicated to the Petitioner giving the reasons for fixing the TDS rate under Section 197(1) since this is mandated by law. To reiterate, that decision which is quasi-judicial in nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom its customers after deduction of tax @ 1.5% of the sum remitted. 5. The Income Tax Appellate Tribunal ( ITAT ) rejected the Petitioner s appeals and upheld the assessment order for the above AYs 2002-03 to 2006-07 confirming the rate of attribution of income to the PE in India @ 2.6%. This was not further questioned by the Revenue. Copy of the order dated 27th January, 2017 passed by the ITAT in the appeals for the aforementioned AYs have been enclosed with the petition. 6. However, the above decision was further challenged in this Court by the Petitioner s group companies on identical facts. By judgment dated 21st December, 2018 in ITA No.621/2017 and batch, the said appeals were dismissed by this Court. Following the above judgment, the Department passed an assessment order in the Petitioner s case for AY 2015-16 attributing income to the PE in India at the rate of 2.6% and computing tax @ 40% thereon. According to the Petitioner, the effective rate of tax was worked out at 1.04% of the total revenues. 7. For Financial Year (FY) 2019-20, the Petitioner electronically filed an application on 30th April 2019 under Section 197 of the Act seeking NIL wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above assessment proceedings by the ITAT, there was no reason for Respondent Nos.1 and 2 to take a different stand in the absence of any change in facts of the applicable law. 10. With its reply dated 6th June 2019, the Petitioner enclosed the withholding certificate issued by Respondent No.1 under Section 197 of the Act for FY 2018-19 @ 1.5%. The Form 10K filed by Baker Hughes before the USSEC for the year ended 31st December 2017 was also enclosed. This indicated figures pertaining to global revenues. It showed that the holding company had earned profit/loss margin of 3.06% and 1.65% of global revenue in 2018 and 2017 respectively. It was pointed out that even if the Department decided to continue with the determination of profitability of the Petitioner, it could not be more than the global profit margin of the holding company. 11. Respondent No.1 issued the impugned certificate on 11th June 2019 authorising deduction of tax from the payments made to the Petitioner by different entities which purchased its goods @ 5%. This withholding certificate has been challenged in the present petition by the Petitioner on the following grounds: (i) No reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. This petition was listed first on 19th July 2019 when notice was issued. Mr. Sachit Jolly, learned counsel for the Petitioner pressed for an urgent interim relief since the amount involved since the beginning of FY 2019-20 was already substantial. However, given the nature of the matter, it was felt that the interim relief would be no different from the final relief. At the request of Mr. Ruchir Bhatia, learned counsel for the Revenue, who was present in Court on that day, the case was adjourned to 26th July 2019 to enable him to take instructions. 13. On the adjourned date, Mr. Bhatia informed the Court that he had with him, the relevant files of the Department. When asked about the reasons for the impugned certificate under Section 197 of the Act specifying the rate of TDS at 5%, Mr. Bhatia volunteered that it was only the certificate which was posted online on the portal of the Petitioner and no separate order as such giving reasons for the same was posted. He, however, stated that the original file brought to the Court would contain the reasons. 14. The Court has perused the Department s file. It contains just 8 pages of notings. The first noting is of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rease the TDS percentage from 1.5% to 2% without any reason whatsoever. Consequently, in the fresh note dated 27th May 2019 of Respondent No.1, no reasons were given as to why the TDS rate should not be NIL as requested for by the Assessee and instead why it should be increased from 1.5% to 2%. Interestingly, in this entire note and in the further notes of the superior officers, no reference is made to what is stated by the Petitioner in its application dated 30th April 2019. 17. The fresh note dated 27th May 2019 was placed again before the Addl. CIT and then before the CIT (IT) i.e. Respondent No.2. On 28th May 2019 the noting made by Respondent No.2 reads as under: PE has been held to be there in India. Accounts have not been given. Issue @ 5%. 18. This is a crucial noting. Two factors require to be noted here. One that without any change in the circumstances, between 24th May 2019 when he first saw the file and 28th May 2019 when he next saw it, the CIT reviewed his earlier decision instructing his subordinate to put up the file again proposing a 2% TDS. Secondly, his comments were cryptic. That there was a PE of the Petitioner in India was not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em, at the cost of repetition, may be recapitulated. The first is Respondent No.1 changing his initial decision as contained in the note dated 21st May 2019 directing TDS at 1.5% to 5% by his subsequent note dated 27th May 2019 without any reasons and only because his superior, the CIT (IT) asked him to do so. At that stage, no reasons whatsoever appeared to have been indicated as to why the CIT felt that the TDS rate should be 2% instead of 1%. Respondent No.1 mechanically followed the advice and prepared a fresh note on 27th May 2019 simply stating that considering the facts and circumstances of the case the TDS certificate should be at 2%. 24. Secondly, when this note went back to the CIT, he simply said issue @ 5% after noting that there was a PE in India and accounts have not been given. This was, therefore, done even without asking the Petitioner for the accounts at that stage. It may be noted that this noting was made on 28th May 2019 and on 29th May 2019 it was already decided to issue the certificate accordingly. For the second time, therefore, Respondent No.1 acted on dictation. This was not a case of a superior officer concurring with the decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by Wade and Forsyth in Administrative Law , 7th Edition at pages 358 and 359 under the heading Surrender, Abdication, Dictation and sub-heading Power in the wrong hands as below: Closely akin to delegation, and scarcely distinguishable from it in some cases, is any arrangement by which a power conferred upon one authority is in substance exercised by another. The proper authority may share its power with someone else, or may allow someone else to dictate to it by declining to act without their consent or by submitting to their wishes or instructions. The effect then is that the discretion conferred by parliament is exercised, at least in part, by the wrong authority, and the resulting decision is ultra vires and void. So strict are the courts in applying this principle that they condemn some administrative arrangements which must seem quite natural and proper to those who make them..... . Ministers and their departments have several times fallen foul of the same rule, no doubt equally to their surprise.... 14. The present was thus a clear case of exercise of power on the basis of external dictation. That the dictation came on the prayer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e produced before this Court by the Department shows that the above factors were not kept in view and no reference in fact was made to Rule 28AA of the Rules. The impugned certificate simply states that the rate of TDS should be 5%, which obviously does not satisfy the requirements of the law. 29. Even if one were to accept the explanation offered by Mr. Bhatia that on the online portal only a certificate is posted and not the reasons for the decision, then surely there should be a separate written order communicated to the Petitioner giving the reasons for fixing the TDS rate under Section 197(1) since this is mandated by law. To reiterate, that decision which is quasi-judicial in nature, has to be taken by the AO under Section 197(1) of the Act on objective criteria and be based on relevant material provided by the applicant and available with the Department. It must be supported by reasons available on the file which conform to the requirement of Section 197 of the Act read with Rule 28 AA of the Rules. Those reasons must be communicated to the applicant. It cannot be taken, as in the instant case, on the dictation of an officer superior to the AO. 30. In Tat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Constitution embodies. The prescriptions of Article 14 must at all times infuse statutory interpretation and must rigorously apply to the exercise of statutory discretion. It is in these circumstances, that this court has been constrained to exercise its writ jurisdiction under article 226 to correct a manifest failure of justice. The Assessing Officer is correct in adopting the position that section 197(2) will not preclude a departure or a contrary view being taken in assessment proceedings, in view of the judgments of this court in CIT v. Tata Engineering and Locomotive Company Limited (2000) 245 ITR 823 and CIT v. Elbee Services (P) Limited (2001) 247 ITR 109. But the Assessing officer must also bear in mind that a departure has to be made on the basis of valid and cogent reasons where there is material on record which would justify such a departure. There is an absence of material on record which would have justified a departure in the facts of the present case. 32. The Court accordingly finds that in the present case the impugned withholding certificate which directs TDS to be deducted at 5% on the payments made by the Indian entities to the Petitioner is uns ..... X X X X Extracts X X X X X X X X Extracts X X X X
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