Purpose of section 197
Provisions relating to deduction of tax at source (‘TDS’) do offer the government a good tool of efficient tax recovery but unless counterbalanced with a measure like Section 197, can become a weapon of oppression. Thus, to ensure that taxpayers who don’t have enough tax liability, should not suffer from a cash-flow problem, provisos and sub-sections were introduced in Section 18 of the Income tax Act, 1922 (now are embodied in Section 197 of the current Act), so as to make the tax collection mechanism just and fair.
This judicious and fair approach gets diluted if the issuance of the certificate is either delayed or it is issued in the name of specified persons, based on anticipation of the taxpayer seeking the certificate, and during the year dynamics of business warrant further certificate in the name of other payers of income.
Fairness has been the cornerstone
Till 1959 the TDS regime was confined to salaries. In early 1950s it was contemplated to expand the ambit of TDS to various incomes e.g. rent, commission, interest etc. Income tax Investigation Commission (constituted under an Act of 1947) as well as Taxation Enquiry committee, 1953-54 in its report expressed reluctance to the idea of expanding TDS regime chiefly because of its harsh effect on taxpayers. Both the bodies felt that there would be a large number of cases where the tax deducted at the source will be more than the total tax payable by recipients of income who will then have to apply for refund and be put to considerable inconvenience.
Judiciary has also stressed on necessity of fairness in TDS as a tax collection mechanism by highlighting its subordination to the ultimate tax liability. The purpose of Section 197 being to obviate the hardship of taxpayers is also well evident from the CBDT Circular no. 636 dated 31 August 1992.
Inability or laxity of statutory authority should not prejudice assessee
It is a trite law that taxpayer should not be made to suffer on account of delay in the conduct of statutory authorities. Even statutory provisions have been read down to ensure that the time consumed in statutory process does not act harshly against the interest of assessee. To illustrate the third proviso to Section 254(2A) has been read down to the effect that if the delay in disposal of appeal before Tribunal is not attributable to the assessee then the stay does not stand vacated even after the statutorily prescribed period of 365 days [see Pepsi Foods 119 DTR 373 (Del)] and proviso to Section 80IB(10) has been read down to the effect that date of issuance of completion certificate by Municipal Corporation shall be understood to be the date when the taxpayer filed an application for obtaining said certificate [Hindustan Samuh Awas 377 ITR 150 (Bom)]
CBDT being conscious of this aspect had on several instances advised the officers to issue certificate expeditiously and reiterated this recently in Instruction 1 of 2014 dated 15 January 2014.
So, how to handle things practically?
Effort needs to be made to translate in practice, the fiscal philosophy discussed above. With a view to achieve that, taxpayers should consider and deliberate on following:
- Filing application well in advance:
- Insist on generic certificate as against specific certificate in the name of payer of income:
- Approach writ court in deserving cases:
[The author is a Director, Direct Tax Practice, Lakshmikumaran & Sridharan, Bangalore]