AO Not Empowered To Summarily Reject Section 197 Application: Patna High Court

The Patna High Court has held that a demand pending against the assessee would not clothe the Assessing Officer with the power to summarily reject an application under Section 197 of the Income Tax Act.

The bench of Chief Justice K. Vinod Chandran and Justice Partha Sarthy has observed that Section 197 only clothes the Assessing Officer with the power to satisfy himself that the total income of the recipient justifies the deduction of Income Tax at any lower rates or at a NIL rate.

The petitioner/assessee has challenged the rejection of applications filed under Section 197 of the Income Tax Act, 1961.

Section 197 of the Income Tax Act provides taxpayers with the ability to apply for a certificate of lower deduction or non-deduction of tax to reduce their tax liability. This certificate is issued by an authorized officer if the taxpayer's income is below the specified threshold limit.

The assessee had sought for deduction of TDS in the interest income earned from banks at NIL, since the petitioner's contention was that the total income justifies such benefit under Section 197. The orders only found that there was a tax demand with respect to the Assessment Year 2018-19, which is pending and hence the deduction at the lower rate/NIL rate is not possible.

The assessee contended that the tax demand for the year 2018-19 has been stayed by the Principal Commissioner of Income Tax till the First Appeal is disposed of.

The court noted that the department did not comply with the stay ordered.

The court while setting aside the order held that the satisfaction to be recorded under Section 197 is clearly with respect to the total income of the recipient for the subject assessment year, where the deduction is claimed at a NIL rate for the interest income earned from the fixed deposits in banks.

The court restored the application before the Assessing Officer.

Counsel For Petitioner: Ajay Kumar Rastogi

Counsel For Respondent: Archana Sinha

Case Title: Infrastructure Development Authority Versus The Assistant Commissioner of Income Tax

Case No.: Civil Writ Jurisdiction Case No.9716 of 2024

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