Indiscriminate issue of certificates for non deduction or lower deduction of Tax – CBDT cautions field

By Vijay Kumar

CBDT is concerned that assessing officers are issuing certificates for lower deduction or no-deduction of tax at source under section 197 (1) of the Income tax Act indiscriminately and in contravention of the methodology and procedure laid down in rules 28AA and 28AB of the Income Tax Rules.

Such arbitrary issuance of certificates not only adversely affects the collection of tax at source but also seriously jeopardizes the chances of disclosure/detection at a later stage.

So CBDT directs that

1. Assessing officers should ensure that all certificates under section 197 (1) are issued by them strictly as per the manner prescribed under rule 28AA or rule 28AB.

2. The assessing officer shall obtain prior administrative approval of the Range JCIT/Addl. CIT before issuing a certificate under section 197(1).

3. The JCIT/Addl. CIT shall satisfy himself of the fact that the certificate is being issued strictly in accordance with rule 28AA/28AB before according his approval for issuance of the certificate.

4. A record of such certificate issued should be maintained in the office of the assessing officer.

Now who are eligible for these certificates? Relevant extracts fro Section 28AA and AB are reproduced below.

28AA. (1) The Assessing Officer, on an application made by a person 98[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) 99[* * *] 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;

28AB.(1) Subject to the conditions specified in sub-rule (2), a person

(a) in receipt of income or deemed income derived from property held under trust wholly for charitable or religious purposes and who claims exemption under section 11 or section 12; or

(b) required to file a return in respect of a scientific research association, news agency, association or institution, fund or trust or university or other educational institution or any hospital or other medical institution or trade union referred to in sub-section (4C) of section 139,may make an application to the Assessing Officer for the grant of a certificate under sub-section (1) of section 197 authorizing him to receive incomes without deduction of tax at source.

(2) The conditions referred to in sub-rule [(1)] are the following, namely :

(i) the person concerned has furnished the returns of income for all assessment years for which such returns became due on or before the date on which the application under sub-rule (1) is made;

(ii) the trust, scientific research association, news agency, association or institution, fund or trust or university or other educational institution or any hospital or other medical institution or trade union referred to in sub-rule (1) is for the time being approved for the purpose of exemption from income-tax; and

(iii) the applicant gives a list of deductors from whom amounts are to be received without deduction of tax at source every six months alongwith the names, addresses and the amounts received.

(3) An application for the certificate is to be made to the Assessing Officer in accordance with sub-rule (1) of rule 28.

(4) The Assessing Officer may issue a certificate authorizing payment of incomes without deduction of tax at source if he is satisfied that all the conditions laid down in sub-rule (2) are fulfilled and the issue of any such certificate will not be prejudicial to the interests of revenue.

(5) The applicant may furnish copies of certificate issued under sub-rule (4) to the person responsible for paying the income for the purpose of no deduction of tax at source.

(6) The certificate shall be valid for the financial year specified therein unless it is cancelled by the Assessing Officer at any time before the expiry of the said financial year.

(7) An application for a fresh certificate may be made, if the assessee so desires, after the expiry of the period of validity of the earlier certificate.]

INSTRUCTION NO. 8/2006, Dated: October 31, 2006