BITKUBER INVESTMENTS PRIVATE LIMITED V. DEPUTY COMMISSIONER

WP/11565/2023

AI Insights

The case involves Bitkuber Investments Private Limited, which filed a writ petition against the Deputy Commissioner of Income-Tax, challenging the rejection of its application for a certificate under Section 197 of the Income Tax Act, 1961, for the financial year 2023-24. The petitioner sought a certificate for nil deduction of tax, which was previously denied based on various grounds including the non-eligibility under Rule 28AA of the Income Tax Rules, 1962, and concerns over the ambiguity in transactions with M/s. Bitcipher. The court examined whether the rejection was justified and whether the provisions of Section 197 and Rule 28AA allowed for such a classification of assessees.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 726307 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 22-09-2023
• Assessment Year: misc
• Other Referred Cases: Larsen & Tourbo Ltd. v. Assistant Commissioner of Income-Tax (TDS) 2(1), Serco BPO (P) Ltd. v. Assistant Commissioner of Income-tax, TDS Circle, Gurgaon, Ajmera Housing Corporation & Ors. v. Commissioner of Income, Checkmate Services Pvt. Ltd. v. Commissioner of Income Tax \\u2013 I, Cape Brandy Syndicate v. Inland Revenue Commissioners, Federation of A.P. Chambers of Commerce and Industry and Ors. v. State of A.P. and Ors., Commissioner of Sales Tax, Uttar Pradesh v. The Modi Sugar Mills Ltd., CIT Andhra Pradesh v. Taj Mahal Hotel
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: T SURYANARAYANA
• Keywords: Certificate under Section 197; Income Tax; Nil deduction of tax; Ambiguity in Transactions
• Section: 28AA; 197(1); 197; 197(2A)

Judgement Text

" - 1 - NC: 2023:KHC:34553 WP No. 11565 of 2023 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 22ND DAY OF SEPTEMBER, 2023 BEFORE THE HON'BLE MR JUSTICE B M SHYAM PRASAD WRIT PETITION NO. 11565 OF 2023 (T-IT) BETWEEN: BITKUBER INVESTMENTS PRIVATE LIMITED REDBRICK IT SUPPORT LTD., ELECTRA BLK, 1ST FLOOR WING A EXORA BUSINESS PARK PRESTIGE TECH PARK II, BELLANDUR, BANGALORE-560037. A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 2013 REP. HEREIN BY TIS AUTHORIZED SIGNTORY MR. HARISH KG. …PETITIONER (BY SRI. T.SURYANARAYANA, SENIOR ADVOCATE FOR MS. TANMAYEE RAJKUMAR AND MS. MANASA ANANTHAN AND MS. NEHA RAO.,ADVOCATES) AND: DEPUTY COMMISSIONER INCOME-TAX, TDS CIRCLE1(1) HMT BHAVAN BELLARY ROAD, BANGALORE-560032. …RESPONDENT (BY SRI. K.V. ARAVIND., A/W SRI. DILIP M., ADVOCATES) THIS WP IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO-(i)QUASH THE ORDER BEARING DIN SO/16032023/435121 PASSED Digitally signed by NARASIMHA MURTHY VANAMALA Location: HIGH COURT OF KARNATAKA - 2 - NC: 2023:KHC:34553 WP No. 11565 of 2023 BY THE RESPONDENT U/S 197 OF THE ACT ANNEXURE-D FOR THE FINANCIAL YEAR 2023-24; (ii)DIRECT THE RESPONDENT TO ISSUE A CERTIFICATE U/S 197 OF THE ACT FOR THE FINANCIAL YEAR 2023- 24, DIRECTING NIL DEDUCTION OF TAX, WITHIN A PERIOD OF FOUR WEEKS FROM DISPOSAL OF THE PETITION; DIRECTING NIL DEDUCTION OF TAX UNTIL ISSUANCE OF A FRESH CERTIFICATE BY THE RESPONDENT IN TERMS OF (ii) ABOVE. THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN ‘B’ GROUP, THIS DAY, THE COURT MADE THE FOLLOWING: ORDER The petitioner, a company which is incorporated in the month of March 2021 and has commenced operation of its business in the month of April 2022, has filed this petition impugning the respondent’s order dated 28.02.2023 rejecting the petitioner’s application for issuance of Certificate as contemplated under Section 197 of the Income Tax Act, 1961 [for short, ‘the IT Act’]. The petitioner has also sought for directions to the respondent to issue such Certificate for the financial year 2023-24 directing nil deduction of tax. - 3 - NC: 2023:KHC:34553 WP No. 11565 of 2023 2. The petitioner is a part of a group entities including M/s. Bitcipher Labs LLP and Chain Labs Pte. Limited, Singapore [M/s Bitcipher]. The petitioner has entered into the Brand License Agreement, Inter-Company Services Agreement, Software Service Agreement, and Intellectual Property Assignment Agreement. It is undisputed that the petitioner, with the transfer of intellectual property by M/ Bitcipher under the relevant agreement, is inter alia granted license to use the application called CoinSwitch1 on certain terms and that the petitioner also pays agreed amounts to M/s. Bitcipher as consideration. The petitioner, apart from re-licensing the use of this App to M/s Bitcipher, has also licensed the use of the app to third parties, and crucially, the petitioner does not itself operate the app enabling the use for trading. 1 This is a Crypto App used for online buying, selling and trading of cryptocurrency. - 4 - NC: 2023:KHC:34553 WP No. 11565 of 2023 3. The petitioner had filed similar application under Section 197 of the IT Act for the financial year 2022-23, but the respondent has rejected this application on 21.06.2022 observing that it would be at liberty to file fresh application along with the documentary evidence in support of the claim for Certificate. The petitioner has filed revision before the competent authority impugning the first respondent’s order dated 21.06.2022. However, the revision is also rejected on 30.08.2022 observing that the petitioner has accepted that it did not have any existing and estimated tax liability. 4. The petitioner has thus filed the present application on 16.03.2023 for the assessment year 2024-25, and with the petitioner filing this application, the respondent has sought for clarification such as [i] the explanation in detail about the basis for the projections of top payments/expenditure in the projected accounts for - 5 - NC: 2023:KHC:34553 WP No. 11565 of 2023 the financial year 2023-24, [ii] TDS remittances, [iii] the details for the financial year 2019-20, 2020-21, 2021-22 and 2022-23, [iv] ITR for the financial years 2018 – 19 to 2021-22 along with acknowledgments, [v] the computation of income, and [vi] audited balance sheet and audit report in Form 3CD as also the copies of the Form 26AS. The petitioner has furnished most of these details. 5. The respondent by the impugned order has rejected the petitioner’s application for four-fold reasons. Firstly, that the petitioner cannot avail the assistance of Rule 28AA of the Income Tax Rules, 1962 [for short, ‘the IT Rules’]. Secondly, that there is no precedential guidance and therefore it is not possible to examine the basis of estimation or the allowability as proposed by the petitioner. Thirdly, a survey is conducted under Section 133A of the IT Act on M/s. Bitcipher’s premises on 05.10.2021 resulting in initiation of the proceedings under Section 201 of - 6 - NC: 2023:KHC:34553 WP No. 11565 of 2023 the IT Act and a petition before this Court impugning such initiation with this Court granting an interim order. 6. The respondent, observing that the petitioner and M/s. Bitcipher are under the common control of Chain Labs Pte. Limited, has lastly opined that because of the ambiguity in the transactions under the different agreements and the resulting suspicion, the petitioner’s application must be rejected, and the respondent has referred to the following as the reasons for ambiguity and suspicion: a) The agreements are executed with M/s. Bitcipher after the survey under Section 133A of the IT Act and during the pendency of the writ petition. b) It is not clear whether any asset would remain with M/s. Bitcipher to discharge liability under Section 201 of the IT Act as and when those proceedings are completed. c) As the agreements between the petitioner and M/s Bitcipher do not have specific - 7 - NC: 2023:KHC:34553 WP No. 11565 of 2023 clauses on the present and future liability of M/s. Bitcipher, there is no clarity on who is the ultimate beneficiary of these entities and how the tax liability would be discharged. 7. Sri T. Suryanarayana, the learned Senior counsel for the petitioner, submits that the provisions of Section 197 of the IT Act do not envisage classification amongst the Assessees, and the inevitable consequence of holding that the petitioner cannot avail the benefit of Rule 28AA of the IT Rules is to devise an eligibility to claim benefit paving way for classification of the Assessees. He argues that every Assessee, irrespective of whether the Returns are filed for a year or any particular number of years, will be eligible for a Certificate under Section 197(1) of the IT Act provided that the concerned Assessing Officer is satisfied that the total income justifies no deduction of income tax, or deduction at a lesser rate, and the provisions of Rule 28AA of the IT Rules cannot be read to bring about a classification and - 8 - NC: 2023:KHC:34553 WP No. 11565 of 2023 deny the benefit of these provisions to a particular class of Assessees on the ground that they have not filed ITR for a minimum period of four years. 8. Sri T. Suryanarayana, relying relies upon the decision of Bombay High Court2 in Larsen & Tourbo Ltd. v. Assistant Commissioner of Income- Tax (TDS) 2(1)3, argues that the Bombay High Court, after an elaborate consideration of the provisions of Sections 197 of the IT Act and Rule 28AA of the IT Rules [as it stood at the relevant point of time], has held that the parameters indicated under Rule 28AA(1) cannot be construed as prescribing eligibility conditions. Sri T. Suryanarayana relies upon the following in the aforesaid judgment. “7. The manner in which the application filed by the assessee has been dealt with by the Assessing Officer and the Commissioner leaves much to be desired. The Assessing Officer dismissed the application for the 2 This decision is rendered prior to the amendment of the provisions of Rule 28AA of the IT Rules. 3 Reported in [2010] 190 Taxman 373 (Bombay) - 9 - NC: 2023:KHC:34553 WP No. 11565 of 2023 grant of a certificate under section 197 for two reasons. The first reason was that the mechanism under rule 28AA would fail in the case of the assessee for the reason that the financial statements of the assessee for the three previous years were unavailable. The assessee had brought to the notice of the Assessing Officer, the circumstance that during the financial year 2008-09 it had not earned any revenue for executing the project. That is necessarily as a result of the fact that the project was awarded by MMRDA on January 9, 2009. Sub-rule (1) of rule 28AA to which a reference has been made earlier would indicate that the Assessing Officer, on an application made in Form No. 13 under section 197 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 thereafter. Sub-clauses (i) and (ii) which follow thereafter, provide the mode for computing the rate at which the tax is to be deducted at source. Sub-clause (i) refers to the 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 deducted at source as a percentage of the payment referred to in section 197 for which the application has been made, while sub-clause (ii) refers to the average rates of tax paid by the assessee in the last three years. Whichever of these is higher has to be adopted. Sub- rule (1) of rule 28AA provides a mode of computing the rate at which tax is to be deduced at source. This is not a condition of eligibility. The Assessing Officer in the present case, was in error in coming to the conclusion that the mechanism that is contemplated under rule 28AA would break down in the case of the assessee on the - 10 - NC: 2023:KHC:34553 WP No. 11565 of 2023 ground that the financial statements of the assessee in the previous three years were not available.” 9. Sri T. Suryanarayana submits that the provisions of Section 197(2A) of the IT Act stipulate that the Central Board for Direct Taxes [Board] may, having regard to the Assessees’ convenience and the Revenue’s interest, make rules specifying the cases in which and the circumstances under which an application may be made for the grant of a Certificate under Section 197(1) of the IT Act as also the conditions subject to which such Certificate may be granted and for all other matters connected therewith. 10. Sri T. Suryanarayana contends that the Board must frame rules for the convenience of the Assessees but without prejudice to the Revenue’s interest, and hence, the provisions of Rule 28AA of the IT Rules must necessarily be read accordingly; and as such, the parameters mentioned in these - 11 - NC: 2023:KHC:34553 WP No. 11565 of 2023 Rules though vital for the purposes of the Assessing Officer’s satisfaction on whether a Certificate must be issued either for deduction of tax at a lower rate or no deduction, these Rules cannot be read to infer an ineligibility for an Assessee to even make an application for the Certificate under Section 197(1) of the IT Act on the ground that the concerned Assessee has not filed returns for the four previous years. 11. Sri T. Suryanarayana, as against the other reasons, submits that the requirement of Section 197 of the IT Act is about the Assessing Officer being satisfied about the total income of the recipient justifying either deduction of income tax at a lower rate or no deduction of income tax and therefore, the liability of another entity, even if a related entity, would be extraneous, and in support of this canvass he relies upon the decision in Serco BPO (P) Ltd. v. Assistant Commissioner of Income-tax, TDS - 12 - NC: 2023:KHC:34553 WP No. 11565 of 2023 Circle, Gurgaon4. The learned Senior Counsel emphasizes that the material on record indicate that M/s. Bitcipher, which has to answer the proceedings under Section 201 of the IT Act subject to the outcome of the pending writ petition, is solvent and will be able to meet all contingencies. 12. Sri T. Suryanarayana further contends that the petitioner’s case is that it, in exercise of the contractual rights encapsulated under four agreements, offers the right to use CoinSwitch to third parties who can in turn offer the use of app to the end users to trade in crypto currency. The petitioner, in exercise of this contractual right, has relicensed the use of this application not just to M/s. Bitcipher but also to others, and though as of now more than 70% of the petitioner’s revenue is from M/s. Bitcipher, it offers the app to others to generate revenue. 4 [2012] 25 Taxman.com 4 (Punj. and Har.) - 13 - NC: 2023:KHC:34553 WP No. 11565 of 2023 13. Sri T. Suryanarayana finally submits that the merits of the petitioner’s application must be considered necessarily in the light of the provisional profit and loss details for the financial year 2022-23 and the other details filed, including the projected loss, for the present financial year. The estimated loss for the financial year 2022-23 is Rs.164 crores and Rs.1.99 crores is deducted as TDS, and because of the losses as aforesaid, the entire TDS of Rs.1.99 crores will have to be refunded; that similarly for the present financial year the estimated loss is Rs.226 crores despite the increase in the income and if TDS is effected, the petitioner will be deprived of the capital frustrating the very purpose for which the Certificates under Section 197 of IT Act are issued. 14. Sri K. V. Aravind, the learned Senior standing Counsel for the respondents, submits that the assessee’s entitlement to the Certificate under Section 197 of the IT Act is made subject to the Rules - 14 - NC: 2023:KHC:34553 WP No. 11565 of 2023 framed by the Board in exercise of the power under Section 197(2A) of the IT Act, and the Board is empowered to stipulate the conditions subject to which a Certificate under Section 197(1) of the IT Act may be granted. The Board, in exercise of such power in framing rules under Rule 28AA of the IT Rules, has stipulated that the satisfaction of the existing and estimated tax liability to justify a Certificate for deduction of income - tax at any lower rate or no deduction of income tax shall be determined taking into consideration, amongst others, the tax payable on the assessed or returned or estimated income as the case may be for the last [or previous] four years. 15. Sri K. V. Aravind argues that the stipulation that the satisfaction shall be based upon, amongst others, the tax payable on the assessed or returned or estimated income for the four previous years brings about a reasonable classification amongst the - 15 - NC: 2023:KHC:34553 WP No. 11565 of 2023 Assessees those who have filed returns for four previous years and more and those who have not filed Returns for these minimum number of financial years. The provisions of Section 197(2A) of the IT Act empowers the Board, a delegated Rule making authority, to bring about this classification, and hence, there is redoubtable intelligible reason for this classification. 16. Sri K. V. Aravind elaborates that when an Assessee, who has filed Returns for the four previous years, files an application for a Certificate under Section 197(1) of the IT Act there would be material for the Assessing Officer to know the nature of the Assessee’s transactions, the asset basket of the Assessee and all other conditions; that the Assessing Officer, based on this information, will be enable to judiciously record satisfaction to issue a Certificate either for deduction at a lower rate or for no deduction. However, in the absence of the details as - 16 - NC: 2023:KHC:34553 WP No. 11565 of 2023 aforesaid, the Assessing Officer will not have this advantage when an application is filed by an Assessee who has not filed Returns for the minimum years. 17. Sri K. V. Aravind, as regards the reasons assigned by the respondent to opine that the ambiguity in the transactions disentitle the petitioner to a Certificate under Section 197 of the IT Act, submits that the proceedings against M/s. Bitcipher is because it has failed to effect TDS for the payments made to the recipient/user of the app, and the very technology is licensed to the petitioner and there is every possibility that the petitioner, who is licensed to use this app will fail to effect TDS for the payments. The Revenue’s interest, which is contemplated under Section 197(2A) of the IT Act, must receive wider interpretation so that every aspect of the Revenue’s interest, including the failure to effect TDS, is taken note of. - 17 - NC: 2023:KHC:34553 WP No. 11565 of 2023 18. In rejoinder, Sri T. Suryanarayana emphasizes that this canvass is put forward for the first time before this Court and the merits of the respondent’s impugned order dated 28.02.2023 cannot be tested in the light of any reason that is not mentioned in the very same order. Sri T. Suryanarayana contends that even otherwise this reason is extraneous to the merits of the petitioner’s application under Section 197 (1) of the IT Act. The petitioner, unlike in the case where it will have to deduct tax at source for the payments made by it, is seeking a Certificate for no tax deduction at source for the amounts to be paid to it. As such, the justification now offered is extraneous. 19. In the light of the rival submissions, the following questions arise for consideration: a) Whether the respondent could have rejected the petitioner’s application under Section 197(1) of the IT Act on the ground that the petitioner has not filed Returns for - 18 - NC: 2023:KHC:34553 WP No. 11565 of 2023 the four years preceding the subject financial year i.e., 2023-24. b) Whether the respondent’s rejection of the petitioner’s application by the impugned order is based on “satisfaction” that is contemplated under Section 197(1) of the IT Act and if the answer to the afore is in the negative, what is the order that should be. The first question relates to interpreting the provisions of Section 197 of the IT Act and Rule 28AA of the IT Rules, and as such, the petition is disposed of without relegating the petitioner to the admitted alternative remedy available to the petitioner. 20. It is salient that the provisions in tax statues must be interpreted strictly, and in this regard, this Court could refer to the decision of the Hon’ble Supreme in Ajmera Housing Corporation & Ors. v. Commissioner of Income5. 5 [2010] 8 SCC 739, and this proposition is reiterated in the recent decision in Checkmate Services Pvt. Ltd. v. Commissioner of Income Tax – I [reported in [2023] 6 SCC 451]. - 19 - NC: 2023:KHC:34553 WP No. 11565 of 2023 It is trite law that a taxing statute is to be construed strictly. In a taxing Act one has to look merely at what is said in the relevant provision. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. There is no room for any intendment. There is no equity about a tax. (See: Cape Brandy Syndicate v. Inland Revenue Commissioners (1921) 1 KB 64 and Federation of A.P. Chambers of Commerce and Industry and Ors. v. State of A.P. and Ors.(2000) 6 SCC 550. In interpreting a taxing statute, the Court must look squarely at the words of the statute and interpret them. Considerations of hardship, injustice and equity are entirely out of place in interpreting a taxing statute. (Also see: Commissioner of Sales Tax, Uttar Pradesh v. The Modi Sugar Mills Ltd. 1961 (2) SCR 189.). 21. The provisions of Section 197(1) of the IT Act6 stipulate that where tax [at the rates in force 6 197. Certificate for deduction at lower rate. - (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, 194G, 194H, 194-I, 194J, 194K, 194LA, [194LBA], 194LBB, 194LBC, 194M, 194-O 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 - 20 - NC: 2023:KHC:34553 WP No. 11565 of 2023 under the different provisions mentioned therein] on the income of ‘any person’, or a sum payable to ‘any person’, is required to be deducted at the time of credit or at the time of payment as the case may be, the Assessing Officer, on an application made by an Assessee, shall give a Certificate, as may be appropriate, if satisfied that the total income of a recipient justifies no deduction of income tax or the deduction of income tax at any lower rate. The expressions ‘any person’ and ‘recipient’ in the provisions of Section 197(1) of the IT Act, which relate to each other, refer to Assessees without any classification. These provisions, so long as the Assessing Officer can record satisfaction, do not admit any room for doubt that there is no classification between the Assessees for the purpose of issuance of Certificate against deduction. assessee in this behalf, give to him such certificate as may be appropriate - 21 - NC: 2023:KHC:34553 WP No. 11565 of 2023 22. If the substantive provisions do not provide for a classification, the delegated legislation cannot devise the same. This is also trite, and a useful reference in this regard could be made to the decision in CIT Andhra Pradesh v. Taj Mahal Hotel7: It has been rightly observed that the Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect. However, the contention is that because the provisions of Section 197(1) of IT Act say that the Assessing Officer shall issue a Certificate subject to the rules made under Section (2A), and hence it would be within the domain of the Board to devise a classification amongst Assessees while framing Rules. 23. The provisions of Section 197(2A)8 of the IT Act stipulates that the Board, having regard to the 7 [1971] 3 SCC 550 8 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 - 22 - NC: 2023:KHC:34553 WP No. 11565 of 2023 ‘convenience of the Assessees and the interests of revenue’ make Rules: [a] specifying the cases in which, and the circumstances under which, an application may be made for the grant of Certificate, [b] specifying the conditions subject to which such Certificate may be granted, and [c] providing for all the matters connected therewith. The first of the aforesaid three relate to the cases and the circumstances in which an Assessee could file an application for issuance of a Certificate under Section 197(1) of the IT Act, the second relates to the conditions subject to which such Certificates may be issued and the third relates to other matters. The Board can stipulate the conditions that the Assessing Officer will have to examine to satisfy himself/ herself 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. - 23 - NC: 2023:KHC:34553 WP No. 11565 of 2023 that the total income of a recipient [an Assessee] justifies the deduction of income tax at a lower rate or no deduction. The Board may devise conditions which in it opinion that the Assessing Officer must consider, but those condition cannot impose a classification amongst the Assessees to even file an application when the provisions do not contemplate the same. 24. The Board has framed Rule 28AA of the IT Rules, and the relevant provisions of Rule 28AA of the IT Rules read as follows: “28AA Certificate for deduction at lower rates or no deduction of tax from income other than dividends.- (1) Where the Assessing Officer, on an application made by a person under sub-rule (1) of rule 28 is satisfied that existing and estimated tax liability of a person justifies the deduction of tax at lower rate or no deduction of tax, as the case may be, the Assessing Officer shall issue a certificate in accordance with the provisions of sub-section (1) of section 197 for deduction of tax at such lower rate or no deduction of tax. (2) The existing and estimated liability referred to in sub-rule (1) shall be determined by the Assessing Officer after taking into consideration the following:- - 24 - NC: 2023:KHC:34553 WP No. 11565 of 2023 (i) tax payable on estimated income of the previous year relevant to the assessment year; (ii) tax payable on the assessed or returned or estimate income, as the case may be, of last four previous years; (iii) existing liability under the Income-tax Act, 1961 and Wealth-tax Act, 1957; (iv) advance tax payment, tax deducted at source and tax collected at source for the assessment year relevant to the previous year till the date of making application under sub-rule (1) of rule 28”. The Assessing Officer, in view of the provisions of Rule 28AA (1) of the IT Rules, must record satisfaction as contemplated under Section 197(1) of the IT Act determining the existing and estimated liability of an Assessee taking into consideration [a] tax payable or estimated income of the previous year relevant to the assessment year, [b] tax payable on the assessed or returned or estimated income as the case may be for the four previous years, [c] the existing liability under the IT Act or Wealth Tax Act - 25 - NC: 2023:KHC:34553 WP No. 11565 of 2023 1957, and advanced tax payment, and [d] tax deducted at source and tax collected at source for the assessment year relevant to the previous year till the date of making an application. 25. This Court, on reading the provisions of Section 197 of the IT Act and Rule 28AA of the IT Rules, must observe that there are essentially three parts to the proceedings for issuance of Certificate under Section 197(1) of the IT Act, and if the first two parts relate to the Assessing Officer’s satisfaction that an Assessee’s total income justifies no deduction, or deduction at a lower rate, and the determination of the existing and estimated incomes, the third aspect relates to the materials that the Assessing Officer must consider to determine the existing and estimated income to record satisfaction as aforesaid. The Assessing Office must consider the details aforementioned to determine existing liability and estimated income to arrive at a decision on being - 26 - NC: 2023:KHC:34553 WP No. 11565 of 2023 satisfied about the requirement under Section 197(1) of the IT Act. However, the details mentioned in Rule 28AA (2) of the IT Rules cannot be read to say that a Certificate under the aforesaid provisions will be issued only when the Returns for the previous four years are filed or that the tax must be paid for the previous year relevant to the assessment year inasmuch as the provisions of Rule 28AA (1) and 2(i) & 2(ii) of the IT Rules contemplate estimated liability and estimated income. 26. If the contention that only if the Returns are filed for four previous years, or the payment of tax, is accepted as a condition for entertaining an application under Section 197(1) of the IT Act, it would result in permitting classification and rendering redundant the concept of estimated liability and estimated income that are built into Rule 28AA of the IT Rules. This Court, therefore, has no hesitation in holding that the provisions of Rule 28AA of the IT - 27 - NC: 2023:KHC:34553 WP No. 11565 of 2023 Rules cannot be read as stipulating that an assessee, to be eligible to make an application under Section 197(1) of the IT Act, should have necessarily filed Returns for previous four years and paid tax for the previous assessment year, and that the failure in these regards, or the absence thereof, would create an ineligibility to file an application. 27. Further, this Court must record that it is not even in dispute that the Assessing Officer can consider the fact that the Returns for the four previous years as aforesaid are not filed and the tax that is paid, but the Assessing Officer must consider these in conjunction with the other circumstances to arrive at an objective satisfaction on whether a Certificate under Section 197(1) of the IT Act must be issued. The first question for consideration is answered accordingly. 28. The Assessing Officer under Section 197(1) of the IT Act will have to be satisfied objectively that - 28 - NC: 2023:KHC:34553 WP No. 11565 of 2023 the total income of a recipient justifies either deduction at a rate lower than the rates mentioned in the provisions of Section 197(1) of the IT Act or that no deduction is necessary. This objective satisfaction must be based on the determination of the existing and the estimated liability, and the estimated liability and income will have to be determined considering the details mentioned in Rule 28AA (2) of the IT Rules. The Assessing Officer must also be satisfied that issuance of Certificate while convenient to the Assessee will not adversely affect the Revenue’s interest. 29. If the Assessing Officer, only upon examination of the circumstances mentioned in Rules 28AA of the IT Rules, is satisfied based on the estimated income and liability justifies a Certificate for either deduction of income tax at a rate lower than the prescribed rate or no deduction of the income tax, the Certificate must be issued. This would be the - 29 - NC: 2023:KHC:34553 WP No. 11565 of 2023 true import of the expression that the Assessing Officer shall on an application give such Certificate as may be appropriate and therefore, the liability of another entity, even if it is the sister concern, would be extraneous. In this regard, this Court must record that the reliance upon the decision of the High Court of Punjab and Haryana in Serco BPO (P) Ltd. v. Assistant Commissioner of Income-tax, TDS Circle, Gurgaon supra is well founded. In this case, the High Court of Punjab and Haryana, where the proceedings were pending against a person who has filed the application, has opined that consideration of the outcome of the proceedings is extraneous, and in the present case, the proceedings that are referred to relate not to the petitioner but to its sister concern. Therefore, this Court must opine that the reasons assigned by the respondent to say that the petitioner will not be eligible for Certificate under Section 197 of the IT Act because of the ambiguity surrounding the - 30 - NC: 2023:KHC:34553 WP No. 11565 of 2023 transactions with the existing concern are not justified. 30. On whether the petitioner’s application for Certificate must be restored for reconsideration or whether this Court must issue a direction to the respondent to issue a Certificate need not detain this Court as it is apparent from the material now placed on record that the respondent proposes to justify the decision to deny the Certificate, apart from the reasons stated in the impugned order, because of the use of CoinSwitch, the app obtained under the Assignment Agreement by the petitioner. The petitioner proposes to explain why such reason is impermissible. This Court is of the considered view that, without expressing any opinion on whether the petitioner’s explanation must prevail resulting in a Certificate under Section 197 of the IT Act, the petition must be disposed of quashing the impugned order dated 28.02.2023 restoring the application for - 31 - NC: 2023:KHC:34553 WP No. 11565 of 2023 reconsideration within a time frame. Hence, the following: ORDER The petition is allowed in part and the respondent’s impugned order dated 28.02.2023 is quashed restoring the petitioner’s application to the respondent for reconsideration. The respondent shall so reconsider the application after extending due opportunity to the petitioner to place on record all the materials to justify its business, and consideration shall be completed and the decision communicated on or before 13.12.2023. Sd/- JUDGE SA ct:sr "