IN THE HIGH COURT OF MADHYA PRADESH

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AT JABALPUR

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BEFORE

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HON'BLE SHRI JUSTICE VIVEK RUSIA

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&

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HON'BLE SHRI JUSTICE PRADEEP MITTAL

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INCOME TAX APPEAL No. 32 of 2014

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COMMISSIONER OF INCOME TAX TDS

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Versus

PROJECT DIRECTOR NATIONAL HIGHWASYS AUTHORIY OF INDIA PIU

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NARSINGHPUR SHRI RAMDAS BHAWAN

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Appearance:

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Shri Siddharth Sharma - Advocate for the appellant.

Shri Sumit Nema - Senior Advocate with Shri Abhijeet Shrivastava and

Shri Ayush Gupta - Advocates for the respondent.

WITH

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INCOME TAX APPEAL No. 33 of 2014

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COMMISSIONER OF INCOME TAX TDS

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Versus

PROJECT DIRECTOR NATINAL HIGHWAYS AUTHORITY OF INDIA PIU

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NARSINGHPUR S

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Appearance:

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Shri Siddharth Sharma - Advocate for the appellant.

Shri Sumit Nema - Senior Advocate with Shri Abhijeet Shrivastava and

Shri Ayush Gupta - Advocates for the respondent.

INCOME TAX APPEAL No. 34 of 2014

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COMMISSIONER OF INCOME TAX TDS

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Versus

PROJECT DIRECTOR NATIONAL HIGHWASY AUTHORITY OF INDIA PIU

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1 ITA-32-2014NEUTRAL CITATION NO. 2026:MPHC-JBP:18033

NARSINGHPUR

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Appearance:

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Shri Siddharth Sharma - Advocate for the appellant.

Shri Sumit Nema - Senior Advocate with Shri Abhijeet Shrivastava and

Shri Ayush Gupta - Advocates for the respondent.

INCOME TAX APPEAL No. 35 of 2014

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COMMISSIONER OF INCOME TAX INCOME TAX DEPARTMENT

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Versus

AUTHORITY OF INDIA PIU NARSINGHPUR PROJECT DIRECTOR

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NATIONAL HIGHWAYS

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Appearance:

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Shri Siddharth Sharma - Advocate for the appellant.

Shri Sumit Nema - Senior Advocate with Shri Abhijeet Shrivastava and

Shri Ayush Gupta - Advocates for the respondent.

INCOME TAX APPEAL No. 36 of 2014

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COMMISSIONER OF INCOME TAX TDS

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Versus

PROJECT DIRECTOR NATIONAL HIGHWAYS AUTHORITY OF INDIA PIU

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NARSINGHPUR

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Appearance:

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Shri Siddharth Sharma - Advocate for the appellant.

Shri Sumit Nema - Senior Advocate with Shri Abhijeet Shrivastava and

Shri Ayush Gupta - Advocates for the respondent.

INCOME TAX APPEAL No. 37 of 2014

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COMMISSIONER OF INCOME TAX TDS

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Versus

PROJECT DIRECTOR NATIONAL HIGHWAYS AUTHORITY OF INDIA PIU

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NARSINGHPUR

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2 ITA-32-2014NEUTRAL CITATION NO. 2026:MPHC-JBP:18033

Appearance:

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Shri Siddharth Sharma - Advocate for the appellant.

Shri Sumit Nema - Senior Advocate with Shri Abhijeet Shrivastava and

Shri Ayush Gupta - Advocates for the respondent.

INCOME TAX APPEAL No. 38 of 2014

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COMMISSIONER OF INCOME TAX TDS

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Versus

PROJECT DIRECTOR NATIONAL HIGHWASY AUTHORITY OF INDIA PIU

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NARSINGHPUR

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Appearance:

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Shri Siddharth Sharma - Advocate for the appellant.

Shri Sumit Nema - Senior Advocate with Shri Abhijeet Shrivastava and

Shri Ayush Gupta - Advocates for the respondent.

INCOME TAX APPEAL No. 39 of 2014

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COMMISSIONER OF INCOME TAX TDS

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Versus

M/S NATIONAL HIGHWASY AUTHORTY OF INDIA NATIONAL

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HIGHWAYS OF INDIA

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Appearance:

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Shri Siddharth Sharma - Advocate for the appellant.

Shri Sumit Nema - Senior Advocate with Shri Abhijeet Shrivastava and

Shri Ayush Gupta - Advocates for the respondent.

INCOME TAX APPEAL No. 40 of 2014

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COMMISSIONER OF INCOME TAX TDS

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Versus

M/S NATIONAL HIGHWAYS AUTHORITY OF INDIA NATIONAL

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AUTHORITY OF INIDA

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Appearance:

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3 ITA-32-2014NEUTRAL CITATION NO. 2026:MPHC-JBP:18033

Shri Siddharth Sharma - Advocate for the appellant.

Shri Sumit Nema - Senior Advocate with Shri Abhijeet Shrivastava and

Shri Ayush Gupta - Advocates for the respondent.

RESERVED ON: 25.02.2026

PRONOUNCED ON: 06.03.2026

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ORDER

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Per

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: Justice Vivek Rusia

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These bunch of income tax appeals are filed by the Commissioner of Income

Tax, (TDS), Bhopal, (M.P.) under Section 260-A of the Income Tax Act, 1961 in

respect of assessment years 2008-09 and 2009-10 challenging the orders dated

12.09.2013 and 20.09.2013 passed by the Income Tax Appellate Tribunal,

Jabalpur (for short 'Tribunal') in I.T.A. No.70/Jbp/2013, 73/Jbp/2013,

69/Jbp/2013, 72/Jbp/2013, 67/Jbp/2013, 71/Jbp/2013, 68/Jbp/2013, 22/Jbp/2012

and 23/Jbp/2012. As these appeals involve an identical issue, they are heard

analogously and are being decided by this common order.

Facts of these cases are being taken from I.T.A. No.32/2014:-

2. M/s Ssangyong Engineering and Construction Company Ltd. (hereinafter

referred to as 'deductee company') entered into a contract with the respondent

assessee, i.e., the National Highway Authority of India (in short 'NHAI') for the

development of national highways. The NHAI, being an assessee, made a payment

to the deductee company with TDS as provided under Section 195 of the Income

Tax Act, 1961 (hereinafter referred to as the 'Act') at marginal rates after obtaining

orders under Section 197(1) from its Assessing Officer, ITO(TDS), Ward 2(1),

4 ITA-32-2014NEUTRAL CITATION NO. 2026:MPHC-JBP:18033

International Taxation, New Delhi. By virtue of the aforesaid order passed under

Section 197, the deductee company was entitled to receive payment from the

respondent/assessee at a marginal rate @ of 2.1% for assessment year 2006-07, @

of 2.112% for the assessment year 2007-08, @ of 1% for the assessment year

2008-09 and @ of 0.75% for the assessment year 2009-10 and 2010-11.

3. The respondent/assessee was treated as a person responsible for making

payments to the foreign contractor, deducting tax at source and filing a return

under Section 206 of the Act. On verification, it was noticed that the

respondent/assessee had made payment of a contract worth of Rs.19,61,36,514/- to

the deductee company from 01.04.2008 to 30.06.2008 without proper deduction of

tax at source. Upon issuance of notice, the respondent/assessee filed an

explanation that the payments were made with a lower deduction of tax at source

as a consequence of the order issued under Section 195/197 by their A.O., New

Delhi, on 30.06.2008 for the F.Y. 2008-09.

4. The Assessing Officer opined that the payments were made by the

respondent/assessee for a sum of Rs.19,61,36,513/- for the period from 10.04.2008

to 24.06.2008, when no certificate for non-deduction of tax at source was in force,

meaning thereby, at the time of making such payment or crediting such payment,

there was no certificate. The certificate dated 30.06.2008 came into effect from the

date of its issuance. Therefore, the period prior to 30.06.2008 suffered a lower

deduction of tax at source than the rate prescribed under the Act. The Assistant

Commissioner of Income Tax (TDS), Jabalpur, being an Assessing Officer, passed

an order dated 04.03.2011, assessed Rs.31,03,54,504/- as total default of TDS and

imposed the interest and directed for initiation of proceedings for penalty, in total

of Rs.41,89,78,580/-.

5 ITA-32-2014NEUTRAL CITATION NO. 2026:MPHC-JBP:18033

5. Being aggrieved by the order dated 04.03.2011, the respondent/assessee

preferred an appeal before the Commissioner of Income Tax (TDS), Jabalpur.

Vide order dated 12.04.2012, the appeal was dismissed. Thereafter, the

respondent/NHAI filed an appeal before the Income Tax Appellate Tribunal.

6. Vide order dated 12.09.2013, the learned ITAT has allowed the appeal by

holding that it is not a fit case for holding that the assessee deductor is in default

under Section 201(1) nor for interest under Section 201(1A) of the Act and set

aside the order passed by the Assessing Officer as well as CIT. Hence, these

appeals before this Court.

7. Vide order dated 26.06.2014, these appeals were admitted on the

following substantial questions of law:-

“1. Whether on the facts and in the circumstances of the case, the ITAT

was justified in law in holding that the assessee could not be held to be

assessee in default u/s 201(1) ? and 201(1A) of the Act and thereby

granting the relief?

2. Whether, on the facts and in the circumstances of the case, the ITAT

was justified in law in deleting the interest levied u/s 201(1A) of the

Act, while failing to appreciate that the deductor cannot consider the

assessment status of the deductee unless and until a certificate u/s 197

of the Act is granted by the Assessing Officer ?”

8. We have heard learned counsel for the parties.

9. Shri Siddharth Sharma, Advocate, submits that the sole issue, which

requires consideration, is whether the benefit and effect of the certificate dated

30.06.2008 is liable to be given from the date of issuance of the certificate or for

6 ITA-32-2014NEUTRAL CITATION NO. 2026:MPHC-JBP:18033

the entire assessment year. Learned counsel submits that the ITAT has committed

a serious error of law, while appreciating the order passed by the learned A.O. and

CIT, as both the Authorities have categorically held that the effect of the said

certificate under Section 197(1) can only be given prospectively and not

retrospectively. The respondent/assessee was in default on the date of deduction of

tax, because the deductor had to deduct the tax irrespective of the income, in the

absence of any valid certificate of lower deduction/no deduction.

10. Per contra, Shri Sumit Nema, Senior Advocate, submits that as per the

language of Section 197 of the Income Tax Act, the certificate is liable to be

issued for the entire financial year. Therefore, the learned ITAT has rightly held

that the respondent/assessee cannot be held in default of deducting the tax at

source. In support of his contentions, learned counsel for the respondent has placed

reliance on a judgment passed by the Division Bench of the High Court of Delhi at

New Delhi in the case of Conner Institute of Health Care and Research Center Pvt.

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Ltd. Vs. DCIT, Circle - 73(1), Delhi

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in W.P.(C) No.16978/2022 dated 30.04.2025

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,

where the similar controversy has been put to rest. He has also placed reliance on a

judgment passed by the Apex Court in the case of Commissioner of Income-tax

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Vs. Bovis Lend Lease (I) Ltd.

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[2016] 72 taxmann.com 137 (SC)

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, whereby the

judgment passed by High Court of Karnataka has been upheld by dismissing the

SLP, in which, the High Court has held that under Section 197, there is no

obligation on part of payer to pay tax as long as the certificate issued under Section

197 is enforced and not cancelled.

Appreciation & Conclusions

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11. The facts of the aforesaid case are not in dispute. Let the respondent

7 ITA-32-2014NEUTRAL CITATION NO. 2026:MPHC-JBP:18033

obtain a certificate under Section 197 on 30.06.2008 for the assessment year 2008-

09. The only issue which requires consideration is whether the certificate will be

treated as effective from the date of issuance or for the entire assessment year.

12. Section 197 of the Act is reproduced below:-

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, 194Q 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

assessee in this behalf, give to him such certificate as may be

appropriate.

(2) Where any such certificate is given, the person

responsible for paying the income shall, until such certificate

is cancelled by the Assessing Officer, deduct income-tax at

the rates specified in such certificate or deduct no tax, as the

case may be.

(2A) 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 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

8 ITA-32-2014NEUTRAL CITATION NO. 2026:MPHC-JBP:18033

therewith.

13. It is clear from the language of Section 197 that if the Assessing Officer

is satisfied that the total income of the recipient justifies the deduction of income

tax at any lower rate or no deduction of income tax, as the case may be, the A.O.

shall on an application made by the assessee in his behalf, give him such

certificate as may be appropriate. Under Sub-section (2), where any such

certificate is given, the person responsible for paying the income tax shall deduct

the income tax at the rate specified in such certificate unless the same is cancelled

by the A.O throughout the assessment year. As per sub-rule (2) of Rule 28AA, the

certificate shall be valid for the assessment year to be specified in the certificate,

unless it is cancelled at any time before the expiry of the specified period. The

assessment in income tax is always for the entire assessment year. Every provision

of the Income Tax Act is liable to be applied for a particular assessment year. Even

the tax liabilities are fixed on the assessee for the entire assessment year.

14. Section 201 of the I.T. Act deals with the consequences of failure to

deduct or pay the income tax. It is reproduced below:-

Consequences of failure to deduct or pay.

(1) Where any person, including the principal officer of a

company,—

a) who is required to deduct any sum in

accordance with the provisions of this Act; or

(b) referred to in sub-section (1A) of section 192,

being an employer, does not deduct, or does not

pay, or after so deducting fails to pay, the whole or

any part of the tax, as required by or under this

9 ITA-32-2014NEUTRAL CITATION NO. 2026:MPHC-JBP:18033

Act, then, such person, shall, without prejudice to

any other consequences which he may incur, be

deemed to be an assessee in default in respect of

such tax:

Provided that any person, including the principal officer of a company,

who fails to deduct the whole or any part of the tax in accordance with

the provisions of this Chapter on the sum paid to a resident or on the

sum credited to the account of a resident shall not be deemed to be an

assessee in default in respect of such tax if such payee—

(i) has furnished his return of income under section 139;

(ii) has taken into account such sum for computing income in

such return of income; and

(iii) has paid the tax due on the income declared by him in

such return of income, and the person furnishes a certificate

to this effect from an accountant in such form as may be

prescribed:

Provided further that no penalty shall be charged under section 221

from such person, unless the Assessing Officer is satisfied that such

person, without good and sufficient reasons, has failed to deduct and

pay such tax.

(1A) Without prejudice to the provisions of sub-section (1), if

any such person, principal officer or company as is referred

to in that sub-section does not deduct the whole or any part of

the tax or after deducting fails to pay the tax as required by or

under this Act, he or it shall be liable to pay simple interest,

—

(i) at one per cent for every month or part of a

month on the amount of such tax from the date on

which such tax was deductible to the date on

which such tax is deducted; and

10 ITA-32-2014NEUTRAL CITATION NO. 2026:MPHC-JBP:18033

(ii) at one and one-half per cent for every month or

part of a month on the amount of such tax from the

date on which such tax was deducted to the date on

which such tax is actually paid, and such interest

shall be paid before furnishing the statement in

accordance with the provisions of subsection (3) of

section 200:

Provided that in case any person, including the principal officer of a

company fails to deduct the whole or any part of the tax in accordance

with the provisions of this Chapter on the sum paid to a resident or on

the sum credited to the account of a resident but is not deemed to be an

assessee in default under the first proviso to sub-section (1), the interest

under clause (i) shall be payable from the date on which such tax was

deductible to the date of furnishing of return of income by such payee:

Provided further that where an order is made by the Assessing Officer

for the default under sub-section (1), the interest shall be paid by the

person in accordance with such order.

(2) Where the tax has not been paid as aforesaid after it is

deducted, the amount of the tax together with the amount of

simple interest thereon referred to in sub-section (1A) shall

be a charge upon all the assets of the person, or the company,

as the case may be, referred to in sub-section (1).

(3) No order shall be made under sub-section (1) deeming a

person to be an assessee in default for failure to deduct the

whole or any part of the tax from a person resident in India, at

any time after the expiry of seven years from the end of the

financial year in which payment is made or credit is given.

(4) The provisions of sub-clause (ii) of sub-section (3) of

section 153 and of Explanation 1 to section 153 shall, so far

as may, apply to the time limit prescribed in sub-section (3).

15. As per the proviso to Section 201, any person, including Principal

11 ITA-32-2014NEUTRAL CITATION NO. 2026:MPHC-JBP:18033

(VIVEK RUSIA)

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JUDGE

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(PRADEEP MITTAL)

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JUDGE

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Officer or Company, shall not be deemed to be an assessee in default in respect of

such tax, if he furnishes a certificate to this effect from the accountant in such

form. In view of the above, the question of law No.1 is answered against the

revenue that the respondent cannot be held as an assessee in default under Section

201 and Section 201(1A); and so far as the question of law No.2 is concerned, the

ITAT was justified in deleting the interest levied under Section 201(1A) of the Act

because the assessee had certificate under Section 197 for an entire assessment

year.

16. Accordingly, the present income tax appeals are dismissed.

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A photocopy

of this order be kept in all the income tax appeals.

Shruti

12 ITA-32-2014NEUTRAL CITATION NO. 2026:MPHC-JBP:18033