Section 197 of the Income Tax Act
Income-tax Act, 2025: s.395
Section 197 of the Income-tax Act, 1961 corresponds to section 395 (Certificates) of the Income-tax Act, 2025.
Read section 395 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 197 is CIT v. Calcutta Export Company (404 ITR 654), cited in 93 of the 188 judgments on BharatTax that turn on this section.
Leading authorities on Section 197
The amendment to Section 40(a)(ia) by the Finance Act, 2010, making TDS remittance before the due date under Section 139(1) a condition for deduction, is retrospective from AY 2005-06. Procedural lapses should not lead to excessive disallowances, particularly when payment has been made to a resident.
Section 40(a)(ia) of the Income-tax Act, 1961, applies only when an amount is payable (accrued) and not when the amount has already been disbursed or paid.
For the purpose of disallowance under section 40(a)(ia), the word 'payable' includes amounts already 'paid' without deduction or deposit of tax. The benefit of the second proviso to section 40(a)(ia) is not available if the prescribed certificate is not filed.
The second proviso to section 40(a)(ia) of the Income-tax Act, 1961, introduced by the Finance Act, 2012, applies prospectively and does not have retrospective effect.
External Development Charges (EDC) paid by a developer to a government body like Haryana Shahari Vikas Pradhikaran (HSVP) for a development project are contractual payments, making them liable for tax deduction at source under Section 194C of the Income-tax Act, 1961.
An assessee is entitled to credit for Tax Deducted at Source (TDS) even if the income in respect of which TDS was deducted is not disclosed in the return. The Income-tax Department cannot deny TDS credit solely on the grounds that the income was not offered to tax.
Once Tax Deducted at Source (TDS) is deducted and paid to the Central Government, credit for such tax must be given to the assessee, irrespective of the assessment year to which it relates. This principle applies even to amended provisions of Section 199(1) of the Income Tax Act, 1961.
An Assessing Officer must record their satisfaction that an assessee's claim of no expenditure for earning exempt income is not in accordance with the law before invoking Section 14A and Rule 8D for disallowance.
The Kerala High Court decision in Prudential Logistics & Transports v. ITO held that the second proviso to Section 40(a)(ia) of the Income-tax Act, 1961, was not retrospective in effect for earlier assessment years.
Profits attributable to a Permanent Establishment (PE) in India can be conservatively estimated, such as by applying a percentage of global profits to Indian sales, when the PE's activities in India are minimal.
