Nil/Low TDS Certificates Rejection not possible due to existing demand only ITA'61... Under ITA'25 situation may ease a little due to additional disclosure requirements in Form 128

The Delhi High Court's decision in Make Mytrip (India) Private Limited Versus Assistant Commissioner of Income Tax, Circle-75 (1), Delhi & Anr. - 2026 (3) TMI 961 - DELHI HIGH COURT is a significant reaffirmation of taxpayer rights under Section 197. By rejecting arbitrary reliance on outstanding demand and emphasizing compliance with Rule 28AA, the Delhi High Court has clarified the contours of administrative discretion in granting nil/lower TDS certificates. For businesses, the ruling provides assurance that the law remains a safeguard against excessive and unjustified tax withholding, thereby promoting liquidity and operational efficiency. Under New ITA'25, introduction of Form 128 under Rule 213 enhances disclosure requirements, ring-fencing assessing officers within statutory boundaries. Thus, the situation may ease under the new ITA'25. This decision underscores the judicial insistence on reasoned administrative orders under Section 197 of the Income-tax Act, 1961. By setting aside a rejection order that relied solely on outstanding demand, the Court reaffirmed the statutory obligation to evaluate applications against the parameters prescribed in Rule 28AA. To understand:

Section 197 provides taxpayers with a mechanism to obtain certificates authorizing deduction of tax at source (TDS) at a lower or nil rate. The provision is designed to prevent excessive tax withholding where the actual liability is demonstrably lower, thereby safeguarding liquidity and working capital. Rule 28AA prescribes mandatory parameters for determining the appropriate rate of TDS:

Estimated income for the relevant year

Past assessments and tax history

Existing demand and its enforceability

Refunds due to the taxpayer

The rule ensures that decisions are holistic, balancing revenue interests with taxpayer rights.

In this case, The assessee applied for a nil/lower TDS certificate for AY 2025-26. The application was rejected solely on the basis of outstanding demand. The Delhi High Court identified several deficiencies:

Non-speaking order: The rejection lacked reasoning and failed to engage with the taxpayer's submissions.

Failure to examine enforceability of demand: The authority did not assess whether the outstanding demand was disputed or offset by refunds.

Disregard of taxpayer's claim: Assertions of nil taxable income and substantial refunds were ignored.

The Court relied on the precedent in Manpower Group, which held that orders under Section 197 must reflect application of mind to Rule 28AA criteria.

Outstanding demand is not conclusive: The existence of demand cannot automatically justify denial of certificates.

Reasoned orders are mandatory: Administrative discretion must be exercised transparently, with detailed reasoning.

Purpose of Section 197 reaffirmed: The provision exists to prevent undue blockage of working capital through excessive TDS.