Treaty-based NIL deduction under Section 197 cannot be fixed without reasoned consideration of relevant material and past assessments.

The Delhi HC held that a certificate under Section 197 fixing tax deduction at 0.5% could not stand where the authority failed to apply its mind to the assessee's treaty-based claim, prior certificates, and accepted NIL income position. The record showed germane material, including a proposal for NIL deduction, but the final certificate contained no reasoned discussion of those factors. The court quashed the certificate dated 29.05.2019 and directed fresh consideration of the application. Until a fresh certificate is issued, the assessee's receipts in India remain subject to NIL deduction of tax at source.

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Issues: Whether the certificate issued under Section 197 of the Income-tax Act, 1961 directing deduction of tax at source at 0.5% from payments to the assessee was sustainable, and whether the matter required fresh consideration in light of the assessee's NIL income position and the applicable treaty provisions.

Analysis: The application for lower deduction was supported by the assessee's claim that its profits from aircraft operations in international traffic were taxable only in Germany under Article 8 of the India-Germany Double Taxation Avoidance Agreement. The record showed that the Revenue had called for reasons and earlier assessment material, and the file notes themselves indicated a proposal for NIL deduction, yet the final decision fixed deduction at 0.5% without any discernible discussion of the relevant material. The absence of reasoned examination of the assessee's treaty claim, its consistent past certificates, and the accepted NIL income position demonstrated non-application of mind to germane considerations.

Conclusion: The certificate dated 29.05.2019 was unsustainable and was quashed. The Revenue was directed to reconsider the application afresh and issue a fresh certificate, and until then the assessee's receipts in India were to remain subject to NIL deduction of tax at source.

Ratio Decidendi: A certificate under Section 197 of the Income-tax Act, 1961 cannot be sustained where the authority fixes a withholding rate without applying mind to the relevant treaty position, past assessments, and other germane material on record.

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