Court quashes 10% tax withholding order, directs 1.5% rate pending review. Compliance emphasized.

The Court quashed the order for 10% tax withholding on payments to the Petitioner, directing the Revenue to reconsider based on the arguments presented. The Petitioner would maintain a 1.5% withholding rate until a new certificate was issued, emphasizing compliance with specified rates and Court directives within a week. The Court highlighted the impermissibility of justifying the 10% rate based on assumed tax liability and interest, citing Rule 28AA limitations on income assessment periods. Previous tax payments and nature of the contract were to be considered in the reassessment.

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Issues:
Challenge to order for tax withholding at 10% on payments made to Petitioner by THDC India Limited; Request for nil rate or lower rate withholding tax certificates under Section 197 of the Income Tax Act; Justification for withholding tax rate by Revenue; Compliance with rules for determining tax liability; Consideration of tax already paid in previous years.

Analysis:
The Petitioner challenged the order directing tax withholding at 10% on payments from THDC India Limited and sought nil or lower rate withholding tax certificates under Section 197. The Revenue justified the 10% rate based on a survey and potential tax liability due to income derived from a Permanent Establishment in India. However, the counter affidavit lacked these justifications. The Respondents attributed 35% of profit to business through the Petitioner's PE in India, but the Petitioner argued against this attribution.

The Petitioner's counsel argued that even if the Respondents' contentions were accepted, the 10% withholding rate was unjustified. The total revenue for the relevant years did not support this rate, and the Respondents failed to consider the nature of the THDC contract as a supply contract. The Respondents also miscalculated the tax liability by not accounting for payments made in previous years.

The Court noted that the Revenue's justification for 10% withholding tax based on assumed tax and interest liability was impermissible under Rule 28AA. The notification dated 31.12.2018 could not extend the period for considering assessed or estimated income beyond the last four years. The Court also highlighted the failure to consider tax payments made in previous years in the computation.

Citing previous judgments, the Court quashed the order for 10% withholding tax and directed the Respondents to reconsider, taking into account the issues raised. The Petitioner would continue with the 1.5% withholding rate until a fresh certificate was issued. The Respondents were instructed to ensure compliance within a week.

In conclusion, the writ petition was disposed of with the above directions, emphasizing adherence to the Court's order and compliance with the specified withholding tax rates.

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