Court sets aside order on tax deduction certificate, emphasizes Rule 28AA compliance for TDS rates determination.

The court set aside the order refusing to grant a certificate of tax deduction at source at Nil rate, emphasizing the need for adherence to Rule 28AA in determining TDS rates. The court held that the decision-making process was flawed as the assessing officer did not follow the mandated rules, leading to the quashing of the order. The matter was remanded for fresh determination within two weeks, with the petitioner entitled to revised TDS rates for the relevant financial year and a Covid-19 crisis rebate. The writ petition was allowed, and pending applications were disposed of.

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Issues Involved:
1. Challenge to the order under Section 197 of the Income Tax Act, 1961 refusing to grant a certificate of tax deduction at source (TDS) at Nil rate.
2. Rule of consistency in determining TDS rates.
3. Maintainability of the writ petition in light of an alternative remedy under Section 264 of the Act.
4. Judicial review of the decision-making process under Section 197.
5. Application of Rule 28AA of the Income Tax Rules in determining TDS rates.

Issue-Wise Detailed Analysis:

1. Challenge to the Order under Section 197 of the Income Tax Act, 1961:
The petitioner challenged the order dated 29th June 2020, which refused to grant a certificate of tax deduction at source at Nil rate. The petitioner argued that the TDS rates specified in the order were arbitrary and not based on any working, despite the respondent admitting that the estimated tax liability was Nil and the average tax rate to turnover was 0.12% for the last three years.

2. Rule of Consistency in Determining TDS Rates:
The petitioner contended that the impugned order was contrary to the rule of consistency. The TDS rate of 1.50% under Sections 194J and 194I was three times higher than the 0.50% rate determined in the immediately preceding year. The petitioner emphasized that the conditions of mandatory Rule 28AA were satisfied, yet the respondent had arbitrarily prescribed higher TDS rates.

3. Maintainability of the Writ Petition in Light of an Alternative Remedy under Section 264 of the Act:
The respondent argued that the writ petition was not maintainable as the petitioner had not exhausted the alternate remedy of revision under Section 264 of the Act. The respondent relied on the judgment in Sis Live vs. Income Tax Officer, where the court directed the petitioner to file a revision petition. However, the court held that since the impugned order was passed after approval from the Commissioner of Income Tax (CIT), it could not be challenged by way of a revision petition before the CIT under Section 264. The court reasoned that directing the petitioner to file a revision petition would amount to filing an appeal from Caesar to Caesar.

4. Judicial Review of the Decision-Making Process under Section 197:
The court agreed with the respondent that the scope of judicial review of an order under Section 197 is limited to the decision-making process and not the decision itself. The court emphasized that the assessing officer must follow the mandate of Rule 28AA in determining the TDS rates. The court found that the assessing officer had not followed Rule 28AA as there was no reference to any computation carried out under the rule. Consequently, the court quashed the impugned order on the ground that the decision-making process was contrary to law.

5. Application of Rule 28AA of the Income Tax Rules in Determining TDS Rates:
Rule 28AA prescribes the procedure for determining the 'existing and estimated liability' for issuing a certificate under Section 197. The court highlighted that the considerations under Rule 28AA are mandatory and the department must determine the yearly TDS rates based on the four parameters prescribed. The court found that the assessing officer had not carried out any computation under Rule 28AA, which vitiated the impugned order and reasons.

Relief:
The court set aside the impugned order and reasons and remanded the matter to respondent no.2 for fresh determination in accordance with law, preferably within two weeks. In the interim, the court directed that the benefit of revised TDS rates prescribed for financial year 2019-2020, along with the rebate of 25% given by the Ministry of Finance on account of the Covid-19 crisis, be given to the petitioner. The writ petition was allowed and pending applications were disposed of.

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