High Court overturns order denying Tax Deduction at Source application under Section 197

The High Court set aside the order rejecting the application for Nil rate of Tax Deduction at Source under Section 197 of the Income Tax Act, 1961. The court found that the rejection lacked specific reasons and failed to point out any errors in the information provided by the petitioners. Emphasizing the importance of adherence to prescribed rules, the court remanded the matters to the Assessing Officer for a fresh hearing. The Assessing Officer was directed to decide on the applications within four weeks, providing a reasoned order in compliance with the law.

---

---

Issues:
Challenge to rejection of application for Nil rate of Tax Deduction at Source under Section 197 of the Income Tax Act, 1961.

Analysis:
The petitioners filed writ petitions challenging the order rejecting their application for Nil rate of TDS under Section 197 of the Income Tax Act. The petitioners receive interest income from group companies subject to TDS under section 194A. They applied for Nil TDS rate as the 10% rate would exceed their total tax liability due to being a loss-making company. Despite deducting TDS at 0.5% in FY 2020-21, the impugned order required them to deduct TDS at 10%. The rejection was based on alleged failure to provide borrowing rates information, which the petitioners dispute, claiming the information was submitted.

The High Court observed that the impugned order lacked reasons for rejecting the application for Nil TDS rate. It noted that the rejection did not specify errors in the information provided by the petitioners. Citing precedents, the Court emphasized that Assessing Officers must adhere to Rule 28AA and cannot deviate from prescribed rules, as non-compliance could render their actions invalid. Referring to specific cases like Bently Nevada LLC vs. Income Tax Officer and Manpower Group Services India Pvt. Ltd. vs. Commissioner of Income Tax, the Court highlighted the importance of following set rules.

Consequently, the High Court set aside the impugned orders and remanded the matters to the Assessing Officer for a fresh hearing. The Assessing Officer was directed to decide on the applications within four weeks, issuing a reasoned order in compliance with the law. The authorized representative of the petitioners was instructed to appear before the Assessing Officer on a specified date for the hearing. As a result, the writ petitions and pending applications were disposed of, with the order to be uploaded on the website and shared with the counsel via email.

---