Court quashes decision to withhold TDS at 1% for UK company. Fresh order required.

The court quashed the respondent's decision to withhold TDS at 1% for the petitioner, a UK-based foreign company, for the Assessment Year 2022-23. The court found the respondent's order non-compliant with Rule 28AA of the Income Tax Rules and directed issuance of a fresh order in accordance with the law. Until then, the petitioner's TDS rate would remain at 0.01%. The court emphasized adherence to rules and standards, rejecting the respondent's argument on the availability of an alternate remedy. No costs were awarded, and the order was to be uploaded on the website and sent to the counsels via email.

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Issues:
Challenge to certificate and speaking order under Section 197 of the Income Tax Act, 1961 for Assessment Year 2022-23.

Analysis:
The petitioner, a foreign company registered in the UK, challenged a certificate directing TDS withholding at 1% for the Assessment Year 2022-23. The petitioner sought a fresh certificate for NIL TDS withholding under the Double Taxation Avoidance Agreement with the UK. The petitioner claimed to be a tax resident of the UK and had no taxable income in India except for nominal interest on tax refunds. The petitioner received previous certificates for NIL TDS withholding but was issued a certificate for 0.01% TDS for the last two assessment years due to a software issue. The petitioner's request for NIL TDS was denied in 2021, increasing TDS withholding to 1%.

The petitioner argued that the respondent failed to consider the DTAA provisions and a permission letter from the RBI, which prohibited certain activities without approval. The respondent's decision was challenged based on non-compliance with Rule 28AA of the Income Tax Rules. The respondent contended that the petitioner had a remedy under Section 264 of the Act and that TDS was necessary to safeguard revenue interests. The court noted that the respondent's order did not comply with Rule 28AA and quashed the decision, citing previous judgments emphasizing adherence to rules and standards.

The court referred to previous cases where non-application of mind to relevant considerations led to arbitrary orders being set aside. The court rejected the argument of an alternate remedy for the petitioner and directed the respondents to issue a fresh order in compliance with the law. Until then, the petitioner's receipts would abide by the previous TDS rate of 0.01%. The petition was disposed of with no costs awarded, and the order was to be uploaded on the website and forwarded to the counsels via email.

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