2026 (1) TMI 760 - HC - Income Tax

Application for nil withholding certificate u/s197 r/w s.195(3): Rule 28AA non-compliance led to quash and remand

Whether the assessing officer complied with Rule 28AA when rejecting an application under s.197 r/w s.195(3) for a nil withholding certificate: Rule 28AA ... Application u/s 197 r/w Section 195(3) seeking issuance of a ‘Nil Withholding Certificate’ rejected - Reasoning given by AO is primarily that as an assessment is not possible at the time of consideration of the application, tax is to be deducted at 15% to safeguard the interests of the Revenue - scope of Rule 28AA of the Rules HELD THAT:- While deciding an application u/s 197 AO needs to satisfy the requirements imposed by Rule 28AA of the Rules, which we have reproduced in paragraph 5 above. The relevant considerations have been laid down therein, which includes: (i) tax payable on the estimated income of the previous year relevant to the AY; (ii) tax payable on the assessed or returned income or estimated income for the last four previous years; (iii) existing tax liability under the Act and the Wealth Tax Act, 1957; and (iv) advance tax payment (tax deducted at source and tax collected at source) for the AY relevant to the previous year till the date of making the application. As is apparent, the impugned order does not state whether these factors were really considered by the assessing officer while reaching his conclusion. As the assessing officer not having considered the issue from the perspective of Rule 28AA of the Rules, it must be held that the statutory requirement on which the application of this nature needs to be decided has not been satisfied. As such, we are of the view that the impugned order and certificate passed by the assessing officer is untenable and is liable to be quashed. We remand the matter back to the AO who shall consider the application filed by the petitioner/assessee afresh, keeping in view the mandate of the law, specifically Rule 28AA of the Rules, and without being influenced by the filing of the appeal/application against the orders of the Tribunal for AYs 2020-21 and 2021-22, unless the same are set aside or varied either by this Court or by the Tribunal. Issues: Whether the Assessing Officer was justified in rejecting the petitioner's application for a Nil Withholding Certificate under Section 197 of the Income-tax Act, 1961, and issuing a certificate directing deduction of tax at source at 15% instead.Analysis: The determinative statutory procedure for deciding applications under Section 197 is prescribed by Rule 28AA of the Income-tax Rules, 1962, which mandates consideration of specified factors including tax payable on estimated income for the relevant year, tax payable on assessed/returned/estimated income for the last four previous years, existing tax liabilities, and advance tax payments. The impugned order does not record whether these mandatory factors were actually considered. Prior determinations by the Tribunal for earlier assessment years favouring the petitioner remain binding unless set aside; the mere filing of appeals by Revenue does not render those orders inoperative for the purpose of Section 197 proceedings. Where the assessing officer fails to apply Rule 28AA's mandatory considerations, the decision-making process is vitiated and amenable to quashing, while leaving open the necessity for a fresh decision in accordance with law.Conclusion: The impugned order and certificate are quashed for failure to comply with the mandatory decision-making requirements of Rule 28AA. The matter is remitted to the Assessing Officer to consider the petitioner's application afresh in accordance with Rule 28AA and without being influenced by pending appeals, to be concluded within four weeks of receipt of this order.