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 requires the AO to evaluate tax payable on estimated income for the relevant AY, tax on assessed/returned/estimated income for the last four years, existing tax liability, and advance tax/TDS/TCS for the AY; the impugned order failed to record consideration of these factors, rendering the statutory requirement unsatisfied - consequence: the HC quashed the order and certificate and remanded for fresh adjudication in accordance with Rule 28AA.

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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.

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