Tax withholding certificate under Section 197: temporary 2% certificate granted pending tribunal, applicability limited to FY 2025-26

A certificate for withholding tax under Section 197 is to be issued at a 2% rate as a temporary measure, because the competent authority relied on assessment findings and an AAR decision later overruled by higher precedent; those defects led to setting aside the earlier impugned order and certificate. The 2% certificate must be issued within 15 days and applies only for the assessment year 2026-27 (financial year 2025-26). The matter remains subject to the pending tribunal proceedings and future applications must be decided in accordance with law.

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Issues: Whether the competent authority's order denying a NIL withholding tax certificate and issuing a certificate at 15% (with consequential certificate) was legally sustainable, and whether a certificate at 2% should be directed for the relevant year.

Analysis: The challenged order was examined for compliance with statutory procedure and consideration of materials placed before the competent authority. The competent authority had relied on assessing officer findings and an AAR decision without engaging with the petitioner's application, submissions, and cited judgments; the adopted AAR precedent had been overruled by a High Court decision. The pending appeals and assessments before tax authorities and appellate fora were noted, and the question of ultimate taxability was left open for those forums. Given the procedural defects and the petitioner's prior payment of equalization levy at 2%, a temporary measure was considered appropriate until appellate adjudication.

Conclusion: The impugned order and certificate are set aside and a certificate under Section 197 of the Income-tax Act, 1961 is directed to be issued at 2% for the specified year; the direction is limited to the specified assessment year and is without prejudice to the rights of parties before adjudicatory authorities.

Ratio Decidendi: A certificate under Section 197 must be issued after the competent authority considers the applicant's submissions and relevant judicial decisions; reliance on assessment orders or AAR precedents overruled by a High Court, without application of mind to the filed application, renders the order unsustainable and warrants setting aside and appropriate interim relief.

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