Nil-rate withholding relief must follow prior High Court precedent absent new facts; Competent Authority directed to issue certificate.

Where a prior High Court decision establishes taxability between related enterprises, the Competent Authority must adhere to that settled position unless new facts or distinguishing particulars for the relevant assessment period are shown; arbitrary refusal to grant nil-rate withholding relief on the sole ground of a threatened appeal was improper. The statutory scheme requires timely decision-making to prevent undue blockage of an assessee's cash flow where treaty or statutory provisions justify nil or reduced withholding. The impugned refusal and interim 15% certificate were set aside and a nil-rate certificate was directed to be issued within a specified short period.

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Issues: Whether the Competent Authority under Section 197 of the Income-tax Act, 1961 was justified in refusing to grant a certificate at nil rate despite a prior decision of the High Court in favour of the petitioner, and whether the impugned order and consequent certificate issued @15% should be set aside and a nil-rate certificate directed to be issued.

Analysis: The Court examined the impugned order dated 19.08.2025 and found that the Competent Authority did not dispute the nature of the transaction nor record any finding on its taxability vis-a -vis the petitioner's Associate Enterprise. The Competent Authority rejected the petitioner's application primarily on the ground that the Department had decided to file an SLP against an earlier High Court order that had granted a nil-rate certificate; no SLP had in fact been filed and no new facts or distinguishing particulars for the relevant assessment period were shown. The Court analysed the purpose and timelines of Section 197 of the Income-tax Act, 1961, noting the statutory requirement for timely decision-making and the objective of avoiding undue blockage of an assessee's cash flow where treaty or statutory provisions justify nil or reduced withholding. The Court held that, in inter se disputes already adjudicated by the High Court, the Competent Authority must follow the settled position unless it can point to factual differences or new information affecting taxability; the principle that each assessment year is separate does not permit arbitrary refusal to follow a binding High Court decision. The Court also noted the procedural delay in deciding the petitioner's application (filed 12.03.2025 and required to be decided by 12.04.2025) and the practical prejudice caused by withholding at 15% for transactions since 01.04.2025.

Conclusion: Writ petition allowed; the impugned order dated 19.08.2025 and the consequential certificate issued @15% are set aside and the Competent Authority is directed to issue a certificate at nil rate within 15 days from the date of this order.

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