Nil withholding certificate under Section 197 must follow treaty and precedent; denial for departmental litigation intent is unlawful.

Section 197 applications for withholding certificates must be decided in accordance with the Act and applicable tax treaties, and a Competent Authority cannot lawfully refuse an application solely because the revenue department proposes further litigation; binding judicial precedent that domain name registration charges are non-taxable under the India USA DTAA requires issuance of nil rate certificates. The impugned administrative rejection and certificate were set aside, and the authority was directed to issue a nil rate certificate within a specified period and to grant subsequent nil rate certificates on application within a set time, subject to prior notice and a recorded reasoned finding if a permanent establishment in India is alleged.

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Issues: Whether the Competent Authority lawfully rejected the petitioner's application under Section 197 of the Income-tax Act, 1961 despite a binding judgment of the High Court holding that the petitioner's domain name registration charges were not taxable, and whether the impugned order and consequential certificate should be quashed with a direction to issue a nil rate certificate.

Analysis: The Court examined the impugned order dated 06.03.2025 and the consequential certificate dated 21.08.2025 in light of the earlier judgment of this Court dated 11.12.2023 which had held that the domain name registration charges constituted the right to use services and were not taxable under the Income-tax Act, 1961 read with the India-USA Double Taxation Avoidance Agreement. The Court found that the Competent Authority's sole stated reason for rejection-that the Department proposed to file a Special Leave Petition-did not constitute a legally sustainable reason. The Court reiterated the statutory obligation of the authority deciding applications under Section 197 to determine applications in accordance with the Act and applicable treaties, and that revenue targets or speculative departmental actions do not justify disregarding binding judicial decisions. The Court also considered procedural safeguards for future applications, including provision for issuing notice and recording a finding if a permanent establishment in India is alleged.

Conclusion: The impugned order dated 06.03.2025 and consequential certificate dated 21.08.2025 are quashed and set aside; the Competent Authority is directed to issue a certificate at nil rate within fifteen days and to issue nil-rate certificates for subsequent years on application within 30 days, subject to the authority recording a reasoned finding (after notice) if it concludes the petitioner has a permanent establishment in India. The relief is in favour of the assessee.

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