Withholding tax certificate under Section 197 reduced to 2% as interim relief due to lack of recorded reasons and prima facie non-taxability.

A withholding-tax certificate issued without recorded reasons was held inadequate because it failed to address the nature of transactions and petitioner's authorities; the transactions are prima facie not exigible to tax but assessment proceedings may still determine liability and refunds. To balance revenue scrutiny and petitioner prejudice after a significant portion of the year and substantial withholding, the certificate at 4% was not sustained and an order was made for deduction at 2% for the assessment year, leaving substantive assessment and refund remedies open.

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Issues: Whether the Competent Authority validly issued a tax withholding certificate at the rate of 4% under Section 197 of the Income Tax Act, 1961 for AY 2026-27, and if not, what relief should be granted to the petitioner.

Analysis: The Competent Authority issued the certificate without recording reasons or addressing the nature of the transactions and the petitioner's reliance on relevant authorities; the transactions prima facie appear not to be exigible to tax and the petitioner may still be subject to assessment proceedings where tax liability can be determined and refund claimed if appropriate. Considering the large portion of the assessment year elapsed and substantial amounts already withheld, a reduction in the withholding rate would address the Revenue's concern of possible future scrutiny while providing interim relief to the petitioner.

Conclusion: The issued certificate at 4% is not sustained; a tax withholding certificate requiring deduction of tax at 2% is to be issued for AY 2026-27.

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