Withholding tax certificate: court ordered lower deduction rate pending revenue examination to prevent undue taxpayer hardship.

Challenge concerned the rate of a tax withholding certificate issued under the income tax framework for AY 2026-27; the court found the Competent Authority failed to record reasons or address the petitioner's treaty-based contentions and precedents, and balanced revenue's interest in protecting assessments against the petitioner's hardship from substantial deduction where transactions prima facie appear non-taxable. Exercising supervisory jurisdiction, the HC directed issuance of a lower-rate withholding certificate for the specified year while preserving the Revenue's right to examine and assess the transactions later.

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Issues: Whether the Competent Authority erred in issuing a tax withholding certificate at the rate of 10% under Section 197 of the Income-tax Act, 1961 for Assessment Year 2026-27 and whether a certificate at a lower rate should be issued.

Analysis: The Court examined the impugned order and found that the Competent Authority failed to record any sustainable or prima-facie reasons concerning the nature of the petitioner's transactions or to deal with the petitioner's contentions and judgments relied upon. The Court noted competing contentions: the petitioner asserted that the transactions do not attract royalty or fees for technical services under the India-Ireland tax treaty and relied on precedent, while the Revenue emphasised that the nature of transactions was not yet examined and that withholding certificates are not final and refunds may follow on assessment. Balancing the Revenue's interest in safeguarding potential tax liabilities and the petitioner's hardship from substantial tax deduction where transactions prima facie appear non-taxable, the Court exercised its supervisory jurisdiction to grant interim relief by directing issuance of a lower rate withholding certificate for the specified assessment year, while preserving the Revenue's right to examine and assess the transactions in due course.

Conclusion: The petition is partly allowed; the respondent is directed to issue a tax withholding certificate requiring deduction of tax at 2% for Assessment Year 2026-27 (financial year 2025-26) within 10 days; the direction applies only to the certificate issued pursuant to the petitioner's application for AY 2026-27 and the Competent Authority shall consider subsequent years in accordance with law.

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