2026 (3) TMI 961 - HC - Income Tax

Withholding certificate applications must be decided under Rule 28AA with reasoned orders addressing losses, refunds and contested demands.

Applications for withholding certificates under Section 197 must be decided by applying the parameters in Rule 28AA, including determination of estimated ... Territorial jurisdiction to entertain writ against rejection of Section 197 application - requirement of reasoned application of Rule 28AA when considering applications under Section 197 Whether the Delhi High Court could entertain the writ petition challenging the rejection of the Section 197 application despite the impugned order being issued from Gurugram - HELD THAT: - The Court examined the factual matrix of prior certificates, the address to which the impugned order was addressed, and the history of prior orders and proceedings emanating from TDS Circle 75(1), Laxmi Nagar, Delhi. Having regard to these facts, the Court held that, in the peculiar facts of this case, the petition should not be rejected on the ground of territorial jurisdiction and that the petition is maintainable before this Court. [Paras 65, 66, 67, 68, 69] The petition is maintainable before the Delhi High Court and will not be dismissed on territorial jurisdiction grounds. Requirement of reasoned application of Rule 28AA when considering applications under Section 197 - Whether the impugned one-line rejection of the Section 197 application, based solely on asserted outstanding demands, complied with the mandatory considerations under Rule 28AA and required reasoned decision-making? - HELD THAT: - The Court found that Rule 28AA prescribes the formula and considerations to be applied when deciding an application under Section 197 and that precedents require a reasoned order. The impugned order contained no reasons and simply referred to outstanding demands without addressing the statutory parameters (including brought-forward losses, estimated tax liability, prior certificates, and pending refunds). The Court noted that some demands relied upon had been rectified after the impugned order and that the AO had not applied his mind to the relevant considerations. For these reasons the Court held that the rejection was not sustainable and remanded the matter for a reasoned and speaking consideration under Section 197 read with Rule 28AA. [Paras 75, 76, 77, 78, 81] The impugned order is set aside and the matter is remanded to the Assessing Officer to pass a reasoned and speaking order under Section 197 of the Act applying Rule 28AA within two weeks. Final Conclusion: The writ petition is allowed; the impugned order rejecting the application under Section 197 is set aside and the matter is remanded to the Assessing Officer for a reasoned decision under Rule 28AA within two weeks. The pending application is disposed of as infructuous. Issues: Whether the impugned rejection dated 17.07.2025 of the petitioner's application under Section 197 of the Income-tax Act, 1961 for a nil or lower withholding certificate (or alternatively at 0.30%) was legally valid, having regard to Rule 28AA of the Income-tax Rules, 1962, the petitioner's presented brought-forward losses and pending refunds, and earlier certificates granted for preceding years; and whether the matter should be remanded for a reasoned speaking order.Analysis: The statutory framework requires that applications under Section 197 be considered using the parameters in Rule 28AA, which prescribes determination of estimated tax liability and existing demands to fix an appropriate TDS rate. Past issuance of lower-rate certificates for preceding years is a relevant datum in assessing consistency but does not by itself create an inexorable bar to reassessment; however, administrative action rejecting an application must apply Rule 28AA and record reasons. The impugned order consisted of a brief, non-speaking rejection referencing outstanding demands without engaging the Rule 28AA parameters, without quantifying collectible liabilities, and without addressing the petitioner's evidence of brought-forward losses, substantial pending refunds and rectification/appeal status of contested demands. The record also shows that certain demands relied upon in the impugned order were subsequently reduced by rectification orders and that many demands remained sub judice. In these circumstances the decision lacked the mandated reasoned application of Rule 28AA and did not address relevant material relied upon by the petitioner, thereby rendering the order unsatisfactory for judicial review under Article 226.Conclusion: The impugned order rejecting the Section 197 application is set aside and the matter is remitted to the Assessing Officer to apply Rule 28AA and pass a reasoned and speaking order within two weeks; this outcome is in favour of the assessee.