Statutory tax deduction cannot be bypassed by interim security; Delhi High Court ordered merits-based assessment and withdrawal of advance ruling proceedings.

The Delhi High Court declined interim relief that would have allowed payment without statutory tax deduction or merely against security, noting that deduction at source remains a statutory obligation unless non-liability to tax is first established. It also addressed prolonged uncertainty arising from pending advance ruling proceedings, permitted withdrawal of those applications, and directed the Assessing Officer to complete the assessment for Assessment Year 2018-19 within the stipulated time while examining the taxpayer's contention that no tax was exigible under the Act of 1961 and the DTAA. The result was withdrawal of the advance ruling proceedings and a merits-based assessment, but no interim exemption from tax deduction.

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Issues: (i) Whether interim relief could be granted to permit payment to the petitioner without statutory tax deduction or by furnishing security in lieu of deduction; (ii) Whether the petitioner's pending proceedings before the Board for Advance Ruling could be treated as withdrawn and whether the Assessing Officer should complete the assessment for Assessment Year 2018-19 while examining the petitioner's taxability under the Act of 1961 and the DTAA.

Issue (i): Whether interim relief could be granted to permit payment to the petitioner without statutory tax deduction or by furnishing security in lieu of deduction.

Analysis: The requested relief was considered against the statutory scheme governing tax deduction at source. The Court held that no direction could be issued to allow payment without applicable deduction, even on a security basis, unless it were first held that no tax was leviable on the payment. It was also observed that, in the prima facie view of the Court, deduction of tax remained a statutory obligation and no interim protection could be granted merely by offering security.

Conclusion: Interim relief against tax deduction was declined and the petitioner could not be permitted to receive payments without applicable deduction.

Issue (ii): Whether the petitioner's pending proceedings before the Board for Advance Ruling could be treated as withdrawn and whether the Assessing Officer should complete the assessment for Assessment Year 2018-19 while examining the petitioner's taxability under the Act of 1961 and the DTAA.

Analysis: The Court noted the prolonged pendency of the advance ruling proceedings and the resulting blockage of TDS and uncertainty in the petitioner's tax position. To secure a fact-finding exercise and ensure certainty of tax treatment, the Court directed the Assessing Officer to finalise the assessment for Assessment Year 2018-19 within a specified time and to examine the petitioner's contention that no tax was exigible under the Act of 1961 and the DTAA. The Court also allowed the withdrawal request and treated the pending applications before the Board for Advance Ruling as withdrawn.

Conclusion: The advance ruling proceedings stood withdrawn and the Assessing Officer was directed to complete the assessment and consider the petitioner's taxability on merits.

Final Conclusion: The petitioner obtained withdrawal of the advance ruling proceedings and a direction for assessment on merits, but no interim exemption from statutory tax deduction.

Ratio Decidendi: Interim relief cannot override a statutory tax deduction obligation unless the underlying taxability is first negated, and prolonged uncertainty in tax administration may be addressed by directing assessment on merits and permitting withdrawal of pending advance ruling proceedings.

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