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2021 (8) TMI 184 - HC - Income TaxWithholding of the tax deducted at source (TDS) - petitioner prays for a direction to the respondent nos.1 and 2 for issuing a fresh certificate u/s 197 directing withholding of NIL TDS in terms of Article 8 of the Double Taxation Avoidance Agreement entered between India and the United Kingdom ( DTAA ) - HELD THAT - The Impugned speaking order has been reproduced hereinabove. Apart from stating that the petitioner may have other sources of income, the Impugned Order does not reflect compliance with Rule 28AA of the Income Tax Rules, 1962. None of the considerations mentioned in Rule 28AA appear to have been considered by the respondent in passing the impugned speaking order . This Court in Manpowergroup Services India Pvt. Ltd. 2020 (12) TMI 934 - DELHI HIGH COURT as held that the Assessing Officer cannot ignore the mandate of Rule 28AA of the Rules and proceed on any other basis, as the Government is bound to follow the rules and standards they themselves have set on the pain of their action being invalidated. In absence of following the said mandate, the Impugned Order passed is liable to be quashed. In the present case as well, it is not evident from the Impugned Order whether the Assessing Officer has followed the mandate of Rule 28AA of the Rules. In fact, on a specific query in this regard, the learned counsel for the respondents could not deny this position of non-compliance. Therefore, the Impugned Order and the certificate issued are liable to be quashed on this ground. We may also take note of the judgment of this Court in Lufthansa Cargo AG 2019 (11) TMI 759 - DELHI HIGH COURT wherein under similar circumstances, this Court had held that where an order discloses non-application of mind to germane and relevant considerations including the previous assessment orders and the certificates issued under Section 197 of the Act, the order passed shall be arbitrary and liable to be set aside. Impugned speaking order and the Certificate dated 02.06.2021 are quashed. The respondents are directed to pass a fresh order in accordance with law. In the meantime, until a fresh certificate is issued by the respondents, the petitioner s receipts of payment shall abide by the withholding tax certificates for the preceding period at the rate of 0.01%.
Issues:
Challenge to certificate and speaking order under Section 197 of the Income Tax Act, 1961 for Assessment Year 2022-23. Analysis: The petitioner, a foreign company registered in the UK, challenged a certificate directing TDS withholding at 1% for the Assessment Year 2022-23. The petitioner sought a fresh certificate for NIL TDS withholding under the Double Taxation Avoidance Agreement with the UK. The petitioner claimed to be a tax resident of the UK and had no taxable income in India except for nominal interest on tax refunds. The petitioner received previous certificates for NIL TDS withholding but was issued a certificate for 0.01% TDS for the last two assessment years due to a software issue. The petitioner's request for NIL TDS was denied in 2021, increasing TDS withholding to 1%. The petitioner argued that the respondent failed to consider the DTAA provisions and a permission letter from the RBI, which prohibited certain activities without approval. The respondent's decision was challenged based on non-compliance with Rule 28AA of the Income Tax Rules. The respondent contended that the petitioner had a remedy under Section 264 of the Act and that TDS was necessary to safeguard revenue interests. The court noted that the respondent's order did not comply with Rule 28AA and quashed the decision, citing previous judgments emphasizing adherence to rules and standards. The court referred to previous cases where non-application of mind to relevant considerations led to arbitrary orders being set aside. The court rejected the argument of an alternate remedy for the petitioner and directed the respondents to issue a fresh order in compliance with the law. Until then, the petitioner's receipts would abide by the previous TDS rate of 0.01%. The petition was disposed of with no costs awarded, and the order was to be uploaded on the website and forwarded to the counsels via email.
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