Decision regarding tax withholding certificate under section 197 must be based on objective criteria and cogent reasons.
The High Court held that the decision under section 197 is quasijudicial is nature and must be based on objective criteria and the relevant material provided by the Applicant and available with the Department. The decision must be supported with the reasons which conform to the requirement of section 197 and Rule 28AA and the reasons must be communicated to the Applicant.
[In matter of Bently Nevada LLC, High Court of Delhi]
A. Facts of the case
The Petitioner is a non-resident company based out of USA and is engaged, inter alia, in supply of goods outside India. The Petitioner had filed an application before the assessing officer under section 197 of the Income-tax Act, 1961 (“IT Act”) for obtaining a nil or lower tax (1.04% of the sum) withholding certificate regarding payments from its Indian customers for FY 2019-20. In respect of earlier years as well, the Petitioner was permitted to receive the remittance after deduction of tax at rate of 1.5%. The Assessing Officer issued a certificate requiring tax deduction at the rate of 5%. The Petitioner filed the instant writ petition challenging this certificate.
B. Judgment of the High Court
The High Court held that the impugned certificate issued by the Assessing Officer suffers from the vice of arbitrariness and non-application of mind. The Court held that the certificate was bad in law as it was issued in a mechanical manner without recording any reasons and basis for the decisions. From perusal of the file of the assessing officer, the Court found that the rate of 5% was decided merely on the dictation of the superior officer i.e. CIT(TDS). Further, the rate of 5% was decided without any valid basis and ignoring the relevant material on record. The Court held that the assessing officer, being a quasi-judicial authority, was required to record reasons and was required to communicate those reasons to the Petitioner. The Court set aside the impugned certificate and directed the assessing officer to issue a fresh certificate.
C. Our Comments
- This judgment upholds the view taken by other courts that while deciding the application under section 197, the assessing officer is required to pass an order and the order must contain reasons.
- This decision will certainly help the assesees in knowing whether the order rejecting the application for no or lower withholding certificate was passed after considering the legal provisions and the relevant facts and figures on record. This will give a meaningful opportunity to the assessees to challenge such certificates in either revisionary jurisdiction under section 264 or in a writ petition before the High Court, as the case may be.