Delhi High Court quashes tax withholding certificate issued in non-compliance with Rule 28AA of I-T Rules, 1962

feature-top

Read Judgement: VIRGIN ATLANTIC AIRWAYS LTD vs. PRINCIPAL COMMISSIONER OF INCOME TAX

Pankaj Bajpai

New Delhi, August 5, 2021: The Delhi High Court has ruled that the Assessing Officer cannot ignore the mandate of Rule 28AA of the Income Tax Rules, 1962 and proceed on any other basis. 

The Division Bench of Justice Manmohan & Justice Navin Chawla, was hearing a petition wherein the assessee had challenged the speaking order issued by the Income Tax Department u/s 197 of the Income Tax Act, 1961, directing withholding of the TDS at 1% for the assessee. 

The plea of the assessee was that the assessee is a foreign company incorporated in the United Kingdom, engaged in aircraft operations in international traffic, and filing income tax returns in India as a ‘non-resident’ and that its income is non-taxable in India as the assessee’s place of effective management for the purposes of the Act and the Double Taxation Avoidance Agreement (DTAA) is the United Kingdom. 

The assessee submitted that for the A.Ys 2020-21 & 2021-22, the assessee was issued certificates directing withholding of TDS at nominal rate of 0.01% and later on, when the assessee applied for the issuance of certificate u/s 197 at NIL rate of tax, the certificate was issued increasing the TDS withholding amount to 1% by way of a speaking order. 

It was submitted on behalf of the respondent that since the asseessee failed to supply the necessary documents to substantiate its claim of earnings being non-taxable, the Assessing Officer was of the opinion that though the profit derived from the main business of the petitioner was not taxable in India by virtue of Article 8 of DTAA, yet the petitioner might be engaged in incidental businesses and hence, certificate under Section 197 of the Act to deduct TDS at the rate of 1% was issued by the Assessing Officer. 

After hearing the submissions, the Bench observed that none of the considerations mentioned in Rule 28AA have been considered by the respondent in passing the impugned ‘speaking order’.

The Bench, citing Lufthansa Cargo AG vs. Deputy Commissioner of Income Tax & Anr [2019 (11) TMI 759], 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,” quashed the impugned speaking order.

This Court in Manpowergroup Services India Pvt. Ltd. vs. Commissioner of Income Tax (TDS)-1, New Delhi & Anr [2020 SCC OnLine Del 1844] had also rejected the argument of availability of alternate efficacious remedy to the assessee against the Certificate issued u/s 197, and there is no reason to depart from the same, added Justice Chawla. 

Hence, the High Court directed the Revenue Department to pass a fresh order in accordance with law. 

The Court also clarified that in the meantime, until a fresh certificate is issued by the Department, the assessee’s receipts of payment shall abide by the withholding tax certificates for the preceding period at the rate of 0.01%.

Add a Comment