Referred Sections:
Section 197 of the Income Tax Act, 1961
Section 143 (3)/147
Section 144-C (13) of the Act
Section 44BB of the Act.
Section 264 of the Act
Sections 3 and 5
Sections 5
Section 20A (1)?
Referred Cases / Judgments
Commissioner of Police vs. Gordhandas Bhanji 1952 SCR 135,
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 26th July, 2019
Decided on: 29th July, 2019
+ W.P.(C) 7744/2019 and CM APPL. 32145/2019 (stay)
BENTLY NEVADA LLC ..... Petitioner
Through: Mr.Sachit Jolly with Mr.Rohit Garg,
Mr.Siddharth Joshi and Mr.Aarush
Bhatia, Advocates.
versus
INCOME TAX OFFICER, WARD-1(1) (2), INTERNATIONAL
TAXATION & ANR. ..... Respondents
Through: Mr.Ruchir Bhatia, Sr.Standing
Counsel with Mr.U.K.Das, ITO.
CORAM:
JUSTICE S.MURALIDHAR
JUSTICE TALWANT SINGH
ORDER
% 29.07.2019
Dr. S. Muralidhar, J.:
1. The challenge in this petition is to a ,,lower withholding certificate issued
by the Income Tax Officer-Ward-I (1) (2), International Taxation, New
Delhi (Respondent No.1) under Section 197 of the Income Tax Act, 1961
(,,Act) directing deduction of tax at source (TDS) @ 5% from the payments
made to the Petitioner by its Indian customers.
2. The Petitioner is a company incorporated in the United States of America
W.P.(C) 7744/2019 Page 1 of 18
(,,USA) and is a subsidiary of Baker Hughes LLC, a General Electric group
company. The Petitioner is engaged inter alia in the business of supply of
goods from outside India.
3. It is stated that for Assessment Year (,,AY) 2002 -03, the Income Tax
Department (,,Department) by the assessment order dated 5th October, 2011
under Section 143 (3)/147 read with Section 144-C (13) of the Act
computed profits of the Petitioner by adopting ,,deemed profitability @ 10%
of the revenues/sales. This was done with reference to Section 44BB of the
Act. 35% of such profits were held to be related to marketing activities. 75%
of the marketing activities were held attributable to a Permanent
Establishment (,,PE) of the Petitioner in India. Effectively, 2.625% of the
sales revenue was held to be the profit attributable to the PE in India and this
was held to be taxable @ 40%. As a result, 1.054% of the gross sales
became the effective tax payable in India (40% of 26.25% of 10% of the
sales).
4. The Petitioner states that it has been regularly obtaining lower
withholding certificates under Section 197 of the Act from the Department
whereby the Petitioner was permitted to receive remittances from its
customers after deduction of tax @ 1.5% of the sum remitted.
5. The Income Tax Appellate Tribunal (,,ITAT) rejected the Petitioners
appeals and upheld the assessment order for the above AYs 2002-03 to
2006-07 confirming the rate of attribution of income to the PE in India @
2.6%. This was not further questioned by the Revenue. Copy of the order
W.P.(C) 7744/2019 Page 2 of 18
dated 27th January, 2017 passed by the ITAT in the appeals for the
aforementioned AYs have been enclosed with the petition.
6. However, the above decision was further challenged in this Court by the
Petitioners group companies on identical facts. By judgment dated 21st
December, 2018 in ITA No.621/2017 and batch, the said appeals were
dismissed by this Court. Following the above judgment, the Department
passed an assessment order in the Petitioners case for AY 2015 -16
attributing income to the PE in India at the rate of 2.6% and computing tax
@ 40% thereon. According to the Petitioner, the effective rate of tax was
worked out at 1.04% of the total revenues.
7. For Financial Year (FY) 2019-20, the Petitioner electronically filed an
application on 30th April 2019 under Section 197 of the Act seeking NIL
withholding tax. In the alternative, the Petitioner sought a lower withholding
of tax @ 1.04% in respect of remittances to be received from customers.
Along with the said application, a letter dated 31st May 2019 was filed
before Respondent No.1 submitting, inter alia, that if effect was given to the
orders of the ITAT and this Court in the Petitioners own case for the earlier
years, then the entire outstanding demands for the said years would be
reduced and the Petitioner would be entitled to a refund amounting to
Rs.2,03,70,412/-. The Petitioner thus requested the Department to issue NIL
withholding certificates under Section 197 of the Act.
8. A query was placed by the Department on the ,,TRACES portal of the
Petitioner on 4th June 2019 asking the Petitioner to furnish the audited copy
W.P.(C) 7744/2019 Page 3 of 18
of its India specific account for the previous year and projected accounts of
the company for the current year. The Petitioner sent a reply dated 6th June
2019 wherein inter alia it was pointed out that since the Petitioner did not
have any office/PE in India, it was not required to maintain books of
accounts in India. Without prejudice to the above contention, the Petitioner
pointed out that as per the prevailing laws in the USA, financial statements
of a group entity were required to be consolidated with the financial
statements of its respective holding company. The Petitioner pointed out that
the question of getting the financial statements audited would arise only in
respect of the consolidated national statements prepared by the holding
company i.e. Baker Hughes LLC which were required to be filed with the
United States Securities and Exchange Commission (,,USSEC).
9. The Petitioner in its letter dated 6th June 2019 then referred to the
assessment proceedings undertaken by the Department from AY 2002-03 till
2015-16 where the profit percentage of 10% had been regularly determined
by the AO as per Rule 10 of the Income Tax Rules, 1962 (,,Rules). A
reference was made to the order of the ITAT which inter alia had stated that
the approach of the AO in estimating income @ 10% in the sales made in
India in respect of the Assessee "is perfectly in order and does not require
any interference." An extract was also given from the judgment of this Court
concurring with the above view. It was pointed out that since profitability of
10% had been accepted in the above assessment proceedings by the ITAT,
there was no reason for Respondent Nos.1 and 2 to take a different stand in
the absence of any change in facts of the applicable law.
W.P.(C) 7744/2019 Page 4 of 18
10. With its reply dated 6th June 2019, the Petitioner enclosed the
withholding certificate issued by Respondent No.1 under Section 197 of the
Act for FY 2018-19 @ 1.5%. The Form 10K filed by Baker Hughes before
the USSEC for the year ended 31st December 2017 was also enclosed. This
indicated figures pertaining to global revenues. It showed that the holding
company had earned profit/loss margin of 3.06% and 1.65% of global
revenue in 2018 and 2017 respectively. It was pointed out that even if the
Department decided to continue with the determination of profitability of the
Petitioner, it could not be more than the global profit margin of the holding
company.
11. Respondent No.1 issued the impugned certificate on 11 th June 2019
authorising deduction of tax from the payments made to the Petitioner by
different entities which purchased its goods @ 5%. This withholding
certificate has been challenged in the present petition by the Petitioner on
the following grounds:
(i) No reasons have been given for arriving at the withholding rate of 5%.
An order under Section 197 of the Act was quasi-judicial in nature. It must
be supported by valid and cogent reasoning. Reference is made to the
decisions in McKinsey and Company Inc. v. Union of India (2010) 324
ITR 367 (Bom) and Tata Teleservices (Maharashtra) Ltd v. Deputy
Commissioner of Income-Tax (TDS) (2018) 402 ITR 384 (Bom).
(ii) The Respondent No.1 did not consider the undisputed fact that in terms
of the order passed by the ITAT and this Court, there would be no
W.P.(C) 7744/2019 Page 5 of 18
outstanding demand as on date and on the contrary, the Petitioner would be
entitled for a refund of Rs.2,03,70,412/-. This justified the Petitioners
prayer for a NIL withholding certificate under Section 197 of the Act.
(iii) Without prejudice to the above contention, it is submitted that with the
attribution rate @ 2.6% to the PE of the Petitioner having been accepted by
the Department while passing the assessment order for AY 2015-16, the
effective tax rate worked out only to 1.04% and, therefore, Respondent No.1
erred in not issuing a lower withholding certificate under Section 197 of the
Act at 1.04%. Withholding tax rate of 5% meant that the attribution of the
alleged PE was assumed to be higher than 2.6% of the total revenue which
was totally contrary to the order of the ITAT and this Court.
(iv) In any event, there was no occasion to increase the withholding rate
beyond 1.5% which was the rate which had been consistently adopted by the
Department while issuing such certificates under Section 197 of the Act for
the earlier years.
(v) For the rule of consistency, reliance is placed on the decision in Radha
Saomi Satsang v. CIT (1992) 193 ITR 321 (SC). In view of the global
profitability of the holding company of the Petitioner being 3.06%, the
impugned order directing deduction of tax @ 5% defeated the purpose of
Section 197 of the Act and denied the Petitioner much needed working
capital thereby crippling its business.
(vi) No appeal was preferable under the Act in respect of an order passed
W.P.(C) 7744/2019 Page 6 of 18
under Section 197 of the Act. Since the impugned certificate, which has
been issued with the prior approval of the Commissioner of Income Tax
(International Transaction) (Respondent No.2), even the revisionary
jurisdiction under Section 264 of the Act is unavailable.
12. This petition was listed first on 19th July 2019 when notice was issued.
Mr. Sachit Jolly, learned counsel for the Petitioner pressed for an urgent
interim relief since the amount involved since the beginning of FY 2019-20
was already substantial. However, given the nature of the matter, it was felt
that the interim relief would be no different from the final relief. At the
request of Mr. Ruchir Bhatia, learned counsel for the Revenue, who was
present in Court on that day, the case was adjourned to 26th July 2019 to
enable him to take instructions.
13. On the adjourned date, Mr. Bhatia informed the Court that he had with
him, the relevant files of the Department. When asked about the reasons for
the impugned certificate under Section 197 of the Act specifying the rate of
TDS at 5%, Mr. Bhatia volunteered that it was only the certificate which
was posted online on the portal of the Petitioner and no separate order as
such giving reasons for the same was posted. He, however, stated that the
original file brought to the Court would contain the reasons.
14. The Court has perused the Departments file. It contains just 8 pages of
notings. The first noting is of 21st May 2019 by Respondent No.1. The said
note acknowledges that the Petitioner had filed an online application on 30th
April 2019 for issuance of a certificate at "nil/lower of TDS" with a list of
W.P.(C) 7744/2019 Page 7 of 18
parties from whose payments tax had to be deducted. The list is of 29 such
Indian entities. It is noted that the nature of the business of the Petitioner i.e.
"supplying of goods from outside India"; that the Petitioner was expected to
receive orders during the FY 2019-20 from various customers in India worth
USD 3,109,169/- equivalent to Indian Rs.21,76,41,830/-. The note then
states that in the latest assessment order for AY 2014-15, the Assessing
Officer (AO) had established the PE in India and attributed income to the
marketing activities carried out in India in respect of offshore supplies. The
tax payable in India was shown as 1.05%. In para 4 of the note dated 21st
May 2019, Respondent No.1 stated as under:
"4. The assessee has sought the Certificate of TDS deduction at
"NIL". However, considering the latest assessment order on
offshore supply of goods and keeping in line with the order u/s
197 for last financial year, where the application was allowed
@ 1.5%, we may, if approved, issue the Certificate at the same
rate as applicable for the last financial year i.e. @ 1.5%."
(emphasis in original)
15. When this note was placed before the CIT (IT) (Respondent No.2), he
made an endorsement dated 24th May 2019: "please discuss". On the same
date, another noting was made by the Addl. CIT, Range-1 (1), Delhi which
reads: "Discussed with CIT. He desires that file may be put up again with
2% TDS rate." The file was then sent back to Respondent No.1 who stated
"as directed, fresh note sheet has been put-up on next page for kind perusal
and further direction please." This was dated 27th May 2019. The fresh note
virtually repeated the entire earlier note dated 21st May 2019 except that
para 4 of this fresh note reads as under:
"4. The assessee has sought the Certificate of TDS deduction at
W.P.(C) 7744/2019 Page 8 of 18
"NIL." However, considering the facts and circumstances of the
case, we may, if approved, issue the Certificates @ 2.0%."
(emphasis in original)
16. Thus, it would be seen that Respondent No.1 who is supposed to
exercise a quasi-judicial function acted under the dictation of his superior
i.e. Respondent No.2, who simply asked him to increase the TDS percentage
from 1.5% to 2% without any reason whatsoever. Consequently, in the fresh
note dated 27th May 2019 of Respondent No.1, no reasons were given as to
why the TDS rate should not be NIL as requested for by the Assessee and
instead why it should be increased from 1.5% to 2%. Interestingly, in this
entire note and in the further notes of the superior officers, no reference is
made to what is stated by the Petitioner in its application dated 30th April
2019.
17. The fresh note dated 27th May 2019 was placed again before the Addl.
CIT and then before the CIT (IT) i.e. Respondent No.2. On 28th May 2019
the noting made by Respondent No.2 reads as under:
"PE has been held to be there in India. Accounts have not been
given. Issue @ 5%."
18. This is a crucial noting. Two factors require to be noted here. One that
without any change in the circumstances, between 24th May 2019 when he
first saw the file and 28th May 2019 when he next saw it, the CIT reviewed
his earlier decision instructing his subordinate to put up the file again
proposing a 2% TDS. Secondly, his comments were cryptic. That there was
a PE of the Petitioner in India was not a new development. The second, that
W.P.(C) 7744/2019 Page 9 of 18
accounts have not been given, he failed to acknowledge that till that date
accounts were not even called for from the Petitioner. Yet the decision was
given: "Issue at 5%. The arbitrary nature of such decision is thus self -
evident.
19. The matter was then placed again before the Addl. CIT who made the
following note:
"See the pre-page. Approved @ 5% TDS by CIT. Please issue
certificate accordingly."
20. When the file was again sent to the Respondent No.1, he made an
endorsement on 3rd June 2010: "Please check demand position" and sent the
file to the Addl. CIT who stated "As per the dossier, demand of
Rs.42,81,61,593/- is pending which has been stayed." This note is also
dated 3rd June 2019. The file was then marked to the CIT (IT) who simply
put his initials thereon on 10th June 2019. There is no further note on the file.
21. Thus it will be seen that the direction given by the CIT (IT) for issuing
the TDS at 5% was only for two ostensible reasons, the first being that the
PE had been held to be there in India. This cannot be per se the reason for
increasing the TDS from 1.5% to 5%. The second reason is that "accounts
have not been given." If indeed accounts had not been given, it should have
not been difficult for the Respondents to ask the Petitioner to furnish the
relevant accounts.
22. From the file it appears that on 3rd June 2019, a reminder had been sent
W.P.(C) 7744/2019 Page 10 of 18
by the Petitioner for issuance of the TDS certificate. Although on the file it
appears that the decision to charge TDS at 5% had already been taken by
that date (it was taken by the CIT on 28th May 2019), it is only on 4th June
2019 that a query was addressed to the Petitioner on the TRACES asking it
for the accounts. The reply thereto by the Petitioner on 6 th June 2019 has
already been referred to earlier in this order. However, without referring to
the said reply dated 6th June 2019 of the Petitioner (copy of which along
with its enclosures is available on the Departments file) the CIT (IT)
initialled the note on the file on 10th June 2019 and on that basis the
impugned certificate dated 11th June 2019, under challenge in the present
petition, was issued.
23. The Court finds that there is both arbitrariness and non-application of
mind at various levels which vitiates the impugned certificate. Some of
them, at the cost of repetition, may be recapitulated. The first is Respondent
No.1 changing his initial decision as contained in the note dated 21st May
2019 directing TDS at 1.5% to 5% by his subsequent note dated 27th May
2019 without any reasons and only because his superior, the CIT (IT) asked
him to do so. At that stage, no reasons whatsoever appeared to have been
indicated as to why the CIT felt that the TDS rate should be 2% instead of
1%. Respondent No.1 mechanically followed the advice and prepared a
fresh note on 27th May 2019 simply stating that "considering the facts and
circumstances of the case" the TDS certificate should be at 2%.
24. Secondly, when this note went back to the CIT, he simply said ,,issue @
5% after noting that there was a PE in India and ,,accounts have not been
W.P.(C) 7744/2019 Page 11 of 18
given. This was, therefore, done even without asking the Petitioner for the
accounts at that stage. It may be noted that this noting was made on 28 th
May 2019 and on 29th May 2019 it was already decided to issue the
certificate ,,accordingly. For the second time, therefore, Respondent No.1
acted on dictation. This was not a case of a superior officer ,,concurring
with the decision of the subordinate. This was a textbook example of a
superior officer dictating to his subordinate what the decision should be.
25. The settled legal position in administrative law is that orders passed by a
statutory authority under ,,dictation of a superior officer or anyone else is
bad in law. Illustratively, reference may be made to the decision in
Anirudhsinhji Karsansinhji Jadeja v. State of Gujarat AIR 1995 SC 2390
where the Supreme Court held that the decision to book the Appellants
before them for offences punishable under Sections 3 and 5 of the Terrorist
and Disruptive Activities (Prevention) Act, 1985 was bad in law. The
following discussion in the said decision is relevant for the case on hand,
because the principle enunciated will apply here on all fours:
"11. The case against the appellants originally was registered on
19th March, 1995 under the Arms Act. The DSP did not give
any prior approval on his own to record any information about
the commission of an offence under TADA. On the contrary, he
made a report to the Additional Chief Secretary and asked for
permission to proceed under TADA. Why? Was it because he
was reluctant to exercise jurisdiction vested in him by the
provision of Section 20A (1)? This is a case of power conferred
upon one authority being really exercised by another. If a
statutory authority has been vested with jurisdiction, he has
to exercise it according to its own discretion. If the
discretion is exercised under the direction or in
compliance with some higher authority's instruction, then
W.P.(C) 7744/2019 Page 12 of 18
it will be a case of failure to exercise discretion altogether.
In other words, the discretion vested in the DSP in this case by
Section 20A (1) was not exercised by the DSP at all.
12. Reference may be made in this connection to Commissioner
of Police vs. Gordhandas Bhanji 1952 SCR 135, in which the
action of Commissioner of Police in cancelling the permission
granted to the respondent for construction of cinema in Greater
Bombay at the behest of the State Government was not
upheld, as the concerned rules had conferred this power on the
Commissioner, because of which it was stated that the
Commissioner was bound to bear his own independent and
unfettered judgment and decide the matter for himself,
instead of forwarding an order which another authority had
purported to pass.
13. It has been stated by Wade and Forsyth in Administrative
Law, 7th Edition at pages 358 and 359 under the heading
,,Surrender, Abdication, Dictation and sub-heading "Power in
the wrong hands" as below:
"Closely akin to delegation, and scarcely distinguishable
from it in some cases, is any arrangement by which a
power conferred upon one authority is in substance
exercised by another. The proper authority may share its
power with someone else, or may allow someone else to
dictate to it by declining to
act without their consent or by submitting to their wishes
or instructions. The effect then is that the
discretion conferred by parliament is exercised, at least in
part, by the wrong authority, and the resulting decision is
ultra vires and void. So strict are the courts in applying this
principle that they condemn some administrative
arrangements which must seem quite natural and proper to
those who make them.....".
"Ministers and their departments have several times fallen
foul of the same rule, no doubt equally to their surprise...."
W.P.(C) 7744/2019 Page 13 of 18
14. The present was thus a clear case of exercise of power on
the basis of external dictation. That the dictation came on the
prayer of the DSP will not make any difference to the principle.
The DSP did not exercise the jurisdiction vested in him by the
statute and did not grant approval to the recording of
information under TADA in exercise of his discretion."
(emphasis supplied)
26. Thirdly, the decision was taken without valid basis and ignoring the
relevant material that was called for and available on record. On 3rd June
2019, the demand position was asked to be checked and it was stated that the
demand had been stayed. It is only thereafter on 4th June 2019 that the
Petitioner was asked for the accounts. It sent its reply on 6th June 2019 but
on 11th June 2019 the impugned certificate was issued without adverting to
any of the contentions raised by the Petitioner or the documents enclosed
with the said reply.
27. Rule 28AA of the Rules prescribes the procedure to be followed by the
AO who is approached with an application under Section 197 (1) of the Act.
How the AO is to estimate the ,,existing and estimated liability is indicated
in Rule 28 AA (2). The relevant portion of Rule 28 AA reads thus:
"Certificate for deduction at lower rates or no deduction
of tax from income other than dividends.
28AA (1) Where the Assessing Officer, on an application made by a
person under sub-rule (1) of rule 28 is satisfied that existing and
estimated tax liability of a person justifies the deduction of tax at
lower rate or no deduction of tax, as the case may be, the Assessing
Officer shall issue a certificate in accordance with the provisions of
W.P.(C) 7744/2019 Page 14 of 18
sub-section (1) of section 197 for deduction of tax at such lower rate
or no deduction of tax.
(2) The existing and estimated liability referred to in sub-rule (1)
shall be determined by the Assessing Officer after taking into
consideration the following:--
(i ) tax payable on estimated income of the previous year relevant to the
assessment year;
(ii) tax payable on the assessed or returned 2or estimated income, as the
case may be, of last four previous years;
(iii) existing liability under the Income-tax Act, 1961 and Wealth-
tax Act, 1957;
(iv) advance tax payment tax deducted at source and tax collected at
source for the assessment year relevant to the previous year till the
date of making application under sub-rule (1) of rule 28."
28. The file produced before this Court by the Department shows that the
above factors were not kept in view and no reference in fact was made to
Rule 28AA of the Rules. The impugned certificate simply states that the rate
of TDS should be 5%, which obviously does not satisfy the requirements of
the law.
29. Even if one were to accept the explanation offered by Mr. Bhatia that on
the online portal only a certificate is posted and not the reasons for the
decision, then surely there should be a separate written order communicated
to the Petitioner giving the reasons for fixing the TDS rate under Section
197(1) since this is mandated by law. To reiterate, that decision which is
quasi-judicial in nature, has to be taken by the AO under Section 197(1) of
the Act on objective criteria and be based on relevant material provided by
the applicant and available with the Department. It must be supported by
W.P.(C) 7744/2019 Page 15 of 18
reasons available on the file which conform to the requirement of Section
197 of the Act read with Rule 28 AA of the Rules. Those reasons must be
communicated to the applicant. It cannot be taken, as in the instant case, on
the dictation of an officer superior to the AO.
30. In Tata Teleservices (Maharashtra) Ltd v. Deputy Commissioner of
Income-Tax (TDS) (supra) the Bombay High Court held as under:
"Section 197 of the Act permits/allows an assessee to make an
application to the Assessing Officer, that in its case, the
deduction of tax under the sections specified therein should be
at lower rates or at nil rates instead of the normal rate
prescribed under the Act. The Assessing Officer, if satisfied,
with the application made, bearing in mind the provisions of the
Act and the Rules, is obliged to grant the certificate. Therefore,
there is a right given to an assessee to apply for nil/lower rate of
withholding tax under section 197 of the Act and an obligation
upon the Assessing Officer to grant the same, if the conditions
specified therein are satisfied. Thus, it is clear that the order
passed under section 197 of the Act is an order which is a
quasi-judicial order and must be supported by reasons."
31. That there have to be proper reasons for the order under Section 197 of
the Act has also been emphasized in McKinsey and Company Inc. v. Union
of India (supra). In that case the AO determined the withholding % of TDS
@ 15% for FY 2009-10 which was much higher than the rate determined by
the CIT for the earlier AYs 2007-08 to 2009-10 at 1.5% and 1.3%. While
setting aside the order of the AO it was observed by the Bombay High Court
as under:
"In disposing of an application filed by the assessee under
Section 197(1) for the grant of a certificate, the Assessing
Officer has to make a determination which would constitute an
W.P.(C) 7744/2019 Page 16 of 18
order for the purposes of Section 264. That a petitioner should
exhaust the alternate remedies available is a self-imposed
restraint which does not bar the exercise of the writ jurisdiction
under Article 226. In a case such as the present where the
Assessing officer has chosen to act in complete departure from
a duly considered determination made by a superior officer, it is
necessary for this court to step in to ensure that the discipline of
the hierarchy imposed by fiscal legislation is duly observed.
Unless a sense of hierarchical discipline is observed, while
implementing fiscal legislation, the exercise of powers would
be rendered arbitrary and subject to the whim and caprice of
Assessing officers. This would be impermissible and contrary
to the norm of fairness which article 14 of the Constitution
embodies. The prescriptions of Article 14 must at all times
infuse statutory interpretation and must rigorously apply to the
exercise of statutory discretion. It is in these circumstances,
that this court has been constrained to exercise its writ
jurisdiction under article 226 to correct a manifest failure of
justice. The Assessing Officer is correct in adopting the
position that section 197(2) will not preclude a departure or a
contrary view being taken in assessment proceedings, in view
of the judgments of this court in CIT v. Tata Engineering and
Locomotive Company Limited (2000) 245 ITR 823 and CIT v.
Elbee Services (P) Limited (2001) 247 ITR 109 . But the
Assessing officer must also bear in mind that a departure has to
be made on the basis of valid and cogent reasons where there is
material on record which would justify such a departure. There
is an absence of material on record which would have justified
a departure in the facts of the present case."
32. The Court accordingly finds that in the present case the impugned
withholding certificate which directs TDS to be deducted at 5% on the
payments made by the Indian entities to the Petitioner is unsustainable in
law, inasmuch as it is not based on valid reasons and is contrary to the legal
requirement spelt out in Section 197(1) of the Act read with Rule 28AA of
W.P.(C) 7744/2019 Page 17 of 18
the Rules. The impugned certificate is hereby quashed.
33. The Court directs Respondent No.1 to once again consider the
application made by the Petitioner on 30th April 2019 for issuance of a lower
withholding certificate under Section 197(1) of the Act afresh in accordance
with law. Needless to state that Respondent No.1 should deal with the
issues raised by the Petitioner in the application and in the subsequent
correspondence which already forms part of the record of the Department
and take a fresh decision not later than 4 weeks from today. Apart from the
certificate being posted online, the decision itself, containing the reasons,
must be separately communicated to the Petitioner not later than 1 week
thereafter. Till such time the fresh decision is communicated to the
Petitioner, the decision in respect of TDS for the immediate earlier AY @
1.5% will continue to apply.
34. Needless to state, if the Petitioner is aggrieved by the fresh decision it
will be open to the Petitioner to seek appropriate remedies in accordance
with law.
35. The writ petition is allowed in the above terms. The pending application
is disposed of.
S. MURALIDHAR, J.
TALWANT SINGH, J.
JULY 29, 2019
tr
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