Facts of the Case

The Petitioner, Jones LNG Lasalle Property Consultants (India) Pvt. Ltd., filed a writ petition challenging the order dated 16.05.2022 whereby its application under Section 197 of the Income Tax Act, 1961 seeking a lower withholding tax certificate for AY 2022–23 was rejected.

The Petitioner is engaged in real estate consultancy and related services. A notice under Section 226 was issued for recovery of outstanding tax demand aggregating to ₹3,55,89,80,829/- across multiple assessment years.

The Petitioner contended that the demands were erroneous and had filed multiple rectification applications since 2019 seeking correction and refund. Despite this, the Department continued to reflect inflated outstanding demand on its portal, and the refund of approximately ₹92.36 crores remained unpaid.

Issues Involved

  1. Whether rejection of an application under Section 197 of the Income Tax Act, 1961 is valid when the outstanding demand is subject to pending rectification.
  2. Whether the Income Tax Department can rely on disputed and potentially incorrect tax demand to deny a lower TDS certificate.
  3. Whether delay in disposal of rectification applications can prejudice the taxpayer’s rights.

Petitioner’s Arguments

  • The outstanding tax demand reflected by the Department was incorrect and subject to pending rectification applications.
  • The Department itself acknowledged that upon disposal of rectification applications, the demand may reduce to NIL.
  • Despite repeated representations since 2019, the rectification applications were not decided.
  • Due to this delay, the Petitioner was deprived of substantial refunds and wrongly denied a lower withholding certificate.
  • The Department was taking advantage of its own inaction and administrative lapse.

Respondent’s Arguments

  • The application under Section 197 was rejected due to substantial outstanding demand reflected on the PAN of the Petitioner.
  • Granting a lower TDS certificate would adversely affect revenue interests, as tax foregone would be significant compared to outstanding demand.
  • The Petitioner could reapply after rectification orders were passed.

Court’s Findings / Order

The Delhi High Court held:

  • The rejection of the Section 197 application was self-contradictory, as the Department itself acknowledged that rectification applications could reduce demand to NIL.
  • Reliance on such unverified and disputed demand was unjustified.
  • The impugned order dated 16.05.2022 was set aside.

Directions Issued:

  1. The Department was directed to decide all pending rectification applications within six weeks.
  2. Any refund found due must be granted within eight weeks thereafter.
  3. The application under Section 197 must be reconsidered within two weeks after disposal of rectification applications.

Important Clarification by the Court

  • The Court clarified that it had not expressed any opinion on the merits of the rectification applications.
  • The decision strictly addressed procedural fairness and administrative inconsistency.

Sections Involved

  • Section 197, Income Tax Act, 1961 – Certificate for deduction of tax at lower rate
  • Section 226, Income Tax Act, 1961 – Modes of recovery of tax
  • Sections 194A, 194C, 194J, Income Tax Act, 1961 – TDS provisions

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:2736-DB/MMH21072022CW109082022_173956.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.