Facts of the Case

The present writ petition was filed by the petitioner challenging the order dated 29th June, 2020 passed under Section 197 of the Income Tax Act, 1961, whereby the respondent authority refused to grant a certificate for deduction of tax at source (TDS) at NIL rate on payments made to the petitioner by its customers.

The petitioner contended that the rate specified in the impugned order (1.50%) in respect of payments under Sections 194J and 194I was significantly higher than the rate of 0.50% determined by the respondent in the immediately preceding year.

Issues Involved

  1. Whether the order passed under Section 197 refusing NIL TDS certificate was arbitrary and violative of the principle of consistency.
  2. Whether the impugned order was non-speaking and passed without proper reasoning.
  3. Whether the petitioner was entitled to a lower or NIL TDS rate considering its financials and past assessments.

Petitioner’s Arguments

  • The impugned order is contrary to the rule of consistency, as a significantly higher TDS rate was imposed compared to the previous year.
  • The order is non-speaking and non-reasoned, failing to consider the detailed submissions and financial workings provided by the petitioner.
  • The petitioner operates on a low profit margin (0.26% to 1.78%), and the tax payable on assessed income for preceding years was minimal (around 0.18%).
  • The ratio of tax withholding to profits was disproportionately high, reaching as much as 1758%, making the TDS burden excessive.

Respondent’s Arguments

  • The respondents contended that detailed reasons for the impugned order were available on record.
  • The petitioner itself had indicated applicable TDS rates of 2% and/or 10% in its application for the financial year 2020-21.
  • The petitioner projected a 78% increase in gross receipts for the relevant financial year, justifying the determination of TDS rate.

Court Findings / Order

  • The Delhi High Court disposed of the writ petition with a direction to the respondents to provide a copy of the detailed reasons underlying the impugned order within one week.
  • The Court did not adjudicate on the merits of the TDS rate but ensured procedural fairness.
  • Liberty was granted to the petitioner to challenge the reasoned order through appropriate legal proceedings, if aggrieved.

Important Clarification by Court

  • All rights and contentions of both parties were kept open.
  • The Court emphasized that the petitioner may pursue further legal remedies upon receipt of the reasoned order.

Sections Involved

  • Section 197, Income Tax Act, 1961 – Certificate for deduction of tax at lower or NIL rate
  • Section 194J, Income Tax Act, 1961 – Fees for professional or technical services
  • Section 194I, Income Tax Act, 1961 – Rent

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:2358-DB/MMH24072020CW45112020_195313.pdf


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