Delhi High Court sets aside one-line rejection of NIL TDS certificate; remands for reasoned decision under Rule 28AA

A bench of Justice V. Kameswar Rao and Justice Vinod Kumar heard a writ petition by Make My Trip (India) Pvt. Ltd. challenging the Deputy Commissioner (TDS), Gurugram's order dated 17.07.2025 rejecting its application under Section 197 of the Income-tax Act, 1961 for a "NIL Withholding Certificate" for F.Y. 2025-26 (A.Y. 2026-27). The petition raised whether the TDS authority could deny relief on the basis of alleged outstanding demands without applying the statutory formula in Rule 28AA or giving reasons, particularly when identical lower-rate certificates had been granted in preceding years.

The Court allowed the petition, set aside the impugned order and remanded the matter to the Assessing Officer for a reasoned decision within two weeks. The Court emphasised that the parameters in Rule 28AA were mandatory and that orders under Section 197 must disclose application of mind. The Court, in its reasoning, observed: "The law insofar as what should be the relevant consideration for issuance of certificate of this nature is well settled. Rule 28AA of the Rules, which prescribes a formula for determining the appropriate rate of TDS based on the estimated tax liability and existing demand. It is also a settled law in terms of Manpower Group Service Pvt. Ltd. (supra) that, an order under Section 197 of the Act must be reasoned and cannot arbitrarily fix rates without justification. In this case, we find that no reasons have been given by the respondents to reject the application except stating that there are demands of Rs. 23,80,63,189/-, against the TAN of the petitioner." The Court further directed that the Assessing Officer should reconsider the application and pass a "reasoned and speaking order" under Section 197.

Background The petitioner, an Indian company operating an online travel portal, had repeatedly obtained lower withholding certificates from TDS Circle 75(1), Delhi for prior years at rates between 0.10% and 0.30%. On 19.05.2025 it applied for a NIL certificate (or, without prejudice, for 0.30%) on the ground that carried-forward losses and unabsorbed depreciation would reduce taxable business income for FY 2025-26 to nil. The TDS authorities sought clarifications, including about several outstanding demands reflected against the petitioner's PAN and TAN. The Deputy Commissioner (TDS), Gurugram rejected the application by a one-line order citing aggregated demands and stating that "no stay has been granted against the demand."

The petitioner challenged that rejection before the High Court, arguing that (i) Rule 28AA required the AO to consider estimated tax liability, past certificates, brought-forward losses and pending refunds; (ii) the impugned order did not apply Rule 28AA or provide reasons; (iii) several demands were disputed, under rectification or appeal and many reduced by subsequent rectification orders; and (iv) the Revenue had granted identical relief for three immediately preceding years so consistency mandated reasoned departure. The Revenue contended that substantial collectible demands existed, that certificates under Section 197 were interim and discretionary, and that non-compliance justified refusal. It also argued territorial objections based on the Gurgaon processing.

The High Court examined the records, including past certificates issued by TDS Circle 75(1), Delhi and rectification orders that reduced the alleged demand from Rs. 23.50 crore to Rs. 14.08 crore after the impugned order. The Court found that the AO had not applied the Rule 28AA formula nor recorded reasons for denial, observing that a "one-line" rejection was untenable where statutory parameters mandated evaluation. The Court noted precedents emphasising that orders under Section 197 must be reasoned and that the rule-prescribed considerations could not be ignored. The Court set aside the impugned order dated 17.07.2025 and remanded the matter to the Assessing Officer to pass a reasoned order in accordance with Rule 28AA within two weeks. The writ petition was allowed and pending applications were disposed of as infructuous.

Case Details: Case No.: W.P.(C) 11956/2025 Case Title: Make My Trip (India) Private Limited v. Assistant Commissioner of Income Tax, Circle-75(1), Delhi & Anr. Appearances: For the Petitioner(s): Mr. Salil Kapoor, Ms. Soumya Singh, Mr. Sumit Lalchandani and Ms. Ananya Kapoor, Advocates For the Respondent(s): Mr. Siddhartha Sinha, Senior Standing Counsel