The court ruled that prior tax filings cannot disqualify an applicant for a tax certificate under Section 197 of the IT Act, emphasizing strict statutory interpretation and the need for objective assessment of tax liability.

ORDER :

1. The petitioner, a company which is incorporated in the month of March 2021 and has commenced operation of its business in the month of April 2022, has filed this petition impugning the respondent's order dated 28.02.2023 rejecting the petitioner's application for issuance of Certificate as contemplated under section 197 of the INCOME TAX ACT , 1961 (for short, 'the IT Act'). The petitioner has also sought for directions to the respondent to issue such Certificate for the financial year 2023-24 directing nil deduction of tax.

2. The petitioner is a part of a group entities including M/s. Bitcipher Labs LLP and Chain Labs Pte. Limited, Singapore (M/s Bitcipher). The petitioner has entered into the Brand License Agreement, Inter-Company Services Agreement, Software Service Agreement, and Intellectual Property Assignment Agreement. It is undisputed that the petitioner, with the transfer of intellectual property by M/ Bitcipher under the relevant agreement, is inter alia granted license to use the application called Coin Switch This is a Crypto App used for online buying, selling and trading of cryptocurrency on certain terms and that the petitioner also pays agreed amounts to M/s. Bitcipher as consideration. The petitioner, apart from re-licensing the use of this App to M/s Bitcipher, has also licensed the use of the app to third parties, and crucially, the petitioner does not itself operate the app enabling the use for trading.

3. The petitioner had filed similar application under Section 197 of the IT Act for the financial year 2022-23, but the respondent has rejected this application on 21.06.2022 observing that it would be at liberty to file fresh application along with the documentary evidence in support of the claim for Certificate. The petitioner has filed revision before the competent authority impugning the first respondent's order dated 21.06.2022. However, the revision is also rejected on 30.08.2022 observing that the petitioner has accepted that it did not have any existing and estimated tax liability.

4. The petitioner has thus filed the present application on 16.03.2023 for the assessment year 2024-25, and with the petitioner filing this application, the respondent has sought for clarification such as (i) the explanation in detail about the basis for the projections of top payments/expenditure in the projected accounts for the financial year 2023-24, (ii) TDS remittances, (iii) the details for the financial year 2019-20, 2020-21, 2021-22 and 2022-23, (iv) ITR for the financial years 2018 - 19 to 2021-22 along with acknowledgments, (v) the computation of income, and (vi) audited balance sheet and audit report in Form 3CD as also the copies of the Form 26AS. The petitioner has furnished most of these details.

5. The respondent by the impugned order has rejected the petitioner's application for four-fold reasons. Firstly, that the petitioner cannot avail the assistance of Rule 28AA of the INCOME TAX RULES , 1962 (for short, 'the IT Rules'). Secondly, that there is no precedential guidance and therefore it is not possible to examine the basis of estimation or the allowability as proposed by the petitioner. Thirdly, a survey is conducted under Section 133A of the IT Act on M/s. Bitcipher's premises on 05.10.2021 resulting in initiation of the proceedings under Section 201 of the IT Act and a petition before this Court impugning such ini