Tax authorities must comply with statutory rules when issuing TDS withholding certificates; failure to do so invalidates the order.

JUDGMENT

Navin Chawla, J. (Oral)--The petition has been heard by way of video conferencing.

1. This petition has been filed by the petitioner challenging the certificate dated 02.06.2021 as also a `speaking order' issued by the respondent no.2 under Section 197 of the INCOME TAX ACT , 1961 (hereinafter referred to as the `Act') for the Assessment Year 2022-23, directing withholding of the tax deducted at source (TDS) at the rate of 1% for the petitioner. The petitioner further prays for a direction to the respondent nos.1 and 2 for issuing a fresh certificate under Section 197 of the Act, directing withholding of NIL TDS in terms of Article 8 of the Double Taxation Avoidance Agreement entered between India and the United Kingdom (hereinafter referred to as `DTAA').

2. The petitioner is a foreign company incorporated in the United Kingdom under the laws of United Kingdom and is registered in India under Section 592 of the Companies Act, 1956, as a branch office of a foreign company.

3. The petitioner is a tax resident of the United Kingdom and has been filing income tax returns in India as a `non-resident'.

4. The petitioner has been engaged in aircraft operations in international traffic and claims that there is no other income derived/earned in India, except for the nominal interest of income tax refund, if any, in some years, on which the Income Tax Department is deducting TDS at the rate of 30%.

5. The learned counsel for the petitioner claims that being a tax resident of the United Kingdom, which is also the petitioner's place of effective management for the purposes of the Act and the DTAA, income of the petitioner is non-taxable in India and accordingly, assessment under Section 143(3) of the Act for the Assessment Year(s) 2008-09 till 2017-18 have been completed at NIL taxable income.

6. The petitioner further claims to have been consistently receiving withholding tax certificates in the previous years under Section 197 (1) of the Act allowing a NIL rate of tax withholding for the Assessment Year(s) 2009-10 to 2019-20. For the Assessment Year(s) 2020-21 and 2021-22, the petitioner was issued certificates directing withholding of TDS at nominal rate of 0.01%. The petitioner claims that although no official reason for the same was given by the respondents, the petitioner was informed verbally that as a result of computerization of the process of issue of certificate under Section 197 of the Act by the respondent no.3, software of the Income Tax Department did not accept NIL rate of tax, therefore, certificate under Section 197 of the Act was issued applying a nominal rate of TDS at 0.01%. The petitioner claims to have not challenged the same because the amount was insignificant.

7. On 30.03.2021, the petitioner again applied for the issuance of certificate under Section 197 of the Act at NIL rate of tax, however, instead was issued the Impugned Certificate dated 02.06.2021, increasing the TDS withholding amount to 1%. The respondent no.2 also uploaded the Impugned `speaking order' on its website, observing as under:

"Sir/Madam,

Sub: Speaking order