Delhi High Court Treats 5.25% Withholding Certificate Issued To EY As Nil

The Delhi High Court has recently treated a 5.25% withholding tax certificate issued to Ernst & Young LLP (EY) under Section 195 of the Income Tax Act, 1961, as a NIL-rate certificate, holding that the tax officer acted contrary to an earlier binding order of the Court for the same assessment year.

A Division Bench of Justices Dinesh Mehta and Vinod Kumar disposed of the writ petition filed by EY challenging the order of the Assistant Commissioner of Income Tax which had directed withholding at 5.25%.

EY argued that the impugned certificate was issued in derogation of the High Court's own order dated January 14, 2026 passed in the petitioner's case for the very same assessment year, wherein the Court had recorded a finding of non-taxability and remanded the matter only to allow the authority to examine if anything further remained.

Despite there being no new facts, EY argued, the tax officer proceeded to reiterate the earlier stand and issued a withholding certificate at 5.25%, which was arbitrary and amounted to disregard of judicial findings.

The Revenue submitted that the officer had acted bonafide, explaining that the department was in the process of filing a Special Leave Petition before the Supreme Court in another matter concerning the concept of virtual permanent establishment (PE), and that the impugned order was passed under that misconception rather than with any malafide intent.

Taking note of the submissions, the High Court refrained from coming down heavily on the officer but warned him to be careful in future.

Further, instead of remanding the matter again, the Court directed that the 5.25% certificate shall be treated as a NIL-rate certificate. It also ordered the competent authority to issue an amended/rectified NIL certificate within seven days of production of the order.

The Court further directed that the competent authority shall issue a NIL rate certificate not only for Financial Year 2025–26 (AY 2026–27) but also for subsequent years, if an application is filed, within 30 days of such application.

However, it clarified that the authority would not be bound by this direction if it records a finding that EY has a Permanent Establishment in India and that its transactions are taxable, provided notice is issued before such determination. The Court also directed EY to fully and truly disclose all material facts in its annual applications and extend cooperation in any future proceedings.

For Petitioner: Advocates Kamal Sawhney, Arun Bhadauria, Nishank Vashistha

For Respondent: Advocate Indruj Rai, SSC, MSanjeev Menon, Rahul Singh, JSCs.