S. 197 Income Tax Act| Delhi High Court Flags Date Mismatch Between Orders And Certificates Issued For Lower TDS, Asks CBDT To Address
The Delhi High Court has flagged an administrative issue in the processing of applications under Section 197 of the Income Tax Act, noting that a mismatch between the dates on orders and certificates issued for lower or nil tax deduction can create a misleading impression of delay.
The court noted that while the certificate may be issued later, the order deciding the application often bears the date of filing of the application.
A division bench of Justices Dinesh Mehta and Vinod Kumar noted that this practice often creates an erroneous impression that there has been an inordinate delay in issuing certificates for lower or nil deduction of tax at source (TDS), even when the application may have been processed and decided within a reasonable timeframe.
“We have often noticed that the date of the order considering application under Section 197 and the date of issuance of certificate is not same. We are informed that the order often bears the date on which the application under Section 197 of the Act of 1961 has been filed. Due to this, an impression is often taken as if the issuance of the certificate has taken a long time after the application was processed or decided,” the judges said.
The observation was made as a parting remark while dealing with a US-based company's challenge to an order passed by the Income Tax Department directing deduction of tax at the rate of 15% on payments made to the petitioner, pursuant to its application under Section 197.
Branch Metrics Inc had approached the High Court challenging the order dated May 2, 2025 and the consequential certificate dated June 18, 2025, contending that the competent authority had mechanically rejected its request for a nil or lower withholding tax certificate without considering its submissions, treaty provisions, or the fact that the precedent relied upon had been overruled
The petitioner argued that the authority had relied on an Advance Ruling in Shell India Markets which had already been overruled by the Bombay High Court, rendering the impugned order legally unsustainable.
While the Revenue opposed the plea on the ground that assessment orders for earlier years had held the petitioner's receipts to be taxable, the Court held that the Section 197 order suffered from non-application of mind, as it merely lifted findings from assessment orders and relied on an overruled precedent.
Accordingly, without expressing any view on the ultimate taxability of the petitioner's transactions, the Court set aside the impugned order and directed the issuance of a temporary certificate at the rate of 2% for AY 2026-27, equivalent to the equalisation levy earlier paid by the petitioner.
So far as dating of Section 197 orders is concerned, the Court requested the Central Board of Direct Taxes (CBDT) to address the issue.
For Petitioner: Senior Advocate Sachit Jolly with Advocates Mansha Anand, Sohum Dua, Abhyudaya Bajpyee, Manvi, and Ghunain Siddiqui.
For Respondent: Senior Standing Counsel Debesh Panda with Junior Standing Counsels Vikramaditya Singh and Zehra Khan.