Delhi High Court Slams IT Officer For Relying On Set-Aside Order, Directs Issue Of Nil TDS Certificate

The Delhi High Court has strongly criticised the Income Tax Department for relying on a long-set-aside assessment order to deny withholding tax relief, holding that such an approach amounts to a revenue-driven exercise contrary to law and judicial discipline.

A Division Bench of Justices Dinesh Mehta and Vinod Kumar set aside the order passed under Section 197 of the Income Tax Act, 1961, which had directed deduction of tax at 15% instead of issuing a nil withholding certificate to a a UK-based company providing subscription-based financial information and software products.

The petitioner company, engaged in providing subscription-based financial information and software products, had approached the Court challenging the Income Tax Officer's refusal to grant a nil TDS certificate for Assessment Year 2026–27.

The company contended that its distribution fees received from Indian group entities were not taxable in India under the Income Tax Act or the India-UK Double Taxation Avoidance Agreement.

Despite a binding order of the Income Tax Appellate Tribunal holding that similar distribution fees did not constitute “royalty”, the assessing authority relied on an assessment order for AY 1999–2000, which had already been set aside by the Tribunal, to justify the 15% withholding.

The Bench expressed shock at this approach, observing that the competent authority appeared to have been “propelled by revenue consideration rather than being guided by the law and judicial discipline.”

It held that once the Tribunal, a fact finding authority had ruled on identical facts, the officer could not take a contrary view in the absence of any distinguishing material.

Importantly, the Court rejected the Revenue's argument that the deduction was merely advance tax and could be refunded later if found unwarranted. It observed,

“We are conscious of this fact that the orders under Section 197 of the Act of 1961 are in the nature of advance tax and the tax if deducted from the payments made to the payee can ultimately be refunded, in case the same are not exigible to tax, but if such argument of the Revenue is to be accepted, then, the whole purpose of the provision under Section 197 of the Act of 1961 would be frustrated.”

As such, the Court quashed the impugned order and directed the Department to issue a nil TDS certificate for AY 2026–27 within 15 days.

For Petitioner: Senior Advocate Ajay Vohra with Advocate Dr. Shashwat Bajpai

For Respondent: Advocates Debesh Panda, SSC and Anauntta Shankar