HIGH COURT INTERVENES IN ARBITRARY REJECTION OF NIL TDS CERTIFICATE APPLICATION

Make My Trip (India) Private Limited ("the petitioner"), engaged in the business of selling travel products, challenged an order dated 17.07.2025 passed by the Deputy Commissioner of Income Tax (TDS), Gurugram ("respondent no. 2"), rejecting its application under Section 197 of the Income Tax Act, 1961 ("the Act") for a ‘NIL Withholding Certificate’ or, in the alternative, a certificate at the rate of 0.30% for Financial Year (F.Y.) 2025-26 (Assessment Year (A.Y.) 2026-27).

The petitioner had previously been issued certificates for lower withholding rates by respondent no. 1 (Assistant Commissioner of Income Tax, Circle-75(1), Delhi) for several preceding financial years, including 0.30% for A.Y.s 2025-26, 2024-25, and 2023-24.

The petitioner's application for F.Y. 2025-26 was based on expected 'NIL' taxable business income after setting off substantial brought-forward tax losses.

During the application process, the respondents sought clarification regarding outstanding tax demands of ₹1,50,65,760 against the petitioner’s PAN and ₹11,660 against its TAN.

The petitioner responded that the PAN demand was not recoverable due to pending rectification and appeal, and the TAN demand was a technical error being corrected.

However, respondent no. 2 rejected the application, citing a demand of ₹23,80,63,189 pending against the TAN, with no stay granted.

The petitioner argued that this demand was largely disputed, pending rectification or appeal, and related to alleged short tax deduction on payments for online advertisements and maintenance charges.

The High Court also noted that the petitioner was assessed to tax in Delhi by respondent no. 1, and previous certificates, including for A.Y. 2025-26, were issued by the Delhi office.

Although the impugned order technically came from Gurugram, it was addressed to the petitioner's Delhi office.

The petitioner also asserted substantial tax refunds due, aggregating to ₹84.10 crores, making the Revenue a net payable entity to the petitioner.

Furthermore, subsequent to the writ petition, rectification orders on 22.08.2025 reduced the alleged demands under Section 201(1)/(1A) for FYs 2017-18 and 2018-19 from ₹20.5 crore to ₹9.11 crore.

The court primarily applied Section 197 of the Income Tax Act, 1961, which allows for the issuance of certificates for lower or nil deduction of tax at source, and Rule 28AA of the Income Tax Rules, 1962, which prescribes the parameters for determining the appropriate TDS rate based on estimated tax liability and existing demand.

The court also relied on the principle established in Manpowergroup Services India Pvt. Ltd. v. CIT (TDS)-1, New Delhi (2021) that an order under Section 197 must be reasoned and cannot arbitrarily fix rates without justification, failing which it violates principles of natural justice and is liable to be quashed.

Additionally, principles of judicial consistency and non-arbitrariness in tax administration, as highlighted in Principal Commissioner of Income Tax v. Maruti Suzuki lndia Ltd. (2019) and South Indian Bank Ltd. v. CIT (2021), were considered.

The court noted that the existence of outstanding demands, particularly those disputed or subject to rectification, must be properly evaluated in light of Rule 28AA.

The court found that it did have territorial jurisdiction, noting that the petitioner was assessed to tax in Delhi, and most previous certificates and subsequent rectification orders were issued by the Delhi office.

While the specific impugned order came from Gurugram, it was addressed to the petitioner's Delhi office, and previous consistent dealings with the Delhi office confirmed its jurisdiction.

The court rejected the argument regarding the availability of a Section 264 revision, citing ManpowerGroup Services India (P.) Ltd. (supra), which found such a remedy inefficacious where the order had Commissioner approval.

On the merits, the court determined that the rejection of the petitioner’s application was unreasoned and arbitrary.

The impugned order merely cited a demand of ₹23,80,63,189 without providing specific justifications or considering the petitioner's detailed explanations regarding the disputed nature of these demands, including pending rectification, appeal, and technical errors.

Critically, the court highlighted that, subsequent to the impugned order, a significant portion of the cited demand was reduced through rectification orders, demonstrating that the initial basis for rejection was flawed.

The court emphasized that the respondents failed to comply with Rule 28AA, which mandates consideration of estimated tax liability and existing demands, and ignored the petitioner's history of continuous business losses and substantial tax refunds due.

The court reiterated that orders under Section 197 must be reasoned and follow prescribed rules, as established in Manpowergroup Services India Pvt. Ltd. (supra) and Virgin Atlantic Airways Ltd. v. PCIT (2021).

The matter was remanded back to the Assessing Officer (AO) with directions to reconsider the petitioner's application under Section 197 of the Act, taking into account the court's conclusions, including the updated demand figures after rectification, the petitioner’s claims of continuous losses and pending refunds, and the requirement to pass a reasoned and speaking order within two weeks.

The court implicitly held that the Delhi High Court had territorial jurisdiction due to the consistent assessment and interaction of the petitioner with the Delhi-based tax authorities and the address of the petitioner in Delhi to which the order was issued.