The Delhi High Court has reiterated that applications for lower or NIL TDS certificates must be evaluated objectively and cannot be rejected mechanically based on outstanding tax demands.

Case Overview

• Case: Make Mytrip (India) (P.) Ltd. v. Assistant Commissioner of Income-tax
• Court: High Court of Delhi
• Citation: W.P. (C) No. 11956 of 2025

Facts of the Case

• The assessee applied for a lower/NIL TDS certificate under Section 197 of the Income-tax Act, 1961.
• It claimed that due to:
  • Brought-forward losses, and
  • Unabsorbed depreciation,
    its taxable income for the year would be NIL.
• The department rejected the application citing outstanding tax demand.
• The assessee contended that:
  • The demands were under appeal or rectification,
  • Some were not enforceable, and
  • There were substantial refunds due.
• It was also highlighted that in earlier years, similar certificates were consistently issued.

Legal Framework

• Section 197 of the Income-tax Act, 1961:
  Allows the Assessing Officer (AO) to issue a certificate for lower or NIL deduction of TDS where justified.
• Rule 28AA of the Income-tax Rules, 1962:
  Prescribes the criteria for determining eligibility, including:
  • Estimated income of the current year
  • Tax payable on such income
  • Existing liabilities under the Act
  • Past tax payments and refunds

Key Issue

Whether the AO can reject a Section 197 application solely on the basis of outstanding demand, without evaluating the parameters prescribed under Rule 28AA.

Court’s Findings

The Delhi High Court held:

• Mechanical rejection is invalid
  The AO failed to apply the criteria laid down under Rule 28AA.
• Outstanding demand is not decisive
  Mere existence of demand cannot be the sole ground for rejection.
• Holistic assessment required
  The AO must consider:
  • Current year income position
  • Carry-forward losses and depreciation
  • Refunds due
  • Status of disputed demands
• Speaking order mandatory
  The rejection must be supported by clear reasoning and application of mind.
• Order set aside
  The impugned rejection was quashed and the matter was remanded for fresh consideration.

Key Takeaways for Taxpayers

• Right to fair evaluation
  Applications under Section 197 must be decided based on objective criteria.
• Demand alone is insufficient
  Disputed or non-recoverable demands cannot automatically disqualify applicants.
• Documentation is critical
  Taxpayers should provide:
  • Computation of income
  • Details of carried-forward losses
  • Status of pending disputes
  • Refund position
• Consistency matters
  Past acceptance of similar applications strengthens the taxpayer’s case.

Practical Implications

• Businesses facing high TDS deductions can actively seek relief under Section 197
• In case of rejection:
  • Examine whether Rule 28AA criteria were followed
  • Consider legal remedy if the order lacks reasoning
• Proper representation before the AO can significantly improve outcomes.

Conclusion

This ruling reinforces that administrative discretion must be exercised judiciously and transparently. Authorities cannot deny lower or NIL TDS certificates without a reasoned analysis of statutory factors.

For expert guidance on this topic, contact your tax professional today