The Delhi High Court has reiterated that tax authorities must follow due process while deciding applications for NIL or lower TDS certificates under the Income-tax Act, 1961.

Background of the Case

In the case of Make Mytrip (India) (P.) Ltd. v. Assistant Commissioner of Income-tax (W.P. (C) No. 11956 of 2025), the assessee applied for a NIL/lower TDS certificate under Section 197 of the Income-tax Act.

• The assessee claimed that due to:

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  • Brought-forward losses

  • Unabsorbed depreciation
    its estimated taxable income was NIL

• In earlier years, similar applications were accepted and certificates were issued.

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However, the Assessing Officer rejected the application citing:

• Existence of outstanding tax demand

The assessee clarified that:

• The demands were under appeal/rectification

• Certain amounts were not recoverable

• Significant refunds were pending in its favour

Legal Framework

• Section 197 of the Income-tax Act, 1961 allows taxpayers to apply for lower or NIL TDS deduction

• The application is evaluated based on Rule 28AA of the Income-tax Rules, 1962, which requires consideration of:

  • Estimated income of the current year

  • Tax payable on such income

  • Existing liabilities

  • Past tax compliance

Court’s Observations

The Delhi High Court held that:

• The rejection was arbitrary and unsustainable in law

• The Assessing Officer failed to:

  • Apply the criteria under Rule 28AA

  • Consider the overall tax position of the assessee

• Mere existence of outstanding demand cannot be the sole ground for rejection

The Court emphasized that:

• Authorities must pass a reasoned and speaking order

• All relevant factors must be examined before denying relief under Section 197

Final Decision

• The impugned order was set aside

• The matter was remanded back to the Assessing Officer

• The AO was directed to pass a fresh order with proper reasoning

Key Takeaways for Taxpayers

• ✔ You are eligible for NIL/lower TDS certificate even if demands exist, subject to proper justification

• ✔ Authorities must consider overall tax liability, not just outstanding demand

• ✔ A non-speaking or mechanical rejection can be challenged

• ✔ Maintain proper documentation for:

  • Losses and depreciation

  • Pending appeals

  • Refund claims

Practical Implications

This ruling strengthens taxpayer rights by ensuring:

• Fair evaluation of Section 197 applications

• Reduced unnecessary TDS deductions

• Better cash flow management for businesses

Taxpayers facing unjust rejection of lower TDS certificates can consider appropriate legal remedies.

Conclusion

The Delhi High Court has reaffirmed that tax authorities must act judiciously and in accordance with prescribed rules while dealing with Section 197 applications. Arbitrary rejection without proper reasoning cannot be sustained.

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