In a significant ruling under the Income-tax Act, the Delhi High Court has held that the Competent Authority is bound to issue a nil-rate TDS certificate under Section 197 when an earlier High Court decision between the same parties has already settled the issue in favour of the assessee — even if the Revenue proposes to challenge that decision before the Supreme Court of India.
Background of the Case
The assessee was engaged in providing corporate and management support services to its Associated Enterprise (AE). For the relevant assessment year, it applied for a nil-rate withholding certificate under Section 197 of the Income-tax Act, 1961.
In the preceding year, the dispute between the same parties had reached the Delhi High Court. The Court had directed the tax department to issue a nil-rate TDS certificate for identical services rendered under similar contractual terms.
However, for the current year, the Competent Authority refused to grant the certificate. The refusal was based on two grounds:
- The principle that each assessment year is separate, and
- The Revenue’s intention to file a Special Leave Petition (SLP) before the Supreme Court against the earlier High Court ruling.
Issue Before the Courtñ
The central question was whether the tax authority, while exercising powers under Section 197, could disregard a binding High Court decision on identical facts merely because:
- The Revenue proposed to challenge the earlier judgment; and
- Each assessment year is treated as independent under tax law.
Court’s Observations
The Delhi High Court strongly rejected the Revenue’s stand and made the following key observations:
1️⃣ Binding Nature of High Court Judgments
A decision of the High Court is binding on subordinate authorities within its jurisdiction. The Competent Authority could not ignore or sidestep the earlier ruling between the same parties on identical facts.
2️⃣ Proposed SLP Does Not Dilute the Judgment
The Court clarified that merely proposing to file an SLP does not suspend or nullify the operation of a judgment. Unless the Supreme Court grants a stay, the High Court’s decision continues to bind the parties and the department.
3️⃣ “Each Assessment Year is Separate” – Not an Absolute Rule
While it is settled law that each assessment year is distinct, this principle cannot be invoked to override judicial discipline where the facts and issues remain unchanged.
4️⃣ Duty of Judicial Discipline
Authorities acting under Section 197 perform quasi-judicial functions and are bound by principles of consistency and judicial discipline. They cannot take a contrary view in the face of a binding precedent.
Final Verdict
The High Court directed the tax authorities to issue the nil-rate TDS certificate, holding that the refusal was unsustainable in law.
Why This Judgment Matters
This ruling is particularly important for taxpayers engaged in cross-border transactions and inter-company service arrangements, where withholding tax issues frequently arise.
The judgment reinforces that:
- High Court rulings must be followed by tax authorities.
- A proposed SLP does not weaken the binding effect of a judgment.
- Administrative authorities cannot use technical principles to deny relief already settled by courts.
Overall, the decision strengthens taxpayer protection against inconsistent and arbitrary administrative action under Section 197 of the Income-tax Act.