AO Can’t Mechanically Deny Nil Withholding Certificate Without Strictly Following Rule 28AA Mandatory Framework: Delhi HC

The Delhi High Court has held that an Assessing Officer cannot mechanically deny a Nil Withholding Certificate merely on the ground of protecting revenue, without strictly following the mandatory framework prescribed under Rule 28AA of the Income-tax Rules, 1962. The bench of Justice V. Kameswar Rao and Justice Vinod Kumar quashed the department’s order directing deduction of tax at source at 15 per cent, observing that the decision-making process was vitiated by non-application of mind and failure to consider statutorily mandated factors. The petitioner/assessee, Nord Anglia Education Limited, incorporated in the United Kingdom, provides international education services across the globe. It has an Indian subsidiary, Nord Anglia Education India Pvt. Ltd., to which it provides routine management and administrative support services such as marketing and communications, human resources, finance, IT, legal and corporate development. The costs of these services are recovered on a strict cost-to-cost basis, without any markup. For the relevant period, Nord Anglia applied for a Nil Withholding Certificate, contending that the consideration received for such services was not taxable in India under the India–UK Double Taxation Avoidance Agreement (DTAA). The company argued that the services were purely managerial in nature and did not qualify as “fees for technical services” (FTS) since they did not “make available” any technical knowledge, skill or know-how, as required under Article 13 of the DTAA. The Income Tax Department rejected the application, stating that issuance of a Nil certificate would be “premature” and directing tax deduction at 15% to “protect the interest of revenue”. The central legal issue before the Court was whether the Assessing Officer was justified in rejecting an application for a Nil Withholding Certificate on the ground that determination of income at that stage was “premature”, without examining the parameters laid down in Rule 28AA. The Court answered this in the negative, reiterating that Rule 28AA is mandatory and not a mere procedural formality. The Bench noted that Rule 28AA requires the Assessing Officer to consider, among other things, the estimated tax liability for the relevant year, tax payable or assessed for the previous four years, existing tax liabilities, and advance tax or TDS already paid. The impugned order, however, contained no discussion or analysis of these factors. The Court also took exception to the Revenue’s approach of disregarding favourable Income Tax Appellate Tribunal rulings for earlier assessment years on the same issue. It held that pending appeals against Tribunal orders do not dilute their binding nature unless they are stayed or set aside. Relying on settled Supreme Court jurisprudence, the Bench reiterated that tax authorities are duty-bound to follow orders of higher appellate forums, even if the Revenue disagrees with them or proposes to challenge them further. Rejecting the argument that withholding tax at a higher rate was justified to safeguard revenue interests, the Court clarified that proceedings under Section 197, though tentative in nature, cannot be reduced to a mechanical exercise. Even a provisional determination must adhere to the statutory rules governing such decisions. The Bench emphasized that Section 197 does not give unfettered discretion to the Assessing Officer to impose withholding tax without demonstrating compliance with Rule 28AA. While quashing the impugned order and withholding certificate, the Court remanded the matter back to the Assessing Officer for fresh adjudication. It directed that the application be reconsidered strictly in accordance with Rule 28AA and existing binding precedents, and without being influenced by the mere pendency of appeals against earlier Tribunal decisions. The Assessing Officer has been directed to complete this exercise within four weeks. Case Details Case Title: Nord Anglia Education Limited Versus DCIT Case No.: W.P.(C) 13473/2025 Date: 14/01/2026 Counsel For Petitioner: Dr. Shashwat Bajpai, Advocate Counsel For Respondent: Shlok Chandra, SSC Click Here To Read Order Read More: ICMAI Handbook on CMA Certifications in GST, Clarifies Key ITC and Certification Provisions

AO Can’t Mechanically Deny Nil Withholding Certificate Without Strictly Following Rule 28AA Mandatory Framework: Delhi HC

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