Delhi HC: Income Tax Authority to grant the benefit of revised TDS rates prescribed for FY 2019-2020 and a rebate of 25%

The Delhi High Court directed the  Income Tax Authority to grant the benefit of revised TDS rates prescribed for Financial Year 2019-2020 and a rebate of 25%.

Facts of the Case:-

The petitioner, Manpower Services challenged the order passed by the respondent authority under Section 197 of the Income Tax Act, 1961 refusing to grant a certificate of tax deduction at source at Nil rate to the petitioner company. Mr. Piyush Kaushik, counsel for the petitioner contended that the impugned order was contrary to the rule of consistency as the 1.50% rate with respect to payment under Sections 194J and 194I of the Act specified in the impugned order was three times higher than the 0.50% rate of tax deduction at source determined in the immediately preceding year by the respondent.

Interpretation of law:-

Mr. Kaushik stated that though the respondent itself admitted in the impugned reasons that the estimated tax liability of petitioner for the financial year 2020-21 was Nil; the average tax rate to turnover was 0.12% for the last 3 years; the existing TAN demand was Nil and the PAN demand was Rs.1,49,530 as against the huge outstanding refund of Rs.138 crores, yet the respondent stipulated TDS rate of 1.50% under Sections 194J and 194I and TDS rate of 0.50% under Section 194C on an arbitrary basis which was not based on any working. He emphasised that it was an admitted position that vide the impugned order/reasons, the conditions of mandatory Rule 28AA were satisfied, yet the respondent had arbitrarily prescribed the aforesaid TDS rates

Ms Lakshmi Gurung, senior standing counsel for respondent authority submitted that the writ petition was not maintainable as the petitioner had not exhausted the alternative efficacious remedy of revision available under Section 264 of the Act. She emphasized that the petitioner had availed this remedy in the immediately preceding year.


The division bench of Justice Manmohan and Justice Sanjeev Narula found that there is non-application of mind which vitiates the impugned order and reasons. Accordingly, the court quashed the impugned order and remand the matter to authority for fresh determination in accordance with law as expeditiously as possible preferably within a period of two weeks. In the interim, the court directed that the benefit of revised TDS rates prescribed for the financial year 2019-2020 read with a rebate of 25% given by Ministry of Finance on account of COVID-19 crisis from the rates applicable in the preceding year 2019-20 vide Press Release dated 13th May, 2020 be given to the petitioner.

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