Delhi High Court Quashes Non-Speaking Order Rejecting The Grant Of An LDC Permitting Deduction Of 0.01% TDS

The Delhi High Court has quashed the non-speaking order rejecting the grant of a lower deduction of tax certificate (LDC) permitting the deduction of 0.01% TDS.

The bench of Chief Justice Satish Chandra Sharma and Justice Tushar Rao Gedela has observed that the reasons furnished by the Respondent/department qua the Application i.e., as to why the Petitioners’ request that TDS should not be deducted at a rate of 0.01%, hinges on broad generalisations in relation to the propriety of projected estimations of revenue and tax liability and accordingly has been had been issued mechanically reflecting non-application of mind.

The petitioner/assessee is in the business of retail trade of goods through e-commerce platforms. The assessee challenged a certificate issued by the Deputy Commissioner of Income Tax, TDS Circle 77(1), rendered under Section 197 of the Income Tax Act, 1961, read with a letter addressed to the petitioner by the respondent.

The petitioner filed an application under Section 197 of the Income Tax Act along with Form 13 of the Income Tax Rules, 1961, seeking a lower deduction of tax certificate (LDC) vis-à-vis a 1% deduction of tax deducted at source (TDS) under Section 194O of the Income Tax Act.

The petitioner sought the issuance of an LDC granting the petitioner the relief of deducting TDS at a rate of 0.01%. Certain queries were raised by the respondent, seeking details of the nature of the business activity undertaken by the petitioner, details of previous issuance of LDCs, financial statements for identified FYs, copies of income tax returns (ITRs), details of advance tax, and details of outstanding tax demands.

The petitioner argued that its projected tax-to-turnover ratio is 0.012%, i.e., significantly lower than TDS, to be deducted at a rate of 1%.

The actions came to be issued by the respondent, under which the petitioner was issued an LDC permitting the deduction of TDS at a rate of 0.5% as against the 0.01% sought by the petitioner under the application.

The assessee contended that actions have come to be issued mechanically without following the mandate of Rule 28AA of the Income Tax Rules. The issuance of an LDC is not a matter of right, and the issuance of an LDC is an exception to the rigours of Sections 192–195 of the Income Tax Act. The onus to justify the grant of relief under Section 197 of the Income Tax Act falls squarely upon the petitioner, who, according to him, has not been appropriately discharged.

The court held that the order read with the letter suffers from non-application of mind, which would certainly result in grave prejudice to the petitioner.

“Thus, we set aside the impugned actions and remand the matter back to the respondent to conduct a fresh determination of the application in accordance with the law as expeditiously as possible,” the court said.

Counsel For Petitioner: Tarun Gulati

Counsel For Respondent: Sanjay Kumar

Case Title: Shreyash Retail Private Ltd Versus Deputy Commissioner Of Income Tax TDS Circle

Citation: 2023 LiveLaw (Del) 1102

Case No.: W.P.(C) 11877/2023

Click Here To Read The Order