Ease Of Doing Business Must Reflect In Tax Orders: Delhi High Court Quashes 10% TDS Certificate For Irish Entity

The Delhi High Court has criticised the Income Tax Department for adopting a revenue-driven approach while issuing tax deduction at source (TDS) certificates, holding that the government's “ease of doing business” policy must translate into fair and reasoned tax orders.

A Division Bench of Justices Dinesh Mehta and Vinod Kumar observed,

“Ease of doing business cannot be confined to slogans and Government policies; it has to percolate down in executive actions and quasi judicial orders. Passing similar orders year after year portrays an unhealthy and unwelcoming picture of the country's bureaucracy on the one hand and gives pseudo satisfaction to the Revenue on the other.”

The Court thus quashed a 10% TDS certificate issued under Section 197 of the Income Tax Act to SFDC Ireland Limited, and directed the tax authorities to issue a nil-rate TDS certificate, noting that the impugned order was arbitrary and ignored binding precedents of the Court.

It observed that authorities dealing with the application under Section 197 are supposed to adopt a pragmatic and justice oriented approach.

“They should decide the applications in accordance with law, rather than being guided by the Revenue which they might generate, if the certificate(s) are issued at 10% rate or rate higher than 'nil' rate of tax.”

The Court cautioned that the revenue-oriented approach of the authorities hit at the very root of the business environment and the very idea of providing ease of doing business.

“Such orders restrict, rather constrict free flow of trade within the country so also discourages foreign entities from doing business in India. It also creates an environment unconducive to trade & industry and in turn hinders the economic growth of the country,” it said.

The High Court also found fault with the tax officer for sidelining earlier judgments passed in the petitioner's own case for previous financial years, where similar TDS demands were set aside and nil-rate certificates were directed to be issued.

It held that while the tax department is free to take a different view in a subsequent year, such a departure must be backed by concrete findings showing a change in facts— such as the existence of a permanent establishment in India or taxable income arising in the relevant year.

As such, the Court set aside 10% TDS certificate and directed the Department to issue a certificate to the effect of nil rate of tax.

For Petitioner: Senior Advocate Ajay Vohra with Advocate Aniket D. Agrawal and Samarth Choudhari

For Respondent: Advocate Sunil Aggarwal, SSC, Advocate Priya Sarkar, JSC and Advocate Anugram Dwivedi