In a recent decision, the Delhi High Court observed that the Income Tax Officer cannot By-Pass the decision of the Supreme Court in ‘Engineering Analysis’ by a Review Petition filed by the Revenue Department.
The Court thus set aside the Income Tax Department’s order rejecting the assessee’s application seeking a certificate for the “NIL” rate of withholding tax under Section 197 of the Income Tax Act, 1961.
The petitioner, Milestones Systems A/S, is a non-resident company, incorporated under the laws of Denmark. It is the petitioner’s case, that the Distributor Agreement does not confer any right of use of copyright on its partners or the end user. The petitioner claims, that all that the distributor partner acquires under the Distributor Agreement is a license to the copyrighted Software.
It is, therefore, the petitioner’s case, that this aspect of the matter has been considered in great detail by the Supreme Court in the judgment rendered in Engineering Analysis Center of Excellence Pvt. Ltd. v. Commissioner of Income Tax & Anr.
The income tax authority, however, passed an order rejecting the petitioner’s application seeking a certificate for the “NIL” rate of withholding tax and issued a certificate providing a withholding tax rate of 9.99%. Against the said withholding tax certificate issued to it, the petitioner filed a writ petition before the Delhi High Court.
The Counsel for the Revenue argued that while examining an application moved under Section 197, the concerned officer is not carrying out an assessment, and therefore, while rendering a decision on the Section 197 application, the parameters which apply for assessing taxable income would not get triggered.
The Bench of Justices Rajiv Shakdher and Tara Vitasta Ganju observed that the concerned officer had failed to consider the Apex Court’s decision in Engineering Analysis Centre of Excellence Pvt. Ltd. vs. Commissioner of Income Tax, which was relied upon by the assessee in support of its plea for a “NIL” rate of withholding tax.
The Bench observed that as long as the judgment of the Supreme Court in Engineering Analysis (2021) is in force, the concerned income tax authority could not have sidestepped the judgment on the ground that the revenue department has filed a review petition against the said judgment.
The Court added that the concerned officer was required to examine the Section 197 application in the background of the parameters set forth in Rule 28AA of the Income Tax Rules, 1962. “Concededly, that exercise has not been carried out,” the Court noted.
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