An Analytical Commentary on the Judgment of the Delhi High Court in Nord Anglia Education Limited v. Deputy Commissioner of Income Tax (International Taxation) W.P.(C) 13473/2025 | Decision dated 14 January 2026

The scheme of tax deduction at source in respect of payments to non-residents is anchored in the principle that tax can be withheld only when the underlying income is chargeable to tax in India. Section 195 of the Income-tax Act, 1961 gives statutory recognition to this principle, while Section 197 acts as a statutory safeguard against excessive or unwarranted withholding. The judgment of the Delhi High Court in Nord Anglia Education Limited v. DCIT (International Taxation) is a significant reaffirmation that administrative discretion under Section 197 is neither unstructured nor unfettered, but is strictly regulated by statutory rules, binding precedent, and treaty obligations.

The petitioner, Nord Anglia Education Limited, is a company incorporated under the laws of the United Kingdom and is engaged globally in the business of providing international education. In India, it operates through its subsidiary, Nord Anglia Education India Private Limited. The petitioner provides managerial and administrative support services, including marketing and communications, human resources, finance, legal, information technology and corporate development support. These services are rendered on a pure cost-to-cost basis without any mark-up, and are intended to assist in day-to-day operational efficiency, rather than to transfer any technical expertise or proprietary know-how.

For the relevant financial year, the petitioner applied for a Nil Withholding Certificate under Section 197 read with Section 195(3) of the Act, asserting that the consideration received was not chargeable to tax in India. The claim was founded on Article 13 of the India–UK Double Taxation Avoidance Agreement, which taxes fees for technical services only when technical or consultancy services “make available” technical knowledge, experience, skill or know-how. The petitioner contended that managerial and administrative services do not satisfy the “make available” test, and therefore fall outside the scope of taxation under the DTAA, notwithstanding the broader definition under domestic law.

A crucial and undisputed fact was that the Income Tax Appellate Tribunal, in the petitioner’s own case for Assessment Years 2020-21 and 2021-22, had already examined the very same services and held that they do not constitute fees for technical services under the India–UK DTAA. These findings were rendered after detailed analysis of treaty provisions and settled jurisprudence. Despite these binding determinations, the Assessing Officer rejected the petitioner’s application and directed deduction of tax at 15%, merely stating that determination of income at the Section 197 stage was premature and that withholding was necessary to protect the interests of the Revenue.

The High Court found this approach to be legally impermissible. The Court emphasised that while deciding an application under Section 197 of the Act, the Assessing Officer is statutorily bound to satisfy the requirements of Rule 28AA of the Income-tax Rules, 1962. Rule 28AA mandates that the Assessing Officer must determine the existing and estimated tax liability after taking into account tax payable on the estimated income of the relevant previous year, tax payable on the assessed or returned or estimated income of the last four previous years, existing tax liability under the Income-tax Act and the Wealth-tax Act, 1957, and advance tax payments including TDS and TCS up to the date of application. The Court categorically held that these considerations are mandatory and not directory, and that any order passed without demonstrable consideration of these factors is vitiated by non-application of mind.

In the present case, the impugned order did not reflect any examination of past assessments, existing tax liabilities, advance tax payments, or the binding Tribunal orders. The Court held that a bald assertion that assessment is “premature” cannot override the express statutory command of Rule 28AA, particularly when the Rule itself requires reliance on historical data from prior years.

The Revenue attempted to justify its action by contending that appeals against the Tribunal orders were pending. This argument was unequivocally rejected by the Court, relying on the principle of judicial discipline laid down by the Supreme Court in Union of India v. Kamlakshi Finance Corporation Ltd., wherein it was held that orders of higher appellate authorities are binding on subordinate officers unless stayed or set aside</u>. The High Court reiterated that mere pendency of an appeal does not render an order inoperative, and administrative authorities are duty-bound to follow such orders irrespective of their reservations.

The Court further relied upon its earlier decisions in Manpower Services India Pvt. Ltd., Virgin Atlantic Airways Ltd., and Hero Wind Energy Pvt. Ltd., which consistently hold that Section 197 proceedings, though provisional, must strictly comply with Rule 28AA  and that mechanical or revenue-protective withholding orders are arbitrary and unsustainable. While acknowledging that the doctrine of res judicata does not strictly apply to income-tax proceedings, the Court stressed that consistency, certainty, and judicial discipline are indispensable where the issue has already been conclusively settled on identical facts.

The Revenue’s reliance on National Petroleum Construction Co. was found to be misplaced, as that decision dealt with permanent establishment and attribution issues, and did not dilute the mandatory statutory framework governing Section 197 applications. The Court made it clear that “protection of revenue” is not an independent statutory ground to bypass Rule 28AA.

Final Decision:- The High Court held that the impugned order and certificate suffered from non-application of mind, violation of statutory mandate, and disregard of binding precedent, and were therefore untenable in law. Accordingly, the order dated 09.06.2025 and the certificate dated 30.07.2025 were quashed. However, adopting a balanced approach, the matter was remanded to the Assessing Officer for fresh consideration, with a clear direction to decide the application strictly in accordance with Rule 28AA, and without being influenced by the pendency of appeals, unless the Tribunal’s orders are set aside or modified.

The judgment in Nord Anglia Education Limited stands as a strong reaffirmation that Section 197 is not a tool for precautionary revenue collection, but a rule-bound statutory mechanism requiring reasoned decision-making, treaty compliance, and respect for binding judicial authority. It significantly strengthens taxpayer protection in international transactions against arbitrary withholding practices.

Disclaimer:- This article is intended solely for academic, informational, and professional discussion purposes. It is based on the judgment of the Delhi High Court in Nord Anglia Education Limited v. Deputy Commissioner of Income Tax (International Taxation) and reflects the legal position emerging therefrom as on the date of the decision. It does not constitute legal or tax advice and should not be relied upon as a substitute for professional consultation. Readers are advised to seek independent expert advice before acting on any matter discussed herein.

Source Link- https://delhihighcourt.nic.in/app/showFileJudgment/VKR14012026CW134732025_150224.pdf