Facts of the Case

The petitioner, Nord Anglia Education Limited, is a company incorporated in the United Kingdom and is engaged in providing international education services globally. The petitioner has an Indian subsidiary, Nord Anglia Education India Pvt. Ltd., to which it provides routine management and administrative support services such as marketing and communications, human resources, finance, IT, and corporate development. The costs of such services are recovered on a strict cost-to-cost basis without any markup.

The petitioner filed an application under Section 197 read with Section 195(3) of the Income-tax Act seeking issuance of a nil withholding certificate in respect of payments proposed to be received from its Indian affiliate. The Assessing Officer, by order dated 09.06.2025 and certificate dated 30.07.2025, rejected the application and directed withholding of tax at the rate of 15%, stating that determination of income at that stage was premature and that deduction was necessary to protect the interest of revenue.

Issues Involved

Whether rejection of the nil withholding certificate under Section 197 was justified without complying with the mandatory requirements of Rule 28AA of the Income-tax Rules, whether managerial support services are taxable as fees for technical services under Article 13 of the India–UK DTAA, and whether the Assessing Officer could ignore binding ITAT rulings in favour of the assessee for earlier assessment years.

Petitioner’s Arguments

The petitioner contended that the services rendered were purely managerial in nature and did not constitute fees for technical services either under Section 9(1)(vii) of the Act or under Article 13 of the India–UK DTAA, which requires that technical knowledge be “made available”. It was submitted that the ITAT, in the petitioner’s own case for Assessment Years 2020-21 and 2021-22, had categorically held that similar services were not taxable as FTS. The petitioner argued that the Assessing Officer mechanically rejected the application without dealing with submissions, judicial precedents, or ITAT orders, and failed to apply Rule 28AA, which mandates consideration of past assessments and existing tax liabilities.

Respondent’s Arguments

The Revenue contended that proceedings under Section 197 are provisional and that issuance of a nil withholding certificate would prejudice revenue interests. It was argued that the Revenue had not accepted the ITAT orders for earlier years and had filed appellate and rectification proceedings. The Revenue further submitted that principles of res judicata do not apply to income-tax proceedings and that the Assessing Officer was justified in directing withholding at 15% to safeguard revenue.

Court Order / Findings

The Delhi High Court held that while deciding an application under Section 197, the Assessing Officer is statutorily bound to comply with Rule 28AA, which requires consideration of estimated income, assessed income of earlier years, existing tax liabilities, and advance tax or TDS already paid. The Court found that the impugned order did not demonstrate consideration of these mandatory factors, reflecting non-application of mind.

The Court further held that ITAT decisions for earlier assessment years are binding on the Revenue unless stayed or set aside, and mere filing of appeals does not render them inoperative, relying on the Supreme Court decision in Kamlakshi Finance Corporation Ltd. The Court concluded that rejection of the nil withholding certificate solely on the ground that assessment was premature was untenable in law.

Important Clarification

The High Court clarified that Rule 28AA is mandatory and not directory, and Assessing Officers cannot bypass its requirements on the ground of revenue protection. Orders passed under Section 197 must reflect due consideration of prior assessment history and binding judicial precedents. Mechanical rejection of applications undermines the statutory framework.

Final Outcome

The writ petition was allowed. The impugned order dated 09.06.2025 and certificate dated 30.07.2025 rejecting the nil withholding certificate were quashed. The matter was remanded to the Assessing Officer with a direction to reconsider the application afresh in accordance with Rule 28AA and settled law, without being influenced by pending appeals against the ITAT orders, and to complete the exercise within four weeks.

 

Link to download order https://www.mytaxexpert.co.in/uploads/1769504055_NORDANGLIAEDUCATIONLIMITEDVsDEPUTYCOMMISSIONEROFINCOMETAXCIRCLEINT.TAX222NEWDELHI.pdf

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