Delhi High Court Quashes Rejection of Nil Withholding Certificate For UK Education Firm, Says Ignored Rule 28AA

The Delhi High Court has quashed the rejection of a Nil Withholding Certificate sought by a UK-based education company after noting that the Assessing Officer (AO) failed to comply with the mandatory requirements under Rule 28AA of the Income Tax Rules, 1962.

A Division Bench comprising Justices V. Kameswar Rao and Vinod Kumar set aside the certificate dated July 30, 2025, by which the Revenue had directed deduction of tax at source (TDS) at 15% under Section 197 of the Income Tax Act, 1961.

For context, Rule 28AA deals with the procedure for issuing a certificate for deduction of tax at lower rates or no deduction of tax (TDS/TCS) on income other than dividends. As per the rule, the assessing officer must make an assessment of the taxpayer's estimated income for the year, tax paid or assessed in the last four years, existing tax liabilities, and taxes already deducted or paid in advance.

The High Court however found that the rejection of the assessee's application for a Nil Withholding Certificate was based on a “mechanical” and legally “untenable” approach.

It noted that while considering an application under Section 197, the AO is statutorily required to assess the “existing and estimated tax liability” strictly in accordance with Rule 28AA. This includes consideration of the assessed or returned income of the preceding four assessment years, existing tax liabilities, and advance tax or TDS already paid.

In the present case, the Court found that the impugned order did not reflect any application of mind to these mandatory factors. Instead, the AO rejected the application on the ground that determination of income for the relevant assessment year was “premature” and that deduction of tax was necessary to “protect the interest of revenue”.

The Court found such reasoning insufficient to justify denial of a Nil Withholding Certificate. It said,

“Suffice it to state, while deciding an application under Section 197 of the Act, the assessing officer needs to satisfy the requirements imposed by Rule 28AA of the Rules…The relevant considerations have been laid down therein, which includes, (i) tax payable on the estimated income of the previous year relevant to the AY; (ii) tax payable on the assessed or returned income or estimated income for the last four previous years; (iii) existing tax liability under the Act and the Wealth Tax Act, 1957; and (iv) advance tax payment (tax deducted at source and tax collected at source) for the AY relevant to the previous year till the date of making the application. As is apparent, the impugned order does not state whether these factors were really considered by the assessing officer while reaching his conclusion.”

During the hearing, Assessee also relied on favourable rulings passed by the Income Tax Appellate Tribunal for Assessment Years 2020–21 and 2021–22, where it was held that the managerial and administrative support services provided by the company to its Indian subsidiary were not taxable as fees for technical services under the India–UK Double Taxation Avoidance Agreement.

Rejecting the Revenue's argument that appeals had been filed against those Tribunal orders, the Court reiterated that appellate orders are binding on tax authorities unless set aside. The mere filing of an appeal does not dilute their binding effect.

As such, the Court quashed the impugned certificate and remanded the matter back to the AO for fresh consideration of the Section 197 application in accordance with Rule 28AA.

Case title: Nord Anglia Education Limited v. Deputy Commissioner Of Income Tax Circle Int. Tax 2(2) (2), New Delhi

Citation: 2026 LLBiz HC(DEL) 50

Case Number: W.P.(C) 13473/2025

For Petitioner: Advocate Shashwat Bajpai, Advocate

For Respondent : Advocates Shlok Chandra, SSC, Naincy Jain, JSC, Madhavi Shukla, JSC and Udit Dad