High Court Directs Nil TDS Certificate for Ernst & Young LLP; 5.25% Rate Set Aside

Ernst and Young LLP filed a writ petition before the High Court challenging the order dated 16.01.2026 and the certificate issued under Section 195 of the Income Tax Act, 1961, by which the Assessing Officer authorised tax deduction at source at 5.25%.

The petitioner contended that for the same assessment year, the High Court had already passed an order, recording a finding of no taxability and remanding the matter only for limited reconsideration.

Main Issue: Whether the Assessing Officer could issue a certificate under Section 195 prescribing 5.25% TDS despite the High Court’s earlier finding of no taxability for the same assessment year.

ITAT’s Decision: The Division Bench held that in view of the earlier order passed in the petitioner’s own case, issuance of a certificate prescribing 5.25% TDS was unsustainable. The Court observed that even if the officer’s action was assumed to be bona fide, the competent authority could not disregard or dilute binding judicial findings already recorded for the same assessment year.

The Court directed that the certificate be treated as a Nil rate certificate and further directed issuance of an amended/rectified Nil rate certificate within seven days. Prospectively, the authority was directed to issue Nil rate certificates for FY 2025-26 and later years, if applied for, within 30 days. However, liberty was reserved to depart from the NIL rate direction in future if a reasoned finding of existence of a Permanent Establishment and taxability is recorded after notice to the petitioner. The petitioner was also directed to make full and true disclosure and cooperate in subsequent proceedings.

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