Jan 17, 2022

Rule of Precedence

The doctrine of Stare Decisis, embedded in the Latin maxim “stare decisis et non quieta movere”, is the underlying principle behind the Rule of Precedence.[1] In a layman’s language, this basically means to stand by what has been decided and not to disturb the settled issues. Though in theory this principle is firmly rooted in the common law jurisprudence; in reality, there have been many breaches resulting in judicial indiscipline.

One such issue where income-tax authorities (‘ITA’) have attempted to dilute the implication of this doctrine and, as a consequence, brought uncertainty, is in relation to the rate of withholding tax in case of dividend paid to non-resident(s).  The above issue was dealt with by the High Court of Delhi in the case of Concentrix Services Netherlands B.V[2](‘Concentrix Decision’), where the Court held that owing to the Most Favoured Nation (‘MFN’) clause in the India-Netherlands Double Tax Avoidance Treaty, withholding in respect of dividend paid to non-residents shall be at the rate of 5%.  On the basis of this ruling, many assessees approached the ITA seeking lower withholding tax certificates. The income-tax authorities, however, in gross disregard of the Concentrix Decision, have been declining the request of the taxpayers to issue lower withholding certificate on the basis that they propose to file an appeal against the Concentrix Decision before the Supreme Court.

Such instances came to the attention of the Delhi High Court in the case of Perfetti Van Melle Holding BV[3] wherein the tax authorities were directed by the Court to dispose off the application filed under section 264 of the Income-tax Act, 1961 (‘IT Act’) whilst acknowledging that the issue of lower withholding rate stood covered by the Concentrix Decision.  

In the case of Deccan Holdings BV[4]also, in relation to a similar approach adopted by the ITA, the Court specifically directed the ITA to issue the lower withholding certificate, relying on the Concentrix Decision.

Recently, in the case of Cotecna Inspection SA,[5] the Court observed that the 197 certificates had been issued in contravention of the law as settled in the Concentrix Decision. The Court, while, re-affirming the Rule of Precedence, reprimanded such approach of the tax authorities in not following the binding precedent. The Court, relying on the decision of Kamlakshmi Finance Corporation,[6] held that orders of higher authorities should be followed ‘unreservedly’ and the mere fact that a decision is not acceptable to the Revenue cannot be a ground for not following such decision.

The aforesaid rulings have re-affirmed the importance of the Rule of Precedence and judicial discipline in this regard, and will serve as a reminder to the ITA that they cannot refuse to follow binding jurisdictional rulings on the ground that they propose to challenge the same in appeal. Non-adherence by the ITA to the Rule of Precedence may subject their orders to the writ jurisdiction of the High Courts.


[1] Baradahanta Mishra v. Bhimsen Dixit, AIR 1972 SC 2466.

[2] Concentrix Services Netherlands B.V. v. ITO (TDS), [2021] 127 taxmann.com 43 (Delhi) and Nestle SA v. Assessing Officer, Circle (International Taxation), order dated March 15, 2021 in W.P.(C) 3243/2021 (Delhi High Court).

[3] Perfetti Van Melle Holding BV v. Commissioner of Income Tax- II, order dated October 11, 2021 in W.P.(C) 11618/2021 (Delhi High Court).

[4] Deccan Holdings BV v. Income Tax officer, order dated October 25, 2021 in W.P.(C) 11921/2021 (Delhi High Court).

[5] Cotecna Inspection SA vs. Income Tax Officer, order dated December 20, 2021 in W.P.(C) 14602/2021 (Delhi High Court).

[6] Union of India vs. Kamlakshmi Finance Corporation, AIR 1992 SC 711.




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