Assuming SAP NW RFC SDK DLLs are properly registered on IIS and IIS user has permissions, I would check if PATH on IIS is as expected? One user reported that PATH in IIS process is different then the one from command line

SAP/node-rfc#139 (comment)

Can you check the values of PATH and SAPNWRFC_HOME env variables in IIS application, before loading pyrfc and Connection?

SAPNWRFC_HOME must point to nwrfcsdk folder, so that PyRFC can register DLLs from nwrfcsdk/lib. The DLL registration in Python is mandatory since Python 3.8 and SAPNWRFC_HOME env variable is used in PyRFC for that purpose:

https://github.com/SAP/PyRFC/blob/main/src/pyrfc/__init__.py#L15

If all else is good, I suspect the issue is related to PATH or SAPNWRFC_HONE env variable. If you find the root cause, your findings could help other IIS users with the same issue.

Thanks, Srdjan.
You put me on the right track to resolve the issue.

The culprit was the Environment Variables only.
I displayed all os.environ values with IIS and compared with wsgi server - IIS did not contain SAPNWRFC_HOME.

One might assume that if IIS (along with Python and other services) were running for a service user, it would pick up environment variables for that user. However, that was not the case. IIS always picked up System Variables ( or system-wide environment variables).

Initially, I tried the AppPool's LoadUserProfile and setting environmentVariables manually in Configuration Editor - but neither worked

Final Fix was to add the nwrfc env values to System Variables
and restart IIS from cmd prompt to incorporate the changes:
iisreset /noforce