The Bombay High Court declined to grant a “nil withholding tax” certificate under Section 197 of the Income Tax Act, holding that the issue of taxability of fees for technical services (FTS) under the India–China DTAA cannot be adjudicated in writ proceedings when identical issues are pending before appellate authorities.
The petitioner, a Chinese entity, had entered into a service agreement with its Indian subsidiary for providing managerial, technical, and consultancy services from China. It contended that since the services were rendered entirely from China and it had no Permanent Establishment (PE) in India, such receipts were not taxable in India under the India–China DTAA, and consequently sought a nil TDS certificate.
Rejecting this contention at the threshold, the Court held that grant of a certificate under Section 197 is a provisional determination, which must consider past tax positions and existing liabilities. It noted that for multiple prior assessment years, similar receipts of the petitioner had already been subjected to tax in India, and those assessments had not been set aside but were pending in appeal.
In this backdrop, the Court observed that granting a nil withholding certificate would run contrary to the principle of consistency and could directly impact pending appellate proceedings. It further held that the petitioner had an effective alternate remedy under the Income Tax Act, including recourse under Section 264, and therefore writ jurisdiction ought not to be exercised.
On merits, the Revenue argued that even services rendered virtually through emails, video conferencing, and calls would amount to rendition of services in India, and therefore qualify as FTS under Article 12 of the DTAA. However, the Court refrained from conclusively adjudicating the interpretational issue, noting that such questions are better suited for determination in regular assessment and appellate proceedings.
Accordingly, the writ petition was dismissed, with the Court holding that the petitioner cannot bypass the statutory framework to seek a declaration on taxability or a nil withholding certificate at this stage.
Appearances:
For the Petitioner: Mr. Sridharan, Senior Advocate a/w Ravi Sawana, Neha Sharma, Priyanshi Chokshi, Advocates.
For Respondent(s) 1 and 2/Revenue: Mr. A. K. Saxena, Advocate.
For Respondent 3: Mr. Anil Singh, ASG a/w Aditya Thakkar, Savita Ganoo, D.P. Singh, Priyanka Kothari, Adarsh Vyas, Rama Gupta, Rajdatt Nagre, Advocates
