2019 (11) TMI 759 - HC - Income Tax

Withholding of TDS at the rate of 0.5% - Order u/s 197 - grievance of the Petitioner is that the impugned certificate dated 29.05.2019 has arbitrarily fixed the rate of deduction of tax at source at 0.5% even though under the DTAA, the Petitioner s income is not liable to be taxed in India - Indo- German DTAA - HELD THAT - Court quashed the order under Section 197 of the Act allowing deduction of the tax at source @ of 5% from the payments made to the Petitioner by its Indian Customers. We may note that the situation in the present case is, in fact, even better for the Petitioner inasmuch as the total income of the Petitioner has been assessed in the return filed by the Petitioner Assessee as NIL. In this regard, the Petitioner has placed on record the assessment orders for the Assessment Years 2013-14 to 2015-16. A perusal of the file notings as extracted hereinabove, demonstrates the position beyond doubt that there has been complete non-application of mind to the germane and relevant considerations by the Respondents while dealing with the Petitioner s application u/s 197. It appears that the earlier years assessment statements were also called for, which shows the taxable income was accepted as NIL, yet there is no discussion found in the file notings, as to on what basis the decision was taken to withhold tax at source in respect of payments made to the petitioner in India at the rate of 0.5%. Following the decision in Bentley Nevada LLC 2019 (7) TMI 1503 - DELHI HIGH COURT , we accordingly quash the certificate dated 29.05.2019 and direct the Respondents to apply mind afresh to all the relevant circumstances and issue a fresh certificate. Till the fresh certificate is issued, the Petitioner s receipts of payment shall be subject to Nil rate of deduction of tax at source in respect of payments made to it in India.

Summary

Issues:
Challenge to withholding tax certificate under Section 197 of the Income Tax Act for Financial Year 2019-20 and Assessment Year 2020-21.

Analysis:
The petitioner, a German company engaged in international transportation, challenged the withholding tax certificate issued by Respondent No. 1 at a rate of 0.5%. The petitioner, being a tax resident of Germany, requested a NIL rate of tax withholding based on the India-Germany Double Taxation Avoidance Agreement (DTAA). The petitioner had received NIL rate withholding tax certificates in previous years for identical payments. The impugned certificate was contested as arbitrary, given that the petitioner's income is not taxable in India under the DTAA.

The Respondents, in their counter affidavit, presented the processing details of the petitioner's application for the current financial year. The file notings highlighted the petitioner's business activities, tax residency, and the request for a lower deduction of tax at source based on the DTAA provisions. Despite previous years' assessments showing NIL taxable income, the certificate was issued at a 0.5% deduction rate.

The court referred to a similar case, Bentley Nevada LLC, where a 1.04% deduction rate was challenged and quashed. In the present case, the petitioner's total income was assessed as NIL in previous years, indicating a stronger case for a NIL deduction rate. The court observed a lack of proper consideration by the Respondents in issuing the certificate at a 0.5% deduction rate, despite no discussion on the basis for withholding tax in the file notings.

Relying on the Bentley Nevada LLC case, the court quashed the impugned certificate and directed the Respondents to reevaluate the circumstances and issue a fresh certificate. Until the issuance of a new certificate, the petitioner's payments in India were to be subject to a NIL rate of deduction of tax at source.