2021 (12) TMI 1095 - HC - Income Tax

Application u/s 197 - withholding tax at source - TDS u/s 195 of the Act @4% keeping in the interest of Revenue - application for NIL deduction directing the customers of the Petitioner to withhold tax @ 10% is arbitrary and no reason has been given in the order for arriving at such a conclusion - HELD THAT - As directed to deduct TDS @ 10% on the entire amount. There is no reasoning as to how the rate finally granted has been arrived at. The Impugned Order does not take into account the impact, if any, of the amendment carried out to section 10(50) of the Act by Finance Act 2021 w.e.f. 01-04-2021. The said amendment states that the amounts taxable as royalty/fees for technical services under the Act read with section 90/90A of the relevant double taxation avoidance agreement DTAA will not be exigible for being considered for the charge of Equalisation Levy. Petitioner in its application for certificate under section 197 dated 23.09.2021 describes itself as an e-platform operator. In the later part of the same application the petitioner claims itself to be a university for the purposes of article 12(5)(c) of the DTAA between India and United States of America. The AO, in the Impugned Order holds the Petitioner is not eligible for the benefit of article 12(5) (c) of the DTAA. However, the Impugned Order does not contain any reasoning or discussion on the applicability or otherwise of various sub-articles of the DTAA to the fact situation of the case. Consequently, the impugned order dated 27.09.2021 is hereby set aside with a direction to the Respondent No. 1 to pass a de novo reasoned order after taking into account the amendments made to the provisions of section 10(50) of the Act w.e.f. 01.04.2021 i.e. to exclude the receipts of the Petitioner which is subject to withholding tax at source to the extent such receipts are exigible to Equalisation Levy within a period of 4 weeks after granting opportunity of being heard to the petitioner. It will be incumbent upon the petitioner to furnish to the Assessing Officer the information required by the Assessing Officer expeditiously

Summary

Issues:
Challenge to order and certificate under section 197(1) of the Income Tax Act, 1961 for financial year 2021-22. Interpretation of provisions of section 10(50) of the Act post-amendment. Applicability of Double Tax Avoidance Agreement (DTAA) between India and USA to the case.

Analysis:

1. Challenge to order and certificate under section 197(1) of the Income Tax Act, 1961:
The petitioner challenged the order dated 27.09.2021 and certificate dated 23.09.2021 issued by Respondent No.1 under section 197(1) of the Income Tax Act, seeking directions for a certificate with 'NIL' deduction of income tax for the financial year 2021-22. The court noted that the impugned order was arbitrary, lacking reasoning for directing customers to withhold tax at 10%. The petitioner, an aggregator of educational institutions, argued that as a tax resident of the USA without a Permanent Establishment in India, business profits in India are not taxable. The court found the order failed to consider the impact of the amendment to section 10(50) of the Act by Finance Act 2021, introducing apportionment of receipts.

2. Interpretation of provisions of section 10(50) of the Act post-amendment:
The Revenue argued that post-amendment of section 10(50) of the Act, the concept of apportionment of receipts was introduced. The amended provision stated that amounts characterized as royalty or fees for technical services would be taxable under the Act and applicable DTAA for TDS purposes, with the balance amount liable to Equalisation Levy. The court observed that the Impugned Order had not considered this amendment while directing TDS at 10% on the entire amount, lacking reasoning for the rate determination.

3. Applicability of Double Tax Avoidance Agreement (DTAA) between India and USA:
The petitioner described itself as an e-platform operator and claimed to be a university under article 12(5)(c) of the DTAA between India and the USA. However, the Impugned Order held the petitioner ineligible for the DTAA benefit without providing reasoning or discussing the applicability of DTAA sub-articles to the case. The court set aside the order, directing Respondent No. 1 to pass a reasoned order considering the amendments to section 10(50) of the Act and excluding receipts subject to withholding tax from Equalisation Levy within four weeks.

In conclusion, the court disposed of the petition, leaving all contentions open for both sides and granting liberty to approach the court if needed. The judgment emphasized the need for a de novo reasoned order, considering the relevant provisions and agreements, to determine the tax liability accurately.