2021 (10) TMI 1212 - HC - Income Tax

Certificate for deduction at lower rate u/s 197 - India Netherlands DTAA read with the Protocol and MFN clause - HELD THAT - Issue notice. Mr.Ruchir Bhatia, Advocate accepts notice on behalf of the Respondents. He admits that the issue raised in the present writ petition is squarely covered in CONCENTRIX SERVICES NETHERLANDS B.V. OPTUM GLOBAL SOLUTIONS INTERNATIONAL BV 2021 (4) TMI 1051 - DELHI HIGH COURT - Accordingly, the impugned order and certificate are set aside. Consequently, a certificate u/s 197 of the Act will be issued in favour of the Petitioner, indicating therein, that the rate of tax, on dividend, as applicable qua the Petitioner is 5% under India-Netherlands DTAA.

Summary

Issues:
Challenging certificate and order under Income Tax Act, 1961 - Application for lower withholding tax rate - Interpretation of Most Favoured Nation clause in Double Taxation Avoidance Agreement - Rejection of application - Compliance with settled legal position - Judicial review of impugned orders.

Analysis:
The petitioner, a company incorporated in the Netherlands, sought directions to issue a fresh certificate under Section 197 of the Income Tax Act, 1961, to receive a dividend of INR 65.68 crores for the Financial Year 2021-22 at a lower tax rate of 5% under the India Netherlands Double Taxation Avoidance Agreement (DTAA) with the Most Favoured Nation (MFN) clause. The petitioner held a significant stake in an Indian company and applied for a lower withholding tax rate, citing the MFN clause due to agreements with other OECD member countries.

The petitioner's counsel argued that the rejection of the application for a lower tax rate was against established legal principles, citing precedents like Concentrix Services Netherlands B.V. v. ITO (TDS) and Nestle SA v. Assessing Officer. The counsel emphasized that the revenue authority should not disregard binding court decisions merely on the basis of intending to file an appeal.

Upon accepting notice, the respondent's counsel acknowledged that the issue raised in the petition was covered by a previous judgment. Consequently, the impugned order and certificate were set aside, and a new certificate was directed to be issued in favor of the petitioner at the 5% tax rate as per the India-Netherlands DTAA. The court disposed of the writ petition in line with the above directions, ensuring compliance with the legal interpretation of the MFN clause and the petitioner's entitlement to the lower tax rate under the DTAA.