Reasoned tax deduction orders must address DTAA and section 10(50) amendment before fixing withholding rates.

An order under section 197(1) rejecting nil deduction of tax was set aside because it lacked reasons and did not explain the basis for directing 10% deduction on the full amount. The Court also noted that the authority failed to consider the amendment to section 10(50) with effect from 01.04.2021, under which income chargeable as royalty or fees for technical services under the Act read with the applicable DTAA is excluded from the equalisation levy framework. As there was no reasoning on the DTAA's applicability to the petitioner's case, the matter was remitted for a fresh, reasoned order after hearing the petitioner.

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Issues: Whether the order under section 197(1) of the Income-tax Act, 1961 rejecting the request for nil deduction of tax was liable to be set aside for want of reasons and for non-consideration of the amendment to section 10(50) of the Income-tax Act, 1961.

Analysis: The order initially recorded a view that part of the receipts were not chargeable as royalty or fees for technical services under the Act read with the India-USA tax treaty, but it then directed deduction at 10% on the entire amount without explaining how that rate was arrived at. The order also did not consider the effect of the amendment to section 10(50) of the Income-tax Act, 1961 with effect from 01.04.2021, under which income chargeable as royalty or fees for technical services under the Act read with the applicable DTAA is excluded from the equalisation levy framework. The order further contained no reasoning on the applicability of the relevant DTAA provisions to the petitioner's case.

Conclusion: The order was unsustainable and was set aside with a direction to pass a fresh reasoned order after considering the amendment and granting an opportunity of hearing.

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