Court Rules on Tax Deduction Challenges Under DTAA

The court addressed challenges raised by the petitioner against tax deduction, withholding tax rate under the DTAA, and applicability of surcharge and cess. An interim measure allowed payments with an 8% deduction, ensuring compliance with tax laws. The court directed no additional surcharge or cess beyond the 10% rate under the DTAA. The petitioner's request to receive payments without tax deduction was not granted, but the interim arrangement provided a temporary solution. An amended memo of parties was allowed, adding Google Cloud India Pvt. Ltd. as a respondent, concluding the case.

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Issues:
Challenge to certificate directing tax deduction by Google Cloud India Pvt. Ltd. under section 195(2) of the Act for payments to the Petitioner. Request for permission to receive payments without tax deduction during financial year 2021-22. Interpretation of withholding tax rate under DTAA and applicability of surcharge and cess.

Analysis:

Issue 1: Challenge to Certificate and Tax Deduction
The petitioner challenged the certificate issued under section 195(2) of the Act, directing Google Cloud India Pvt. Ltd. (GCI) to deduct tax at a rate of 10% when making payments to the Petitioner. The petitioner sought permission to receive payments without tax deduction during the relevant financial year. The court noted the challenge and issued notice to the respondents, granting time for filing a counter affidavit.

Issue 2: Interpretation of Withholding Tax Rate under DTAA
The petitioner argued that the 10% withholding rate under the Double Taxation Avoidance Agreement (DTAA) includes applicable surcharge and cess, as settled by previous court decisions and CBDT guidelines. The petitioner contended that the maximum tax liability should be 110.64 crores, not the 120.82 crores mentioned by the Income Tax Officer. The court considered these arguments and directed an interim measure allowing the petitioner to receive payments subject to an 8% deduction, to be paid progressively to the tax authorities.

Issue 3: Applicability of Surcharge and Cess
The court reviewed the impugned order and previous decisions, confirming that no additional surcharge or cess should be imposed over the 10% rate prescribed under the DTAA. The court directed the petitioner to receive payments with an 8% deduction, clarifying that this arrangement should not be seen as non-compliance with the impugned order. This interim measure was made under the court's orders to address the petitioner's concerns while ensuring compliance with tax regulations.

Additional Application: Amended Memo of Parties
An application was filed to amend the memo of parties, adding Google Cloud India Pvt. Ltd. as a proforma respondent. The court allowed the application and directed the amended memo to be taken on record, thereby disposing of the application.

In conclusion, the court addressed the challenges raised by the petitioner regarding tax deduction, withholding tax rate under the DTAA, and applicability of surcharge and cess. The interim measure of allowing payments with an 8% deduction provided a temporary resolution while maintaining compliance with tax laws.

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