2022 (2) TMI 346 - HC - Income Tax

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 ... TDS u/s 195 - directing Google Cloud India Pvt. Ltd. (GCI) to deduct tax at source at the rate of 10% at the time of making payment to the Petitioner - HELD THAT:- As the petitioner submits that this Court in Sumo Logic vs. Commissioner of Income Tax International Taxation [2021 (8) TMI 1274 - DELHI HIGH COURT] has taken cognizance of identical facts and issue and has issued notice to Respondent Nos.1 & 2. Issue notice. Mr. Sunil Agarwal, Advocate accepts notice on behalf of Respondent Nos.1 & 2. He prays for and is granted six weeks time to file the counter affidavit. Rejoinder affidavit, if any, to be filed before the next date of hearing. List the matter before the Joint Registrar (Judicial) for completion of pleadings on 11th May, 2022. Withholding of tax - withholding at the rate of 10% in accordance with section 115A of the Act read with the DTAA - HELD THAT:- As perused the decision of this Court in Epcos Electronic [2019 (7) TMI 708 - DELHI HIGH COURT] as well as the FAQ issued by the CBDT, wherein it has been held that no additional surcharge and cess is to be applied over the 10% rate as prescribed under the DTA - we direct that purely as an interim measure, the Petitioner would be entitled to receive its payment from GCI subject to a deduction of 8% to be paid to the Respondent No.2 progressively. This interim arrangement is being made under the orders of this court. The deposit of 8% should not be treated as any non-compliance of the impugned order. 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 DeductionThe 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 DTAAThe 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 CessThe 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 PartiesAn 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.