Court grants petitioner's request for 4% withholding tax rate for FY 2022-2023 despite no counter-affidavit.

The court allowed the petitioner's request for a 4% withholding tax rate for the financial year 2022-2023, aligning with previous years' practice, despite the absence of a counter-affidavit from the respondents. The court directed the issuance of a certificate under Section 197 of the Income Tax Act with the specified withholding tax rate. The dispute over the classification of income as Fees for Technical Services or business income was considered, and the court resolved to set the withholding tax rate at 4%. The respondents were instructed to issue the certificate promptly within two weeks, and the petition was disposed of accordingly.

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Issues:
1. Challenge to Impugned Order and Certificate under Section 197 of the Income Tax Act, 1961
2. Direction for issuance of certificates at a 'Nil' rate of tax withholding
3. Petitioner's request for lower withholding tax rate during the pendency of the writ petition
4. Dispute over the classification of subject income as Fees for Technical Services (FTS) or business income
5. Determination of withholding tax rate for the petitioner

Analysis:

1. The petitioner sought a writ to quash the Impugned Order and Certificate issued by the respondents under Section 197 of the Income Tax Act, 1961, directing a 10% tax deduction on payments. Additionally, the petitioner requested a direction for issuing certificates at a 'Nil' rate of tax withholding until a specified period. The petitioner also sought an interim direction for receiving consideration at a lower rate during the petition's pendency.

2. The court noted that the petitioner had previously received certificates with a 4% withholding tax rate for previous financial years. The current issue pertained to the financial year 2022-2023. Despite the absence of a counter-affidavit from the respondents, the court allowed an opportunity for filing and considered the petitioner's claim for a 'Nil' withholding tax rate.

3. After considering the instructions received from the respondents' counsel, the court decided to issue a certificate under Section 197 with a 4% withholding tax rate, aligning with previous years' practice. The petitioner had filed returns for previous years at a 4% tax rate, indicating a consistent position.

4. The core issue revolved around the classification of the petitioner's income as either Fees for Technical Services (FTS) or business income. The absence of an FTS provision in the Double Tax Avoidance Agreement between India and UAE led to differing interpretations between the parties.

5. Ultimately, the court determined that the withholding tax rate would be set at 4% for the current financial year. The respondents were directed to issue the certificate promptly, within two weeks, without prejudice to the rights of either party. The writ petition and related application were disposed of based on these terms, with parties instructed to act based on the digitally signed order.

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