Withholding tax certificate rejection set aside for non-consideration of royalty and treaty arguments under the Indo-US tax treaty

A withholding tax certificate rejection under Section 197 was set aside because the assessing officer did not address the taxpayer's contention that receipts under reseller agreements were not royalty and had to be tested under Article 12 of the Indo-US Double Taxation Avoidance Agreement and the Supreme Court ruling in Engineering Analysis. The failure to consider these materially relevant legal submissions meant the application was decided on an incomplete legal footing. The officer was directed to reconsider the request afresh, take into account the other authorities cited, and grant an opportunity of hearing before passing a fresh order.

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Issues: Whether the impugned withholding tax certificate and connected communication rejecting the petitioner's application under Section 197 of the Income-tax Act, 1961 were liable to be set aside for fresh consideration in the light of Article 12 of the Indo-US Double Taxation Avoidance Agreement and the Supreme Court decision in Engineering Analysis Centre of Excellence (P.) Ltd.

Analysis: The rejection order did not deal with the petitioner's contention that payments received under the reseller agreements could not be treated as royalty and that the relevant receipts had to be examined in the light of Article 12 of the Indo-US Double Taxation Avoidance Agreement and the Supreme Court ruling relied upon by the petitioner. The absence of any discussion on these materially relevant aspects meant that the application under Section 197 required re-examination on the correct legal footing. The officer was also required to consider the other decisions cited by the petitioner and afford an opportunity of hearing before passing a fresh order.

Conclusion: The impugned certificate and communication were set aside and the matter was remitted for fresh consideration under Section 197 of the Income-tax Act, 1961.

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