Nil rate TDS certificate cannot be refused for overseas project payments absent taxability in India or PE involvement.
The Telangana HC held that consultancy payments linked to an overseas Bangladesh project were not shown to be taxable in India, because the project was situated in Bangladesh, no material connected the Indian permanent establishment with the work, and the treaty position supported taxation only where business was carried on through a permanent establishment. On that basis, withholding at source was not justified and refusal of a nil rate TDS certificate under Section 197 was unsustainable. It further declined to relegate the petitioner to the Section 264 revision remedy, since the record disclosed no taxable event in India and the writ could be decided on admitted facts. The refusal was set aside and issuance of the certificate directed within time.
Issues: (i) Whether the consultancy payments arising from the Bangladesh project were taxable in India so as to justify refusal of a nil rate TDS certificate under Section 197 of the Income-tax Act, 1961; (ii) whether the availability of a revision under Section 264 of the Income-tax Act, 1961 required relegation of the petitioner to the alternative remedy.
Issue (i): Whether the consultancy payments arising from the Bangladesh project were taxable in India so as to justify refusal of a nil rate TDS certificate under Section 197 of the Income-tax Act, 1961.
Analysis: The project was found to be situated in Bangladesh, the payments were being made in relation to that project, and no material showed involvement of the petitioner's Indian permanent establishment in the execution of the project. On that footing, the Court accepted that the income did not arise or accrue in India for the purpose of the Act and that the relevant treaty position also supported taxation only where the enterprise carried on business through a permanent establishment. In the absence of a taxable event in India, withholding at source on the impugned payments was not justified.
Conclusion: The issue was answered in favour of the petitioner, and the refusal to grant a nil rate TDS certificate was unsustainable.
Issue (ii): Whether the availability of a revision under Section 264 of the Income-tax Act, 1961 required relegation of the petitioner to the alternative remedy.
Analysis: Although a statutory revision remedy was available, the Court declined to insist on exhaustion of that remedy because the record did not disclose any material showing taxability in India and the challenge could be decided on the admitted and proved facts before it. The existence of an alternative remedy was therefore not treated as a bar in the circumstances of the case.
Conclusion: The issue was answered in favour of the petitioner, and the writ petition was held maintainable.
Final Conclusion: The impugned withholding-tax refusal was set aside, and the respondents were directed to consider issuance of a nil rate TDS deduction certificate within the stipulated time.
Ratio Decidendi: Where services relating to an overseas project are rendered outside India, the Indian permanent establishment is not involved, and no taxable event in India is shown, a nil rate TDS certificate cannot be refused merely on conjecture or by insisting on an alternative remedy.
TaxTMI 
AI Drafter ✕
TaxTMI 
