Withholding tax on global distribution services payments reduced to 0.5% after India PE revenue attribution and expense deduction

Revenue attributable to an India permanent establishment was fixed at 15% under the cited Supreme Court precedent; the court concluded that this 15% represents revenue attributable to the PE, not a limit on deductible expenditure, and therefore the full distribution commission (68%) may be deducted against that attributed revenue, producing no taxable income. The question of taxability of transactions from non India points of sale remains undecided and is left to the appellate authorities. The impugned withholding order and certificate were set aside and a fresh tax withholding certificate at 0.5% was directed within fifteen days.

---

---

Issues: Whether, for the purposes of issuing a certificate under Section 197 of the Income-tax Act, 1961 for Assessment Year 2025-26, the competent authority was required to allow deduction of the entire commission (68%) against the revenue attributed to the India Permanent Establishment (15% of total receipts) and accordingly fix the rate of tax withholding.

Analysis: The Court examined the Supreme Court decision in DIT v. Travelport Inc. which determined that 15% of the petitioner's receipts constitutes the revenue attributable to the Permanent Establishment in India, ascertained by FAR analysis. That 15% figure represents revenue attributable to the India PE and is not a ceiling on the allowability of related expenditures. The Tribunal in the cited decision treated the entire commission paid to distribution agents as deductible from the revenue attributed to the PE, and where such commission exceeded the attributed revenue, concluded no further income was taxable in India. Applying that legal framework to the facts accepted by the competent authority (15% revenue attributable to PE and 68% commission payable), the competent authority ought to have deducted the full commission from the attributed revenue. The Court declined to adjudicate the separate unresolved issue relating to income from non-India POS, but, to meet ends of justice, directed a proportionate certificate reflecting the petitioner's non-India POS share of total receipts.

Conclusion: The impugned order dated 24.04.2025 and the certificate dated 17.04.2025 are set aside. A fresh tax-withholding certificate shall be issued within fifteen days fixing deduction of tax at the rate of 0.5% (reflecting the petitioner's non-India POS proportion of total receipts) in favour of the petitioner.

---