Withholding tax on non-resident supplier payments u/s197 based on alleged PE; higher 3.5% rate quashed, 1.5% restored.

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....Whether a higher withholding rate under s.197 could be imposed on payments to a non-resident supplier on the premise of a PE in India was examined. Since the earlier s.197 certificates were consistently issued at 1.5%, and the revenue's sole basis for increasing the rate to 3.5% (a finding of PE for AY 2022-23) stood set aside by the ITAT, the higher-rate direction lost its legal foundation. The impugned 3.5% certificate was quashed and a fresh certificate at 1.5% was directed within 15 days; future s.197 certificates were also directed to be issued at 1.5% unless the ITAT order is reversed/modified or fresh evidence of PE emerges, in which case notice and opportunity must precede any higher-rate certificate. - HC....