TaxTMI 
TaxTMI 
2026 (3) TMI 1669
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....er from its Indian subsidiary, Benteler India Private Limited (for short "Benteler India"), pursuant to the Service Agreement entered into between them (Exhibit "B" to the Petition), is not taxable in India. Consequently, a relief is also sought to quash and set aside the impugned order dated 1st August 2025 passed by Respondent No. 1 rejecting the Petitioner's application for "NIL withholding tax" Certificate and for a direction to the Respondents to issue a "NIL deduction of tax at source" Certificate under Section 197 of the Income Tax Act, 1961 (for short "the IT Act") as prayed for by the Petitioner in its application dated 1st July 2025. The Petitioner also seeks a declaration and/or a direction to the Income Tax Authorities to grant a refund to the Petitioner of the amount of tax deducted at source (TDS) by Benteler India pursuant to the above-mentioned Service Agreement. 3. To put it in a nutshell, it is the Petitioner's case that it is a company incorporated under the laws of China and a resident of China. Under the Service Agreement (Exhibit "B" to Petition) entered into by the Petitioner with Benteler India (its subsidiary), the Petitioner supplies technical services ....
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....ts as more elaborately set out later in this judgment. However, in a nutshell, it is the Respondents case that even assuming for the sake of argument, that the interpretation of Article 12(4) is as per what the Petitioner contends, even then, in the facts of the present case, the Petition ought to be dismissed. According to the Respondents, admittedly the services rendered by the Petitioner to Benteler India from China was through E-mail Communications, Conference Calls, Video Conferencing etc. Once this is the case, as per the law prevailing in India, the rendition of these services, even if done virtually, equate to and is the same as a physical rendition of services in India. Hence, even assuming for the sake of argument that physical presence is required in India as sought to be contended by the Petitioner, the same is duly fulfilled. Without prejudice to the aforesaid argument, it is the Respondents case that it is an undisputed position that in the case of this very Petitioner, for at least 4 previous Assessment Years, fees paid to the Petitioner [for providing technical services] by Benteler India, were taxed in India. The Petitioner being aggrieved by this action of the Inc....
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....e Commissioner of Income Tax (IT & TP), Pune, who is the Jurisdictional Officer having jurisdiction over the Petitioner and Respondent No. 1. Respondent No. 3 is the Union of India and is the employer of Respondent Nos. 1 and 2. 7. According to the Petitioner, it is a part of the Benteler Group which operates around the world with 170 plants, branches, and trading companies in 38 countries. The Benteler Group develops and produces ready-to-install modules, components, and parts for automobile bodies, chassis and engines. The Petitioner has entered into a Service Agreement with Benteler India under which the Petitioner provides various services to it, namely management support services, finance and human resources services, quality system and warranty management services, information technology support services, facility management services, technical support on treasury, taxation, legal and internal control. A more detailed description of these services is set out in paragraphs 4(ii)(a) to (f) of the Petition. According to the Petitioner the aforesaid services are provided by it to Benteler India on an ongoing basis from China and the personnel providing these services are also ....
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....se Ashapura Minichem Limited (40 SOT 220) and the decision of the Authority for Advance Ruling in Guangzhou Usha International Ltd (62 taxmann.com 96). In all these cases, the order of the Assessing Officer has been challenged before the Higher Authorities and is pending. 10. Be that as it may, the Petitioner filed separate applications for "NIL withholding tax" Certificate with respect to payments made by Benteler India to the Petitioner for A.Y.2023-24, 2024-25 and 2025-26 under Section 197 of the IT Act. All these applications were rejected by Respondent No. 1. Aggrieved by this action of the 1st Respondent, the Petitioner filed Writ Petitions before this Court namely, WP/11534/2022 (for A.Y. 2023-24), WP/9290/2023 (for A.Y. 2024-25) and WP/10076/2024 (for A.Y. 2025-26). All these three Writ Petitions were subsequently withdrawn by the Petitioner because by the time the Writ Petitions were taken up for disposal, the Financial Year had ended, thus rendering the Writ Petitions infructuous. Thereafter, again for A.Y. 2026-27 (the year under consideration in the present Petition) the Petitioner filed an application on 1st July 2025 seeking a "NIL withholding tax" Certificate with....
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....the India-China DTAA are more beneficial to the assessee (the Petitioner), it would be taxed, if at all, as per the provisions of the said DTAA. 13. Having said this, Mr. Sridharan submitted that the income in question does not satisfy the definition of the words "fees for technical services" contained in Article 12(4) of the India-China DTAA and hence is not taxable under Article 12(2) of the said DTAA. Also, since the Petitioner does not have a PE in India, and the income in question would be income from business, it is exempt from taxation in India vide the first sentence of paragraph 1 of Article 7 of the India-China DTAA. Mr. Sridharan on the other hand submitted that the Revenue disputes the contention of the Petitioner and contends that the income in question fulfills the definition of the words "fees for technical services" as set out in Article 12(4) read with Article 12(6), and hence is taxable in India under Article 12(2) of the India-China DTAA. 14. Mr. Sridharan thereafter took us through the scope of taxability of "fees for technical services" under the IT Act prior to the amendment by Finance Act, 1976 and how the various amendments were brought about to ensure....
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....echnical services that arise in India may also be taxed in India. However, tax thereon shall not exceed 10% of the gross amount of the fees for technical services. He submitted that Article 12(4) contains the definition of the term "fees for technical services". He submitted that the term "fees for technical services" as used in that Article, means any payment for the provisions of services of managerial, technical or consultancy nature by a resident of a Contracting State in the other Contracting State, but does not include payment for activities mentioned in paragraph 2(k) of Article 5 and Article 15 of the DTAA. Article 12(5) excludes "fees for technical services" from the purview of Article 12 if such services are performed in India through a PE. Such income would then be governed by Article 7. Article 12(6) defines the source rule of taxation (place where the fee arises) for Article 12(2). It is a definition paragraph for Article 12(2). According to Mr. Sridharan, the first part of Article 12(6) inter alia provides that "fees for technical services" shall be deemed to arise in India when the payer is a resident of India. The second part of Article 12(6) inter alia provides tha....
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....Article 12(4) of the India-China DTAA is synonymous with the expression "within that Contracting State" implied in Article 5(2)(k). Mr. Sridharan submitted that vide Notification No.SO2562(E) dated 17th July 2019, the text of the erstwhile Article 5(2)(k) was transposed verbatim in Article 5(3)(b). This was to remove a doubt as to whether what falls in Article 5(2) need not fulfil the requirements of Article 5(1). This aspect has no relevance to the present matter and hence the Notification dated 17th July 2019 shifting the provisions from Article 5(2)(k) to 5(3)(b) does not affect the above conclusion that the expression "in the other Contracting State" is synonymous with the expression "within that Contracting State". 18. Mr. Sridharan thereafter submitted that the phrase "provision of services ....... by a resident of a Contracting State in the other Contracting State", or a similar expression, is absent in all DTAAs entered into by India with other countries (except China, Israel and Finland). It was therefore submitted that incorporation of the words "provision of services ....... by a resident of a Contracting State in the other Contracting State" in the India-China DTAA w....
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....scious basis of taxation in tax treaties. Treaties entered into post 1976 stipulate that for taxation of "fees for technical services" by India, only the payer should be a resident of India (except in treaties with China, Israel and Finland). In this regard Mr. Sridharan referred to the DTAAs entered into between India-Japan, India-Austria, and India-Belgium. He submitted that these earlier treaties were thereafter replaced by new tax treaties entered into by India. In the new tax treaties (except China, Israel and Finland) the taxability of "fees for technical services" was delinked with the place of performance of services, and instead, the country of the residence of the payer was treated as the sole basis for the place of accrual of such income. 20. Mr. Sridharan submitted that though Article 12(6) is couched as a deeming fiction, it is really nothing but a definition of the term "arising in a Contracting State". He submitted that this was necessary because Article 12(2) of most treaties refer to royalty or fee for technical services arising in India. If the words "arising in a Contracting State" in Article 12(2) is to be given a meaning as per the respective domestic laws, ....
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....TAA despite there being a deliberate and conscious departure in the language of the definition in the India-China treaty, vis-a-vis all other Indian treaties. This would also render the words "provision of services ....... in the other Contracting State" under Article 12(4) of the India-China DTAA, meaningless. 22. Mr. Sridharan then submitted that even assuming that the ITAT was correct in stating that the provision of services is equivalent to utilization of services in India, then also the condition of rendition of services in India must be satisfied under Article 12 of the India-China DTAA. Mr. Sridharan submitted that the ITAT incorrectly observed that the requirement of actual provision of services in India would render the first sentence of Article 12(6) redundant. As an example, he submitted that suppose a Chinese resident comes to India and provides services to a PE of a non-resident, say the Mumbai branch of Bank of America, a US Company. In such a case the "fees for technical services" shall be deemed to arise in India in terms of the second sentence of Article 12(6). That is the purpose of the second sentence of Article 12(6), and which point has been overlooked by t....
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.... Chinese counterpart, India and China have agreed to specify in Article 12, in addition to the provisions on the taxation of royalties, the provisions on taxation of "fees for technical services", and where each company or enterprise sends personnel to the other to provide technical services, which do not constitute a PE, the fees for such technical services shall be subject to a 10% withholding tax in accordance with the provisions of paragraph 2 of Article 12 of the DTAA. In other words, Mr. Sridharan submitted that even the Chinese Government has interpreted Article 12(4) of the DTAA to mean that when personnel are sent by a resident of one Contracting State for rendering services in the other Contracting State, the same can be brought to tax in the other Contracting State under Article 12. 24. Mr. Sridharan submitted that thereafter, on 16th March 2011, the State Administration of Taxation, China issued an announcement on issues concerning implementation of the "technical service fee" clause under bilateral tax agreements between China and UK and other countries. He submitted that even this announcement takes into consideration the DTAA entered into with India and fortifies ....
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....be considered once the assessment takes place and not at this stage. Further, the final assessment for previous years of this very Petitioner for the very income which forms the subject matter of the present Petition, has not been set aside in Appeal, and hence, the principle of consistency would apply, and no further inquiry at this stage ought to be undertaken. It was also submitted that the Petitioners have an alternate remedy under Section 264 of the IT Act to challenge the rejection of the Certificate by the Assessing Officer and which has not been exhausted. 27. To elaborate on these submissions, the learned ASG as well as Mr. Thakkar and Mr. Saxena, in unison, submitted that the entire gravamen of the Petitioner's case is that for the services of the nature being provided by the Petitioner, the same must be physically provided in India for it to be considered as "fees for technical services" under Article 12(4) of the India-China DTAA, and hence taxable in India. They submitted that this is clear not only from the grounds raised in the Petition but also the submissions recorded in the impugned order dated 1st August 2025. The nature of services provided by the Petitioner,....
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....s physical rendition of the services in India, the Respondents relied upon the following decisions:- (1) State of Maharashtra V/S Praful B. Desai [(2003) 4 SCC 601]. (2) Kishan Chand Jain V/S Union of India [(2023) SCC Online SC 1334]. (3) Armin R. Panthaky V/S Rohinton Panthaky [(2024) SCC Online Bom 3603 (Full Bench)]. (4) Ganesh Gouri Industries V/S R.C. Plasto Tanks & Pipes (P) Ltd [(2024) SCC Online (Del) 5359 (Division Bench)]. 29. It was accordingly submitted that taking the case of the Petitioner on a demurer i.e. that the India-China DTAA requires physical rendition of services in India, even then, as per the law in force in India, the services rendered by the Petitioner virtually would amount to a physical rendition of services in India. Hence, no further inquiry would arise, and on this ground alone the above Petition is liable to be dismissed. 30. Without prejudice to the aforesaid argument, the learned ASG, Mr. Thakkar as well as Mr. Saxena submitted that Section 197 of the IT Act contemplates a case where any income of any person, or sum payable to any person, income tax is required to be deducted at the time of credit, or as ....
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....ts submitted that all these pending cases are set out in the Writ Petition itself, the details of which are as under:- A.Y. Dispute Resolution Panel CIT(A) Tribunal 2015-16 - Against Petitioner Pending 2016-17 - Against Petitioner Pending 2017-18 - Against Petitioner Pending 2018-19 - Against Petitioner Pending 2019-20 Against Petitioner - Pending 2021-22 Against Petitioner - Pending 2022-23 Against Petitioner - Pending 2023-24 - Pending - 31. Once this is the case, and the assessments done in the case of the Petitioner for the previous assessment years [as set out above], having not been set aside, the Assessing Officer could never have granted to the Petitioner a "Nil withholding of tax" Certificate under Section 197 of the IT Act. In fact, if any such Certificate was granted, the same would have been contrary to the assessments done in the Petitioner's own case for the previous Assessments Years, and which have been challenged and pending before the ITAT. 32. The Respondents thereafter submitted that in judicial review under Article 226 of....
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....tted that Article 12(4) is divided into two parts. The first part deals with laying down the meaning of the term "fees for the technical services", which in turn, consists of two portions (i) identifying the nature of the services i.e. managerial, technical or consultancy in nature; and (ii) the said services must be provided by a resident of a Contracting State in the other Contracting State. It is submitted that there is no dispute in the present case that the services rendered by the Petitioner are in the nature of managerial, technical or consultancy services. The second part deals with an exclusionary clause whereby payment for activities mentioned in paragraph 2(k) of Article 5 and Article 15 of the DTAA are excluded. It was submitted that the issue in the present matter, as raised by the Petitioner, is in relation to the second half of the first part i.e. "provision of services.... by a resident of a Contracting State in the other Contracting State". Article 3(c) provides, inter alia, that the terms "a Contracting State" and "the other Contracting State" means China or India, as the context requires. The above portion, read with the Article 3(c), would read as "provision of ....
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....acting State. Hence, on a plain reading of Article 12(6), when the payer is in a particular Contracting State, the "fees for technical services" shall be deemed to arise in that Contracting State. Hence, in the context of the present case, the Indian party being the payer, the "fees for technical services" would be and are deemed to arise in India. It is therefore submitted that not only does Article 12(4) not bear out the contention of the Petitioner, but Article 12(6) makes even more express and explicit the fact that considering the payer is in India, the "fees for technical services" arise in India. In this connection reliance is placed on the judgment of the Hon'ble Apex Court in the case of Bhavnagar University V/S Palitana Sugar Mill Pvt Ltd [(2003) 2 SCC 111]. Hence, it being evident that "fees for technical services" having arisen in India, it is conformity with the DTAA that the same would be taxed in India. 35. Without prejudice to the above, and with a view to further buttress the interpretation of the Respondents, attention was also invited to the provisions of Article 12 in its entirety. It was submitted that a bare perusal of Article 12 in its entirety would furth....
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....w different Articles incorporate different mechanisms for taxation, and as and where necessary, the subject DTAA specifically provides for physical presence of a party. In this regard, our attention was drawn to Articles 14 and 20 of the India-China DTAA. It was submitted that Article 14 deals with Independent Personal Services and provides that ordinarily, Income derived by a resident of a Contracting State in respect of professional services or other activities of an independent character, would be taxable only in that Contracting State. However, to this general rule, two exceptions are carved out which state that (a) if the said resident has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities, then, only so much of the income as is attributable to that fixed base may be taxed in that other Contracting State; or (b) if his stay in the other Contracting State exceeds, in the aggregate 183 days, in the taxable year concerned, then, only so much of the income as is derived from his activities performed in that other Contracting State may be taxed in that other Contracting State. Similarly, Article 20 deals with payments....
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.... the circular is still applicable or was withdrawn. All of the above, being questions of fact would be required to be pleaded and proved. None of this has been done in the Petition. 41. It was argued that assuming whilst denying that the said circular as produced is genuine, even then, the circular would be of no relevance in interpreting the DTAA. It was submitted that the Respondents have expressly stated in its affidavit-in-reply dated 1st October 2025, that the UOI was not aware of any such circular until the mention of the circular in the Petition filed by the taxpayer in this case; the circular was not exchanged between the Competent Authorities of India and China, nor was it considered by the Indian tax authority, prior to the signing of the India-China tax treaty; the circular itself does not mention anywhere that it is meant to document any tax treaty negotiation procedure as a common understanding between India and China; on the contrary, the circular clearly mentions that is aimed at "interpretation and implementation of certain provisions" of the India-China tax treaty. Additionally, the circular is directed at the State Taxation Bureau of each province, autonomous r....
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....t contexts, and hence, cannot be equated. It was submitted that the reliance on the DTAAs with other countries or between other countries would thus not be relevant. The plain language being unambiguous qua its ordinary meaning ought to be given effect, bearing in mind the object and purpose of the DTAA. For all the aforesaid reasons, it was submitted that the arguments canvassed by the Petitioner were bereft of merit, and hence, the Writ Petition be dismissed. ANALYSIS & FINDINGS:- 44. We have heard the learned counsel for the parties. We have also perused the papers and proceedings in the above Writ Petition. The first argument canvassed on behalf of the Respondents is that even assuming for the sake of argument that the services to be rendered by the Petitioner are to be physically rendered in India, even then, the facts of the present case would clearly establish that the services were physically rendered in India. This argument is canvassed on the basis that it is an admitted position that the services which were being rendered by the Petitioner to the Benteler India from China was through email communications, conference calls and video conferencing etc. This, according....
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....e is present before you i.e. in your presence. In fact, he/she is present before you on a screen. Except for touching, one can see, hear and observe as if the party is in the same room. The Hon'ble Supreme Court opined that in video conferencing, both parties are in the presence of each other. The Hon'ble Supreme Court opined that once this is the case, it was clear that so long as the accused or his pleader were present when evidence was recorded by video conferencing, that evidence being recorded in the "presence" of the accused, would thus fully meet the requirements of Section 273 of the Criminal Procedure Code, 1973. 47. We fail to understand how this decision can be of any assistance to the Respondents. What the Hon'ble Supreme Court has held is that when video conferencing takes place between two persons they are in the presence of each other. This was the requirement of Section 273 of the Criminal Procedure Code, 1973 and looking at the advancement in science and technology, the Hon'ble Supreme Court opined that when evidence is recorded by video conferencing, it fulfills the requirement of the said evidence being recorded in the presence of the accused as contemplate....
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....he need for citizens to travel long distances to secure the right of being heard. We, therefore, find that the reliance placed on this decision to substantiate the proposition that by virtue of the services being rendered virtually, they are physically rendered in India, is wholly misconceived. 49. The next decision relied upon is the decision of a Full Bench of this Court in the case of Armin R. Panthaky (supra). The issue before the Full Bench, to which one of us (B. P. Colabawalla, J.) was a party, was whether under the Parsi Marriage and Divorce Act, 1936 the Court had the jurisdiction to direct or allow the recording of evidence before the Court Commissioner in terms of Order 14 Rule 4 of Civil Procedure Code, 1908 (CPC). It is whilst deciding the aforesaid issue that the Full Bench in paragraph 13, placing reliance on the decision of the Hon'ble Supreme Court in Praful B. Desai (supra), opined that technological advancements have provided Courts with viable alternatives to live testimony, mitigating logistical and emotional challenges, while maintaining key elements of fairness. Once again, we fail to understand how the decision of the Full Bench of this Court can be of an....
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....the Court in Nagpur, both parties being registered and carrying on business in Nagpur, the Respondents choice of Delhi in filing a Suit was ex facie forum shopping. It is whilst deciding this issue that the Delhi High Court in paragraph 57 made the observations that given the advancement in technology, having a virtual business presence in a jurisdiction would be akin to having a physical presence. Once again, we find that this decision is of no assistance to the Respondents. In the facts of the present case without there being anything on record to show otherwise, it could equally be stated that by virtue of the services being rendered by the Petitioner to Benteler India through video conferencing, would mean that the said services were physically rendered in China and not in India. 51. In view of the foregoing discussion, we are unable to agree with the Respondents that because the services were being rendered by the Petitioner to Benteler India through video conferencing etc, the same were in fact rendered in India and not from China. This argument of the Respondents is therefore rejected. 52. The next question to be decided is whether the Assessing Officer correctly rejec....
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....application made by the assessee in this behalf, give to him such Certificate, as maybe appropriate. 54. Under sub-section (2) of Section 197, once such a Certificate is given, the person responsible for paying the income shall, until the Certificate is cancelled, deduct income-tax at the rates specified in such Certificate or deduct no tax, as the case may be. Sub-section (2A) gives the power to the CBDT to frame rules specifying the cases in which, and circumstances under which, an application may be made for the grant of a Certificate under sub-section (1) and the conditions subject to which such Certificate may be granted and providing for all other matters connected therewith. 55. Pursuant to the aforesaid power given to the board, rules have been framed. What is relevant for our purposes is Rule 28AA as substituted by the Income-tax (Second Amendment) Rules, 2011, which have come into force on 1st April 2011. Rule 28AA reads as under:- "Certificate for deduction at lower rates or no deduction of tax from income other than dividends. 28AA. (1) Where the Assessing Officer, on an application made by a person under sub-rule (1) of rule 28 is satisfied that....
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.... on an application made by a person under sub-rule (1) of Rule 28 is satisfied that the existing and estimated tax liability of a person justifies the deduction of tax at a lower rate, or no deduction of tax, as the case may be, the Assessing Officer shall issue a Certificate in accordance with the provisions of sub-section (1) of Section 197 for deduction of tax at such lower rate or no deduction of tax. 57. Sub-rule (2) of Rule 28AA also gives guidance as to how the existing and estimated liability referred to in sub-rule (1) shall be determined by the Assessing Officer. One of the things that the Assessing Officer has to take into consideration is the tax payable on the assessed or returned income, as the case may be, of the last three previous years. 58. Sub-rule (3) of Rule 28AA stipulates that the Certificate shall be valid for such period of the previous year as may be specified in the Certificate, unless it is cancelled by the Assessing Officer at any time before the expiry of the specified period. 59. In the facts of the present case, the Assessing Officer has given elaborate reasons as to why a "NIL withholding tax" Certificate under Section 197 cannot be issued ....
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....the learned Senior Advocate appearing for the Petitioner, sought to place reliance on the Forms to be filled out under Rule 28AA and sought to contend that in the facts of the present case, Rule 28 AA would not have any application because there was no liability to pay Income-tax since the tax has already been paid when the same was deducted at source by Benteler India. He has made elaborate submissions in this regard in the written submissions submitted by the Petitioner. 63. We find that though a valiant attempt was made to justify as to why Rule 28AA would not apply, or that the Certificate has been wrongly refused, the fact of the matter remains that the authorities higher than the Assessing Officer have already ruled that the payment made by the Benteler India to the Petitioner for the services rendered by it to Benteler India, is taxable in India. Once this is the case, the Assessing Officer could not have issued any Certificate under Section 197 to the Petitioner, granting it a "NIL withholding tax" Certificate because if that was done, it would run in the teeth of the rulings given by the higher authorities in the Petitioner's own case for the earlier assessment year....