The Delhi High Court while granting the interim relief to Google Subsidiary, Google Asia Pacific Pvt. Ltd. allowed payment worth Rs.1106.41 Crores from Google Cloud after withholding 8% Income Tax.
The Petitioner has pointed out that withholding the rate of 10% as prescribed under the DTAA is inclusive of the applicable surcharge and cess and therefore no additional surcharge or cess is required to be imposed. This position, he submitted is settled by this Court in Epcos Electronic Components S.A. v. UOI, (2020) 316 CTR 126 and therefore, the 10% withholding rate is the maximum that can be imposed in terms of the DTAA.
It was further submitted that this position has also been clarified by the CBDT in the Taxpayer Information Series 44, under Chapter 8 [Frequently Asked Questions on (FAQs) Royalty and FTS and Related matters], issued by the Directorate of Income Tax, copy whereof has also been placed on record.
It was further urged that the maximum tax liability on the proposed payments under Google Cloud Services Reseller Agreement as per the application filed by GCI for the year consideration could only be 110.64 crores. He points out that in the letter dated 10th January, 2022 issued by the ITO, this figure has been taken at 120.82 crores, which is incorrect and consequently the computation of 98.69 crores, after considering the impact of 2% EL is also incorrect. He further submits that the actual amount payable, being the 8%, would be quantified at 88.51 crores (to be paid progressively), as there is no applicability of additional surcharge or education cess in respect of the same as per the provisions of the DTAA. He also submits that given this interim arrangement, the fact that although the impugned order directs a 10% withholding, the deposit of 8% by GCI should not be construed as any non-compliance of the impugned order so as to attract the provisions of section 201 of the Act on GCI. He accordingly submits that the appropriate directions may be issued in this regard towards the interim arrangement.
The division bench of Justice Manmohan and Justice Navin Chawla has held that no additional surcharge and cess is to be applied over the 10% rate as prescribed under the DTAA.
The court directed that purely as an interim measure, the Petitioner would be entitled to receive its payment from GCI subject to a deduction of 8% to be paid to the Respondent progressively. This interim arrangement is being made under the orders of this court. The deposit of 8% should not be treated as any non-compliance of the impugned order.
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