Bombay HC Refuses NIL TDS Certificate to Chinese Firm as Prior Years’ Taxability Dispute Pending Before ITAT [Read Order]

In a recent ruling, the Bombay High Court refused to grant a NIL withholding tax certificate to a Chinese company on the ground that the issue of taxability of the payments received from its Indian subsidiary was already decided against it in earlier assessment years and the matter is currently pending before the Income Tax Appellate Tribunal (ITAT).

Benteler Automotive (China) Investment Ltd., the petitioner, filed a writ petition challenging the order passed by the Assessing Officer rejecting its application under Section 197 of the Income Tax Act, 1961 for a NIL withholding tax certificate for the assessment year 2026-27. The petitioner also sought a declaration that the consideration received from its Indian subsidiary, Benteler India Pvt. Ltd., under a service agreement was not taxable in India.

The petitioner is a tax resident of China and provides various management, technical, and support services to its Indian subsidiary from China. The company argued that although such services may fall within the scope of “fees for technical services” under the domestic law, the India-China Double Taxation Avoidance Agreement would apply, being more beneficial.

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The petitioner’s counsel argued that under Article 12(4) of the India-China DTAA, services must be rendered in India to qualify as fees for technical services. Since all services were provided from China through email, video conferencing, and other remote means and no personnel visited India, the income was not taxable in India.

The revenue authorities argued that even if the petitioner’s interpretation of the DTAA is accepted, the services rendered through virtual modes such as video conferencing and emails would amount to services being rendered in India. They also argued that in the petitioner’s own case for earlier assessment years, similar receipts had already been held to be taxable in India and those findings are currently under challenge before appellate authorities.

The Division Bench comprising Justice B. P. Colabawalla and Justice Amit S. Jamsandekar observed that the contention of the revenue that virtual services amount to physical rendition of services in India was not acceptable. The court observed that merely because services are rendered through video conferencing or emails does not mean that they are physically rendered in India, and such an assumption would be too broad.

At the same time, the court observed that for earlier assessment years, the tax authorities had already held that the petitioner’s income was taxable in India, and those findings are still in force as they are pending before the ITAT. The court pointed out that the Assessing Officer is required to take into account past assessments and existing tax liability while considering an application under Section 197.

The court explained that granting a NIL withholding tax certificate in such circumstances would directly contradict the findings of higher authorities in earlier years which have not yet been set aside. It also pointed out that the certificate under Section 197 is based on estimated tax liability and must align with the existing position of law as applied to the assessee.

The writ petition was dismissed with no order as to costs.

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