Principal-to-Principal Distribution between UK and Indian Entities Basis for ‘Nil’ TDS Certificate under DTAA: Delhi HC [Read Order]

The Delhi High Court recently held that principal-to-principal distribution arrangement between a UK company and its Indian entities can form the basis for determining the UK company’s eligibility for a ‘Nil’ tax deduction certificate as per the India-UK Double Taxation Avoidance Agreement (DTAA).

Accordingly, the High Court directed the Income Tax Department to issue a fresh withholding certificate after a 15% rate was imposed under Section 197 of the Income Tax Act, 1961.

The petitioner, Financial and Risk Organisation Limited is a company incorporated in the United Kingdom and provides subscription-based access to financial, economic and regulatory data among others, and is a tax resident of the UK for Assessment Year 2026-27.

The company had entered into a non-exclusive distribution agreement with Refinitiv India Private Limited (RIPL) and Refinitiv India Transaction Services Private Limited (RITSPL) on a principal-to-principal basis. The agreement required the Indian entities to purchase the petitioner’s products for distribution in India and the consideration received thereof would be remitted back to the UK company.

The petitioner filed an application with the competent authority under Section 197 of the Income Tax Act, 1961 to receive a ‘Nil’ TDS certificate, however the authority issued a certificate directing tax to be withheld at 15% instead of ‘Nil’.

The petitioner has thus approached the High Court challenging the order and the consequential certificate therein.

Ajay Vohra and Dr. Shashwat Bajpai for the petitioner contended that the petitioner’s services are not taxable in India as per the Income Tax Act and the India-UK Treaty. It was further stated that the petitioner’s services cannot be brought under the ambit of ‘Royalty’ to deny a ‘Nil’ TDS of certificate.

Debesh Panda, for the revenue cited the limited time and jurisdiction available with the competent authority.

Justice Dinesh Mehta and Justice Vinod Kumar noted that the petitioner had furnished a valid Tax Residency Certificate and that the payments received from the Indian entities arose out of a non-exclusive distribution agreement operating on a principal-to-principal basis.

Determining whether withholding under Section 197 was necessary required an examination of the character of the payments in light of the provisions of the Income Tax Act, 1961 as well as the India-UK DTAA.

The Bench noted that the petitioner’s request for issuance of a ‘Nil’ certificate had not been examined in the proper perspective of the DTAA framework and the principal-to-principal structure of the arrangement with the Indian entities

Accordingly, the High Court directed the competent authority to reconsider the petitioner’s application under Section 197 and issue a fresh ‘Nil’ certificate in accordance with law.

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