S. 197 Certificate at 15% Unsustainable: Delhi HC reduces Income Tax withholding of US Firm Cvent Inc to 2% [Read Order]

The Delhi High Court has held that issuance of a tax withholding certificate underSection 197 of the Income Tax Act, 1961 at the rate of 15% to US-based Cvent Inc. was legally unsustainable, and directed the Income Tax Department to reduce the withholding rate to 2% for Assessment Year 2026 - 27.

Cvent Inc., a non-resident company and tax resident of the United States, provides an online platform for planning, marketing and executing physical and hybrid events.

In the course of its operations, it procures standard, off-the-shelf software products for use by itself and its associated enterprise, Cvent India Private Limited.

The company approached the tax authorities seeking a lower withholding certificate under Section 197, contending that its transactions did not involve royalty, copyright transfer, or Fees for Included Services under the India - USA DoubleTaxation Avoidance Agreement (DTAA).

However, the income tax authority issued a certificate directing tax deduction at source(TDS) at 15%, without providing adequate reasons or properly addressing the petitioner’s dependence on the Supreme Court’s judgment in Engineering Analysis Centre of Excellence Ltd. v. CIT.

The petitioner challenged this decision before the High Court, arguing that the nature of its transactions was clearly outside the scope of royalty or taxable technical services under both the Income Tax Act and the India - USA Treaty.

Before the Court, the Revenue’s counsel, Adv. Indruj Singh Rai, SSC and Adv. Sanjeev Menon contended that the nature of the transactions had not yet been examined in detail and that withholding certificates are provisional in nature, subject to scrutiny during assessment proceedings. It was argued that if ultimately found non-taxable, the petitioner could claim a refund.

The Division Bench bench of Justices Dinesh Mehta and Vinod Kumar, however, observed that the petitioner’s case was covered by the Supreme Court’s decision in Engineering Analysis, which clarified that payments for use of standard, off-the-shelf software without transfer of copyright do not amount to royalty.

While noting that the transactions prima facie did not appear exigible to tax, it reduced the withholding rate to 2% to safeguard the Revenue’s interests pending assessment, while preventing excessive withholding.

The Court directed issuance of a fresh certificate reflecting the reduced rate within ten days. It also clarified that the ruling is subject to FY 2026 and for future years, the department can decide independently.

Dr. Shashwat Bajpai, Adv. and Adv. Mayank Chaturvedi appeared for the petitioner.

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