Bombay High Court
Benteler Automotive China Investment … vs Assistant Commissioner Of Income Tax … on 27 March, 2026
Author: B. P. Colabawalla
Bench: B. P. Colabawalla
2026:BHC-AS:15021-DB
1.wp.11074.2025 BENTELER(2).docx
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.11074 OF 2025
Benteler Automative (China)
Investment Limited,
having its office at 1F, Building 3,
No.2808, West Huancheng Road,
Fengxian District, Shanghai, 201401 P.R., China .. Petitioner
Versus
1) Assistant Commissioner of Income-tax (IT),
Circle-1, Pune, having his office at Room No.314,
3rd Floor, B.O.Bhavan, Plot No.1,
Sector 17, Pune Satara Road, Parvati, Pune-411009.
2) Commissioner of Income-tax (IT&TP),
Pune, having his office at B.O.Bhavan, Plot No.1,
Sector 17, Pune Satara Road, Parvati, Pune-411009.
3) The Union of India
through the Secretary, Department of Revenue,
Ministry of Finance having his Office at 128-A,
North Block, New Delhi-110 001. .. Respondents
Mr. Sridharan, Senior Advocate a/w Ravi Sawana, Neha
Sharma, Priyanshi Chokshi, Advocates for the Petitioner.
Mr. A. K. Saxena, Advocate for Respondent Nos.1 and 2/
Digitally
signed by
UTKARSH
Revenue.
UTKARSH KAKASAHEB
KAKASAHEB BHALERAO
BHALERAO Date:
2026.03.30
11:34:00
+0530
Mr. Anil Singh, ASG a/w Aditya Thakkar, Savita Ganoo, D.P.
Singh, Priyanka Kothari, Adarsh Vyas, Rama Gupta, Rajdatt
Nagre, Advocates for Respondent No.3.
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CORAM : B. P. COLABAWALLA &
AMIT S. JAMSANDEKAR, JJ.
RESERVED ON : NOVEMBER 25, 2025
PRONOUNCED ON : MARCH 27, 2026
JUDGMENT:
– [ PER B. P. COLABAWALLA, J. ]
1. Rule. Respondents waive service. With the consent of
parties, Rule made returnable forthwith and heard finally.
2. By this Petition, filed under Article 226 of the Constitution
of India, the Petitioner seeks a declaration that the consideration
received/receivable by the Petitioner 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 1 st 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 1 st July 2025. The Petitioner also seeks
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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 to Benteler India. It is conceded before us
that any payment made by Benteler India to the Petitioner [for the
supply of technical services] would be taxed in India under the
provisions of the IT Act, and more particularly Section 9(1)(vii) thereof.
However, since India and China have entered into a Double Taxation
Avoidance Agreement [for short the “DTAA”], taxation of the
Petitioner would be governed by the provisions of the India-China
DTAA as they are more beneficial to the Petitioner [Section 90 of the IT
Act]. According to the Petitioner, it has no “Permanent Establishment”
(for short “PE”) in India [as understood in Article 5 of the DTAA], and
hence, is not liable to pay any tax in India under Article 7 thereof, for the
technical services provided by it to Benteler India. The only other
provision under which the Petitioner can be brought to tax in India is
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Article 12 of the DTAA. According to the Petitioner, even under this
Article, the Petitioner cannot be taxed in India because the technical
services provided by the Petitioner to Benteler India do not fall within
the definition of the words “fees for technical services” (for short also
referred to as “FTS”), as understood under Article 12 (4) of the India-
China DTAA. According to the Petitioner, though it rendered “technical
services” to its subsidiary located in India, namely Benteler India, the
wordings of Article 12 (4) clearly indicate that for the services provided
by the Petitioner to Benteler India to fall within the meaning of the
words “fees for technical services” [as defined in Article 12 (4)], the
same would have to be rendered and/or performed by the Petitioner in
India and not merely from China. According to the Petitioner, if the
technical services provided by it are from China, then those services
would not be covered within the definition of “fees for technical
services” in Article 12 (4) of the India-China DTAA. Since it is an
undisputed fact that the technical services provided by the Petitioner to
Benteler India were rendered/performed by the Petitioner from China,
and not in India, the payment for FTS would not fall within Article 12
(4) of the DTAA, and hence, cannot be taxed in India. This is the basis
on which the Petitioner seeks the reliefs more particularly set out
earlier.
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4. On the other hand, the aforesaid interpretation of Article 12
(4) has been disputed by the Respondents 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 Income Tax Department has in fact challenged the
same before the Higher Authorities. The said challenge has not yet
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succeeded. In other words, for the previous Assessment Years, it is held,
at least till date, that the fees paid by Benteler India to the Petitioner
[for the supply of technical services], is taxable in India. Once this is the
case, there was no question of the Assessing Officer granting any “Nil
withholding tax” Certificate under Section 197 of the IT Act. This in fact
would be contrary to the assessments that were already done in relation
to the Petitioner for previous Assessment Years, and which are
challenged by the Petitioner before the Higher Authorities and is
pending. In this regard, the Respondents also relied upon Rule 28AA of
the Income Tax Rules, 1962. As far as the declaration sought by the
Petitioner in prayer clause (a) is concerned, it is the case of the
Respondents that such a declaration can never be granted in the present
Petition as this very issue is pending in the Petitioner’s own case not
only before the ITAT, but also before the CIT (Appeals). If any such
declaration is given in the present Petition, it would have a direct impact
to those proceedings, and hence there is no question of granting such a
declaration at this stage. All in all, therefore, the Respondents have
contended that the Petition is bereft of merit and should be dismissed.
5. Before we delve into the controversy raised in the present
Petition, it would be apposite to set out the parties hereto as well as the
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brief facts of the case. The Petitioner is a company incorporated on 23 rd
August 2011 by the Benteler Group (based in Austria) and is a tax
resident of China. The Petitioner provides 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 and other related services, to its
related parties in the Asia Pacific region. The Petitioner is designated as
the regional group headquarters for the Asia Pacific region of the
Benteler Group.
6. Respondent No.1 is the Assistant Commissioner of Income
Tax (IT), Circle-1, Pune who has passed the impugned order rejecting
the application made by the Petitioner under Section 197 of the IT Act
and Respondent No.2 is the 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
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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
based in China. According to the Petitioner, no employee of the
Petitioner visits India to provide any of the above-mentioned services,
and the entire provision of services is from China.
8. For the provision of these services to Benteler India, the
Petitioner charges a service fee equal to the cost incurred by it plus a
mark-up of 5%. The Petitioner raises an invoice on Benteler India on a
monthly basis and Benteler India makes payment to the Petitioner
against such invoice after deducting tax at source (TDS) at the rate of
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10% under Section 195 of the IT Act read with the India-China DTAA.
The total payments made by Benteler India to the Petitioner for the
period April 2025 to July 2025 amounts to Rs.3.33 Crores, and on this
payment, Benteler India has deducted tax at source (TDS) at the rate of
10% amounting to approximately Rs.33.31 Lakhs.
9. According to the Petitioner, taxation of income earned by it
[who is admittedly a tax resident of China], is governed by the
provisions of the India-China DTAA. Article 12 (1) of the India-China
DTAA provides that “fees for technical services” arising in India and
paid to a resident of China may be taxed in China (in a case where the
service provider is in China). Article 12 (2) provides that “fees for
technical services” may also be taxed in India if the beneficial owner of
the fee is the recipient. Article 12 (4) defines the words “fees for
technical services”, whereby if the provision of services is in India, then
the fees for such services qualify as “fees for technical services”.
According to the Petitioner, if the provision of services is from China
and no personnel of the Petitioner have come to India for rendering
those services, then fees for such services do not qualify as “fees for
technical services” as set out in Article 12 (4). It is on this basis that the
Petitioner contends that the fees charged by it to Benteler India is not
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taxable in India. This is also because admittedly the Petitioner does not
have a PE in India as understood in Article 5 of the India-China DTAA.
Accordingly, the Petitioner has claimed a refund of all amounts
deducted by Benteler India [under Section 195 of the IT Act], in the IT
returns filed by the Petitioner from A.Y.2015-16 onwards. The Assessing
Officer has, however, denied the Petitioner any refund inter alia relying
upon the decision of the ITAT, Mumbai Bench, in the case 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 1 st 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
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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 respect to payments made by Benteler
India to the Petitioner under Section 197 of the IT Act. It is in this
application that Respondent No.1 passed the impugned order dated 1 st
August 2025 once again rejecting the application filed by the Petitioner.
It is because of this rejection that the Petitioner has once again
approached this Court by filing the above Writ Petition and seeking the
reliefs more particularly set out earlier.
SUBMISSIONS OF THE PETITIONER:
11. In this factual backdrop Mr. Sridharan, the learned Senior
Counsel appearing for the Petitioner, submitted that Section 4 of the IT
Act, and which is the charging provision, imposes income tax upon a
person in respect of his total income for the previous year. Income tax is
levied at the rates enacted by the Central Act i.e. the Annual Finance
Act. Clause (b) to Section 5(2) of the IT Act provides that a total income
of a non-resident shall include (i) income accrued or arising in India; (ii)
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income deem to accrue or arise in India. Mr. Sridharan submitted that
Section 9(1)(vii)(b) of the IT Act read with the Explanation to Section
9(2), amongst other things, provides that income by way of “fees for
technical services” payable by a person who is a resident in India shall
be deemed to accrue or arise in India and shall be included in the total
income of the non-resident, whether or not (a) the non-resident has a
residence or a place of business or a business connection in India; or (b)
the non-resident has rendered services in India. Mr. Sridharan
submitted that if one were to go by these provisions, it cannot be
disputed that though the Petitioner is a non-resident, it would be liable
to tax in India under the provisions of the IT Act.
12. He, however, submitted that Sections 4 and 5 are “subject
to the other provisions” of the IT Act. Therefore, if any provision of the
IT Act grants relief from such a levy, then levy under Section 4 is not
attracted. According to the Petitioner, Chapter IX of the IT Act deals
with double taxation relief and Section 90 deals with agreements with
foreign countries or specified territories. In the present case, since India
and China have entered into a DTAA, the provisions of Section 90(1) as
well as Section 90(2) would be attracted, and the provisions of the IT
Act would apply to the extent they are more beneficial to the assessee.
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Since the provisions of 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 that “fees for technical services” would be
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brought to tax in India, as long as the payer was a resident in India.
Though the same is not really relevant for our purposes, the reason why
Mr. Sridharan took us through the aforesaid provisions was to throw
light on what the law was pre 1976 and post 1976. In fact, Mr. Sridharan
very fairly conceded that the managerial and consultancy services
provided by the Petitioner fall within the definition of the words “fees
for technical services” under Explanation 2 to Section 9(1)(vii) of the IT
Act, and since the payer of these fees (Benteler India) is a resident of
India, the place of performance of such services [in the present case by
the Petitioner from China and not in India] is an irrelevant
consideration under the provisions of the IT Act, and such fee would be
taxable in India under Section 9(1)(vii) thereof.
15. Mr. Sridharan however submitted that in the present case,
the parties would not be governed by Section 9(1)(vii) but by the DTAA
entered into between India and China. He submitted that by virtue of
Section 90(1) read with Section 90(2) of the IT Act, the provisions of the
IT Act which are more beneficial than the provisions of the DTAA, then
those provisions of the IT Act would prevail over the DTAA. On the flip
side, if the DTAA is more beneficial as compared to the provisions of the
IT Act, then the DTAA can be invoked by the assessee to claim
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exemption/reduction of tax imposed by the domestic law. He submitted
that this legal position is well settled by the Hon’ble Supreme Court in
UOI vs. Aazadi Bachav Andolan [(2007) 263 ITR 706] and
Engineering Analysis Centre of Excellence (P) Limited V/S
CIT [(2021) 432 ITR 471 (SC)].
16. Coming to the facts of the present case, Mr. Sridharan
submitted that in exercise of powers under Section 90 of the IT Act,
India has entered into a DTAA with the Peoples Republic of China which
came into force on 21st November 1994. This was notified vide
Notification No.9747 dated 5th April 1995. Drawing our attention to the
different Articles in the DTAA, and more particularly Article 12 thereof,
Mr. Sridharan submitted that Article 12(1) provides that fees for
technical services arising in India and paid to the resident in China may
be taxed in China. This paragraph assigns a non-exclusive taxation right
to China. However, Article 12 (2) stipulates that fees for technical
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
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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 that where
the person paying the fees for technical services, whether he is a
resident of India or China or not, has a PE in India, and such fees are
born by the PE, then such fees shall be deemed to arise in India where
the PE is situated. Article 12 (7) adds the special arm’s length price for
fees for technical services, and which is not really relevant for our
purposes.
17. According to Mr. Sridharan, the definition of the words
“fees for technical services” as understood under Article 12 (4) of the
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India-China DTAA expressly refers to provision of services by a resident
of a Contracting State in the other Contracting State. Article 12 (2) of the
India-China DTAA provides that fees for technical services arising in
India may be taxed in India. Thus, for a fee to be taxed by India, the two
conditions specified in Article 12 (2) should be satisfied, namely, (i) the
activity should fall within the term “fees for technical services” as
defined in Article 12 (4); and (ii) Article 12 (6) defining the State where
the “fees for technical services” shall be deemed to be arise, also has to
be fulfilled. The above two conditions must be simultaneously fulfilled
and the same is self-evident from a bare reading of the relevant portions
of Article 12 of the India-China DTAA. According to Mr. Sridharan, if
one were to read Article 12 in its correct perspective, the term “fees for
technical services” as used in the said Article would mean any payment
for provision of services …….. by a resident of China in India, but does
not include payment for activities mentioned in …….. Thus, according
to Mr. Sridharan, under the express language of Article 12 (4), the
provision of services by a resident of China should be in India, which
alone would be covered by the term “fees for technical services”. If the
provision of services is not in India, then the payment for such services
cannot be termed as “fees for technical services” under Article 12 (4).
According to Mr. Sridharan, Article 5(2)(k) of the India-China DTAA
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also establishes the significance of provision of services in India. Article
12 (4) refers to Article 5(2)(k), and in turn, Article 5(2)(k) refers to
Article 12. Hence, these portions of these respective Articles throw light
on the meaning of each other and have to be read together. According to
Mr. Sridharan, it is clear that the expression “in the other Contracting
State” in 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 17 th
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
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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 was a deliberate and
conscious departure by India vis-a-vis most of its other DTAAs.
According to Mr. Sridharan, none of the tax treaties (other than China,
Israel and Finland) entered into by India require services to be provided
“in the other Contracting State” as covered by Article 12. Thus, the
India-China DTAA uniquely stipulates deviating from all other treaties
of India that services are required to be provided by the resident of a
Contracting State (i.e. China) in the other Contracting State (i.e. India),
to qualify as “fees for technical services” under Article 12 (4). Evidently,
such a stark departure by India from its uniform and consistent treaty
practice with all other countries must be given its full significance and
importance.
19. To put it in a nutshell, Mr. Sridharan submitted that qua
“fees for technical services”, most of the India’s DTAAs provided for
taxation in India if the payer is in India. The exception to this rule is in
the India-China, India-Israel, and India-Finland DTAAs. In these
treaties, provision of services in India is a further essential criteria. In
this regard, Mr. Sridharan brought to our attention Article 13 (5) of the
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India-Israel DTAA and Article 12 (5) of the India-Finland DTAA. Mr.
Sridharan submitted that under the treaties with Israel as well as
Finland, twin conditions for taxability of “fees for technical services”
have to be fulfilled, namely (i) that the payer should be resident of India;
and (ii) the services must be rendered or performed in India [Article 13
(5) of the India-Israel DTAA and Article 12 (5) of the India-Finland
DTAA]. In other words, the condition relating to performance of
services in India, is forming part of the source rule contained in Article
13 (5) of the India-Israel DTAA, and Article 12 (5) of the India-Finland
DTAA. However, in the India-China DTAA this condition of
rendering/provision of services in India, is forming part of the
definition of the words “fees for technical services” under Article 12 (4).
According to Mr. Sridharan, this would be of little significance as the
same stipulation is incorporated in all the three DTAAs. According to
Mr. Sridharan, the earlier India tax treaties entered into pre 1977
uniformly provided taxability of “fees for technical services” only when
rendered in India. This, again, reinforces that the place of provision or
rendition of services can be a conscious 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.
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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, it would lead to a chaotic situation. Different criteria in
the domestic tax laws [for the phrase “arising in a Contracting State”]
would be incorporated in the domestic tax laws. For example, it can be a
place where services are performed, or the resident State of the payer, or
the place where the services are used or where the payment is received.
Hence, for the purpose of the treaty, and to add certainty, Article 12 (6)
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defines the words “arising in a Contracting State”. In other words, the
place of arising of income under Article 12 (2) depends upon the criteria
provided under Article 12 (6). Article 12 (6) narrows the scope of income
arising in India to be limited to what is defined therein. When
understood from this angle, the first part of Article 12 (6) cannot be held
to be a deeming legal fiction. To put it differently, Mr. Sridharan
submitted that Article 12 (6) stipulates that “fees for technical services”
shall be deemed to arise in India when the payer is in India. For that
provision to apply, the first criteria to be satisfied is that it should be
“fees for technical services”. If the fee paid is not “fees for technical
services” as understood under Article 12 (4), then one cannot invoke the
provision of Article 12 (6) to bring those fees to tax in India.
21. According to Mr. Sridharan, the Certificate applied for by
the Petitioner under Section 197 seeking a “NIL withholding tax”
Certificate was rejected by the impugned order mainly relying upon the
decision of the ITAT, Mumbai in Ashapura Minichem Ltd (supra).
According to Mr. Sridharan, the aforesaid decision of the ITAT is per
incuriam on account of non-consideration of key facts and
circumstances. Mr. Sridharan submitted that the ITAT held that the use
of services in the other Contracting State (i.e. India), is itself enough to
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bring it within the expression “provision of services”. This reasoning of
the ITAT would render the first sentence of Article 12 (6) redundant. If
the interpretation of “provision of services” as “use of services in India”
is correct, then it was not necessary for the India-China DTAA to
provide in the first sentence of Article 12 (6) that income shall be
deemed to arise in India. Further, the above conclusion reached by the
ITAT reduces the definition of the words “fees for technical services” in
the India-China DTAA to be at par with the definition in the India-
Germany DTAA 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
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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 the ITAT in Ashapura’s case. Mr.
Sridharan submitted that according to the ITAT, Article 12 (6) is
independent of Article 12 (4) and the provision of services in India is of
no significance once the “fees for technical services” is deemed to arise
in India. Mr. Sridharan submitted that this would lead to absurd results.
Firstly, this would equate the provisions of the India-China DTAA with
all other treaties of India which the Government of India has agreed to.
Secondly, this would render meaningless the words “provision of
services ……. in the other Contracting State” in Article 12 (4) of India-
China DTAA. He submitted that though the ITAT rejected the reference
of Article 13 (5) of India-Israel DTAA by holding that the interpretation
of one treaty ought not to be based on wordings of another treaty, at the
same time it has compared the Pakistan-China DTAA with the India-
China DTAA. To put it in a nutshell, Mr. Sridharan submitted that the
definition of the words “fees for technical services” is provided in Article
12 (4) and the meaning of the term “arising” in Article 12 (6). For Article
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12(2) to attract tax thereunder, it has to be “fees for technical services”
as defined in Article 12(4), and additionally, it should arise in India
within the meaning of Article 12 (6). Both these conditions have to be
cumulatively satisfied for the concerned fee to be taxed in India under
the India-China DTAA. All these aspects have been overlooked in
Ashapura’s case by the ITAT.
23. To take the argument further that for the services to fall
within the definition of the words “fees for technical services” the same
have to be rendered and/or performed in India, Mr. Sridharan relied
upon the State Administration of Taxation (“SAT”) Circular dated 9th
December 1994 available on the website of the State Taxation
Administration of the People’s Republic of China. Mr. Sridharan
submitted that the State Administration of Taxation, China has
published this Circular on the interpretation and implementation of
certain provisions of the DTAA between the Governments of India and
China (effective from 1st January 1995). According to Mr. Sridharan, the
time, text, and tenor of the Circular dated 9 th December 1994 is
reflective of the understanding of the treaty partner, namely China. Mr.
Sridharan brought to our attention Clause IV of the said circular and
submitted that according to the Chinese counterpart, India and China
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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 16 th 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
the interpretation of Article 12(4) as contended by the Petitioner. He
submitted that this announcement categorically states that if the
services on which the technical service fees are rendered outside China
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such technical service fee would not be subject to income tax in
accordance with the relevant provisions of China. On the flip side,
naturally, it would mean that technical services rendered outside India
would not be subject to income tax in accordance with the relevant
provisions of India. Mr. Sridharan also relied upon Article 3 of the
Enterprise Income Tax Law of the People’s Republic of China to
contend that even the Chinese domestic income tax law, corresponding
to the Income Tax Act, 1961 [as it stood prior to introduction of Section
9(1)(vii) by the Finance Act, 1976], a non-resident is taxed in China only
for source in China. Hence, any interpretation of Article 12(4) of the
India-China DTAA has to bear in mind this essential background.
Therefore, the above referred announcement by the SAT recognizes that
the “technical service fee” clause in the India-China DTAA deals with the
place where the technical service fee is incurred. Further the above
circulars reflect at least the understanding of the Chinese Government
that if services are rendered outside China, then the technical service fee
would not be subjected to tax in China.
25. For all the aforesaid reasons, Mr. Sridharan submitted that
the Petitioner be granted the declaration sought in the above Petition,
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and consequently, also a “NIL withholding tax” Certificate under
Section 197 of the IT Act.
SUBMISSIONS OF THE RESPONDENTS:-
26. On the other hand, the learned ASG, as well as Mr. Thakkar
appearing on behalf of Respondent No.3, and Mr. Saxena appearing on
behalf of Respondent Nos.1 and 2, submitted that this is not a case in
which the Writ Court ought to exercise its extraordinary and
discretionary writ jurisdiction or go into the question of interpretation
of the India-China DTAA at this stage. They submitted that the admitted
factual position in this case negates the very grounds raised by the
Petitioner and hence the Petition ought to be dismissed on this basis
alone. This apart, they submitted that the Certificate issued under
Section 197 of the IT Act is a provisional Certificate and the assessment
proceedings are still to take place. Hence, this issue, if at all could 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
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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, as
stated by the Petitioner in their Note dated 1 st July 2025 in support of
their application seeking a Certificate under Section 197 of the IT Act,
clearly states that the services which will be rendered by the Petitioner
to Benteler India from China through e-mail communications,
conference calls, video conference calls etc., will not be covered within
the ambit of “fees for technical services” under Article 12(4) as they are
rendered in China and not in India. In this regard, the Respondents
placed reliance on paragraph 12 of the said Note which reads thus:-
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“12. In view of the above, services which will be
rendered by the Company to Benteler India from
China through email communications, conference
call, video conferencing, etc will not be covered
within the ambit of Article 12(4) of the tax treaty as FTS,
as they are rendered in China and not in India.”
28. According to the Respondents, looking at the facts of the
Petitioner’s case it would be clear that (a) services are being provided by
the Petitioner; (b) services are being provided to a recipient in India; (c)
services being provided to the recipient in India are for the purposes of
them being utilized by the Indian company in India; (d) the specific
nature of the services would also show that the services being rendered
are for utilization by the Indian company; (e) the service recipient (in
India) is paying monies to the Petitioner from India for the services it is
provided; and (f) rendition of the service is taking place through
interactive modes of video conferencing or conference calls or emails.
Looking at this admitted factual position, the nature and manner in
which the services are provided, as per the law prevailing in India, the
rendition of these services, even if done virtually, equates to and is the
same as a physical rendition of services in India. Hence, even assuming
for the sake of argument that the interpretation of Article 12(4) is as per
what the Petitioner submits, even then, the Petitioner is liable to pay tax
in India as the services provided by them to Benteler India would be in
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the nature of “fees for the technical services” under Article 12(4) of the
India-China DTAA. In support of the proposition that the rendition of
the services by the Petitioner, even if done virtually, equates to, and is
the same as 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
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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 the case may be, at the time of payment, and the
Assessing Officer is satisfied that the total income of the recipient
justifies the deduction of income tax at any lower rate or no deduction of
income tax, as the case may be, then he can, on an application made by
the assessee in that behalf, grant him such Certificate as may be
appropriate. It was submitted that Section 197 itself contemplates that
the CBDT can make rules specifying the cases in which and under what
circumstances an application may be made for the grant of a Certificate
under sub-section (1) of Section 197, and the conditions subject to which
such Certificate may be granted. It was submitted that pursuant to this
power, rules have been framed, and for our purposes, what would be
relevant is Rule 28AA of the Income Tax Rules, 1962. According to the
Respondents, Rule 28AA (2) itself contemplates that the estimated
liability of the assessee shall be determined by the Assessing Officer
after taking into consideration inter alia the tax payable on the assessed
or returned or the estimated income, as the case may be, of the last 4
years. Hence, the grant of Certificate by the Assessing Officer under
Section 197 would have to take into consideration the existing and
estimated tax liability of the said person. The existing and estimated tax
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liability is to be worked out by considering the parameters set out in
sub-rule (2) of Rule 28AA which includes tax payable on the assessed or
returned or estimated income, as the case may be, of last 4 previous
years as also the existing liability under the Income Tax Act, 1961 and
the Wealth Tax Act, 1957. According to the Respondents, once this is the
case, the Assessing Officer was fully justified in rejecting the Certificate
sought for by the Petitioner for “Nil withholding of tax”. This is for the
simple reason that in the previous 4 years it is an admitted position that
the fees paid by Benteler India to the Petitioner for the services
rendered by the Petitioner to Benteler India [and which are identical in
the present Assessment Year as well] were brought to tax in India. In
fact, being dissatisfied with the aforesaid action of the Income Tax
Authorities, the Petitioner has invoked the Appellate remedies, either by
approaching the CIT (Appeals), and thereafter the Tribunal, or the
Dispute Resolution Panel (DRP), and thereafter the Tribunal. The
Respondents submitted that all these pending cases are set out in the
Writ Petition itself, the details of which are as under:-
Dispute
A.Y. CIT(A) Tribunal
Resolution Panel
Against
2015-16 – Pending
Petitioner
Against
2016-17 – Pending
Petitioner
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Against
2017-18 – Pending
Petitioner
Against
2018-19 – Pending
Petitioner
Against
2019-20 – Pending
Petitioner
Against
2021-22 – Pending
Petitioner
Against
2022-23 – Pending
Petitioner
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 the Constitution of India, what the Court is
concerned with is the judicial making process, and not the correctness
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of the decision. In the facts of the present case, one can hardly find any
fault with the judicial making process, and in fact the same has not even
been put in issue by the Petitioner in the present case. The Assessing
Officer, after taking into consideration all factors, including the fact that
for the previous 4 assessment years this very income is brought to tax in
India, and the same has not been set aside by any Appellate Forum,
correctly refused to grant the “Nil withholding of tax” Certificate to the
Petitioner. Once this is the case, there is no question of the Petitioner
seeking this very relief before this Court under Article 226 of the
Constitution of India. It is submitted that if one was to decide this
matter on merits, it would have a direct bearing on the Appeals filed by
the Petitioner in the previous years, and which are pending before the
ITAT. If the Petitioner eventually succeeds before the ITAT, any tax
deducted at source for the current assessment year would be refunded
to the Petitioner with interest under the provisions of the IT Act. Hence,
it was submitted that the Writ Petition ought not to be entertained and
the same be dismissed.
33. Without prejudice to the aforesaid arguments, the
Respondents also addressed us on merits regarding the interpretation of
Article 12 (4) of the India-China DTAA. It was submitted that whilst
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Article 12, and the entire DTAA, would have to be read as a whole to
understand the true meaning and scope of the provisions thereof, only
for the sake of argument, and since the Petitioner has sought to dissect
Article 12 (4) and argue it dehors the other provisions of Article 12, this
exercise is being done. It was submitted that however, Article 12, as also
the other provisions of the India-China DTAA, should be read as a whole
and not in a piecemeal manner. The Respondents pointed out that
Article 12 (4) of the India-China DTAA defines the term “fees for the
technical services” as used in the said Article to mean any payment for
the provision of services of a 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. It was submitted
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
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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 services …… by a resident of
China in India” or “provision of services …… by a resident of India in
China”. It is submitted that the above portion of Article 12 (4) nowhere
contains any words which reflect, or even hint at the necessity of
physical presence, as urged by the Petitioner. Article 12 (4) is devoid of
any conditions on how services are provided and the words of the said
Article contain no reference to indicate physical presence only, as is
being urged by the Petitioner. There is no mention of sending personnel
as a pre-requisite anywhere in Article 12 (4). Further there is also no
pre-requisite for services to be ‘physically’ provided or rendered in
India. Article 12 (4) nowhere in its plain language seeks to restrict the
phrase “provision of services” only to the rendering of the services as
alleged by the Petitioner. The plain and common-sense meaning would
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include, inter alia, the following elements of service i.e. rendering,
receiving and utilizing. There is nothing in the plain language that
deviates from the said ordinary meaning of the phrase “provision of
services”. Further, the word “in”, simply qualifies the fact that the
services would be provided in the other Contracting State. This would be
a sine qua non in the sense that if the services were not in the other
Contracting State, the question of a bilateral DTAA coming into the
picture itself would not arise. The word “in” cannot and does not mean a
physical presence or physical rendition in India or China, as the case
may be, as is being urged by the Petitioner. No such restrictive words
nor language is found in the plain and unambiguous language of Article
12 (4). The above interpretation would be even more evident and in
complete conformity with the provisions of Article 12 (6) which inter
alia provides that “fees for technical services” shall be deemed to arise
in a Contracting State when the payer is the Government of that
Contracting State, a political sub-division, a local authority thereof or a
resident of that Contracting State. These provisions when read together
make express and explicit, the above interpretation which is even
otherwise evident on a plain reading of Article 12 (4).
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34. It was submitted that Article 12 (6) creates a deeming
fiction that “fees for technical services” shall be deemed to arise in a
Contracting State when the payer is a resident of that Contracting 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
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that a bare perusal of Article 12 in its entirety would further bear out
and lend credence and support to the submissions of the Respondents.
In this regard, it was submitted that Article 12 (1) would clarify that fees
for technical services may be taxed in the State of residence of the
recipient of the payment. This would be a case of resident-based
taxation. Article 12 (2) however clarifies that such “fees for technical
services” may also be taxed in the other Contracting State in which they
arise, albeit the rate of tax is capped at 10%. The basis for Article 12 (2)
is that since the source of the revenue is in the other Contracting State
[in this case, India], India is entitled to tax the same. The expression “in
which they arise” as used in Article 12 (2) as also the use of the word
“arise” in Article 12 (6) are critical since it relates to the place where the
“fees for technical services” arise.
36. Thereafter, our attention was drawn to Article 12 (3) and 12
(5) which deal with “royalty” and it was submitted that a bare perusal of
Article 12 (5) would evince that the DTAA, where it seeks to provide for
physical presence or a fixed base in the Contracting State, it expressly
does so. The language of Article 12 (5) as against the language of Article
12 (4) and Article 12 (6) shows the clear intent and difference in the
provisions qua “royalty” and “fees for technical services” and the
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necessity of physical presence in the former [as per Article 12 (5)], as
opposed to the lack of any such requirement in the case of the latter. In
light of the above, it is submitted that on a plain reading of Article 12 as
a whole, the submissions of the Respondents are duly borne out, and the
contentions of the Petitioner that for the services provided by the
Petitioner to Benteler India to fall within the meaning of the words “fees
for technical services” [as defined in Article 12 (4)], the same would
have to be rendered and/or performed by the Petitioner in India and not
merely from China, is without any substance.
37. According to the Respondents, in fact their interpretation
of Article 12 (4) is further borne out when one compares the provisions
of Article 12 with the other Articles of the India-China DTAA. It is
submitted that apart from the plain and clear language of Article 12,
which specifically incorporates the source based taxation principle in
relation to “fees for technical services”, a bare perusal of the DTAA
would show how 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
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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 received by Professors, Teachers, and Research Scholars, and
stipulates that an individual who is, or immediately before visiting a
Contracting State was a resident of the other Contracting State and is
present in the first mentioned Contracting State for the primary purpose
of teaching, giving lectures, or conducting research at a university,
college, school or educational institution, or a scientific research
institution approved by the Government of the first mentioned
Contracting State, shall be exempt from tax in the first mentioned
Contracting State for a period of three years from the date of his arrival
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in the first mentioned Contracting State, in respect of remuneration for
such teaching, lectures or research.
38. On the other hand, Articles 16 provides that Directors fees
and other similar payments derived by a resident of a Contracting State
in his capacity as member of the Board of Directors of a company which
is a resident of the other Contracting State may be taxed in that other
Contracting State.
39. It was therefore submitted that Articles 14 and 20 expressly
refer to presence or a person having a fixed base in a Contracting State,
whereas Articles 16 lays down no such requirement. From all these
Articles it was evident that the contracting parties have specifically
provided for a presence or fixed base as and when required. In the
absence of such a specific provision, even arguendo, the question of
reading such a non-existent requirement into Article 12(4) cannot and
would not arise. Further, even the residual Article in terms of Article 22,
and more particularly paragraph 3 thereof, provides that income of a
resident of a Contracting State may be taxed in the other Contracting
State if the income arises in the other Contracting State. This is in
conformity with the principles of Article 12 (2). Both Articles expressly
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recognize the source-based taxation principles in the event payments
are made or income is arising from the other Contracting State i.e. not
the State of residence.
40. With respect to the Petitioner’s reliance on the Circular
dated 9th December 1994 [as raised in ground D of the Petition], it was
submitted that firstly, reliance on the said circular is misplaced since
there is no proof nor foundation to establish (i) the veracity of the
circular; (ii) the accuracy of the translation of the circular; and (iii)
whether 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 1 st
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
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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 region, and municipality
directly under the Central Government, and the State Taxation Bureau
of each planned city in China. This is also borne out from the last
sentence contained in the circular, according to which, these state/local
authorities have been directed to report any problems in the
implementation of the India-China DTAA in a timely manner. It follows,
therefore, that the circular was never intended to be an understanding
reached upon between the two Competent Authorities. It was submitted
that in any event, as per the Vienna Convention on the Law of Treaties,
which constitutes customary international law, a treaty should be
interpreted in good faith and in accordance with the ordinary meaning
of the terms in light of the object and purpose of the treaty. Any
unilateral interpretative declaration by one of the Contracting Parties in
respect of the provisions of the tax treaty that purports to alter or
modify (directly or indirectly) the text, meaning, or legal effect of the
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treaty provisions, is not binding, and cannot be imposed upon the other
Contracting Party. In the present case, this is especially so given that the
contents of the circular have not been endorsed/agreed to by the Indian
tax authority, nor has the circular been notified in the Official Gazette.
There is nothing on record to even remotely suggest that China’s
understanding or view in respect of the treaty provisions, as set out in
the circular, is commonly shared by India.
42. In light of the above uncontroverted factual position, even
assuming whilst denying the said circular to be genuine, and it being an
accurate translation, the same would not be relevant nor applicable for
the purposes of interpreting the DTAA.
43. With respect to the reliance placed by the Petitioner on the
other DTAAs [as raised in ground E of the Petition], it was submitted
that the same is neither apt nor relevant. It is trite law that each DTAA is
based on political and diplomatic considerations. Hence, the language of
each DTAA would be tailored to suit the position of the two countries
involved. It is not a situation akin to a statute where one Parliament is
drafting different laws and a comparison of the words in different
statutes is being undertaken. As explained in Azadi Bachao‘s case,
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the considerations for a DTAA are political in nature. The same would
be myriad and different in different 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
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through email communications, conference calls and video conferencing
etc. This, according to the Respondents, is an undisputed factual
position. According to the Respondents since these services were being
rendered virtually through interactive modes on video conferencing or
conference calls or emails, the nature and manner in which the services
were provided, as per the law prevailing in India, even if done virtually,
equates to and is the same as a physical rendition of services in India.
45. At the outset, this argument, though at first blush appears
attractive, does not carry much substance. To give a very simple answer
to this argument is that why can it not be assumed that Benteler India
received these services in China and not in India as sought to be
contended by the Respondents. The services may have been rendered in
the presence of each other, but by merely saying that because the
services were rendered to the Indian entity virtually, would mean that
the services were physically rendered in India by the Chinese entity
would be too broad a proposition for us to accept. Without there being
any specific provision, either in law or in the DTAA, we are unable to
accept this broad proposition that because the services were rendered by
the Petitioner to Benteler India virtually, the same amounted to the said
services being rendered physically [to Benteler India] in India.
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46. We find that the reliance placed by the Respondents on the
judgments of Praful B. Desai (supra), Kishan Chand Jain
(supra), Armin R. Panthaky (supra) and Ganesh Gouri
Industries (supra) is of no assistance to the Respondents. In the case
of Praful B. Desai (supra), the question for consideration before the
Hon’ble Supreme Court was whether in a criminal trial, evidence can be
recorded by video conferencing. This Court [Bombay High Court], on an
interpretation of Section 273 of the Criminal Procedure Code, 1973 held
that it cannot be done. The Hon’ble Supreme Court, whilst holding that
this Court was incorrect, opined that there was a difference between
virtual reality and video conferencing. It stated that video conferencing
has nothing to do with virtual reality and that advances in science and
technology have now, so to say, shrunk the world. To put it in a nutshell
the Hon’ble Supreme Court held that video conferencing is an
advancement in science and technology which permits one to see, hear
and talk with someone far away with the same facility and ease as if he 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.
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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 contemplated under Section 273 of the Criminal
Procedure Code, 1973. In the facts of the present case, the services in
question can be said to have been rendered in the presence of each other
because they were rendered through video conferencing. But it is a giant
leap from there to say that the said services are physically rendered in
India because they were rendered through video conferencing. As
mentioned earlier, it could easily be construed that instead of the
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services being physically rendered in India, it was Benteler India who
went to China for the purposes of receiving the said services.
48. The next decision relied upon by the Respondents is the
decision in the case of Kishan Chand Jain (supra). In this matter,
the Petitioner invoked the jurisdiction of the Hon’ble Supreme Court
under Article 32 of the Constitution of India seeking directions for
better functioning of the State Information Commissioner under the
Right to Information Act, 2005. Whilst giving certain directions, the
Hon’ble Supreme Court opined that recent technological advancements
in terms of video conferencing must be used to promote inclusion of
people in remote areas within the fold of the justice delivery system.
Physical Courts require the litigants and parties living in remote areas to
travel long distances to appear before the Court. With increasing costs
of travel and other related expenses, video conferencing solutions
provide a cost effective and efficient alternative to the physical Courts. It
is in this light that the Hon’ble Supreme Court stated that in more than
one way, virtual Courts democratize a legal process by expanding the
courtroom area beyond the walls of the courtroom. It therefore went on
to hold that it was the constitutional duty of every adjudicatory
institution, may it be courts, tribunals, or commissions to adopt
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technological solutions such as video conferencing and make them
available to litigants and the members of the Bar on a regular and
consistent basis. We fail to see how this decision also is of any assistance
to the Respondents. All that this decision states is that it is the duty of
the every adjudicatory institution, may it be courts, tribunals or
commissions to adopt technological solutions and advancements such
as video conferencing and make them available to the litigants and the
members of the Bar so as to ensure access to justice by obviating the
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
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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 any assistance to the Respondents. It is true that technological
advancements have in fact provided Courts with viable alternatives to
live testimony, mitigating logistical and emotional challenges while
maintaining key elements of fairness. However, this does not in any way
support the case of the Respondents that because services were
rendered virtually (by the advancement of technology) the same are
deemed to have been rendered physically in India by the Petitioner.
50. The last judgment on this aspect relied upon is the decision
in Ganesh Gouri Industries (supra) of the Delhi High Court. As far
as this decision is concerned, the Respondents relied upon the
observations made in paragraph 57 thereof wherein the Delhi High
Court observed that given the advancement in technology, having a
virtual business in a jurisdiction would be akin to having a physical
presence as was also observed by another Division Bench of the Delhi
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High Court in WWE Inc. V/S Reshma Collection [(2014) SCC Online
Del (2031)]. We are afraid one cannot take one stray sentence in a
decision without first examining the context in which it was written.
Before the Delhi High Court what the Court really examined was
whether the Commercial Court was correct in dismissing the Appellant’s
application under Order 39 Rule 4 of the CPC and restraining the
Appellants from selling, soliciting, exporting, displaying, advertising
directly or indirectly, or dealing in any manner with the impugned
label/trade dress colour scheme of the impugned marks. In fact, it was
the case of the Appellant that the Commercial Suit filed in Delhi was an
attempt of forum shopping since the said Suit was inextricably linked to
the prior Suit filed in Nagpur. It was the case of the Appellants that the
Suit filed in Delhi is the second Suit between the parties in relation to
the alleged trademark infringement and the first Suit was filed in April
2018 by the Respondents alleging infringement of its trademark
“PLASTO” against the Appellant. That Suit in Nagpur was settled vide a
settlement agreement, and the Appellant was to only refrain from using
the mark PLASTO or tagline similar to that of “PLASTO HAIN TO
GUARANTEE HAIN” against Ganesh Gouri on account of their use of
the mark “AQUA PLAST”, along with the tagline “NAAM HI
GUARANTEE MAIN”. It was the case of the Appellant that having
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obtained a compromise decree from 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 rejected the application filed by the Petitioner under
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Section 197 of the IT Act for the issuance of a “NIL withholding tax”
Certificate. To examine this issue, it would first be apposite to refer to
the provisions of Section 197. Section 197 deals with the Certificate
granted by the Assessing Officer for the deduction of TDS at a lower
rate. Section 197 reads thus:-
“Certificate for deduction at lower rate.
197. (1) Subject to rules made under sub-section (2A), where, in
the case of 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 the case may be, at the time of payment at the rates in force
under the provisions of sections 192, 193, 194, 194A, 194C, 194D,
194G, 194H, 194-I, 194J, 194K, 194LA, 194LBA, 194LBB,
194LBC, 194M, 194-O, 194Q and 195, the Assessing Officer is
satisfied that the total income of the recipient justifies the
deduction of income-tax at any lower rates or no deduction of
income-tax, as the case may be, the Assessing Officer shall, on an
application made by the assessee in this behalf, give to him such
certificate as may be appropriate.
(2) Where any such certificate is given, the person responsible for
paying the income shall, until such certificate is cancelled by the
Assessing Officer, deduct income-tax at the rates specified in such
certificate or deduct no tax, as the case may be.
(2A) The Board may, having regard to the convenience of
assessees and the interests of revenue, by notification in the
Official Gazette, make rules specifying the cases in which, and the
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.”
53. As can be seen from this section, subject to the rules made
under sub-section (2A), where in the case of any income of any person,
or sum payable to any person, income-tax is required to be deducted at
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the time of credit, or at the time of payment at the rates in force under
the provisions of the sections mentioned therein, the Assessing Officer
is satisfied that the total income of the Petitioner justifies the deduction
of income-tax at any lower rate or no deduction of income-tax, as the
case may be, the Assessing Officer shall on an 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
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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 existing and
estimated tax liability of a person justifies the deduction of tax at
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.
(2) The existing and estimated liability referred to in sub-rule (1)
shall be determined by the Assessing Officer after taking into
consideration the following:-
(i) tax payable on estimated income of the previous year
relevant to the assessment year;
(ii) tax payable on the assessed or returned income, as the
case may be, of the last three previous years;
(iii) existing liability under the Income-tax Act, 1961 and
Wealth-tax Act, 1957;
(iv) advance tax payment for the assessment year relevant
to the previous year till the date of making application
under sub-rule (1) of rule 28;
(v) tax deducted at source for the assessment year relevant
to the previous year till the date of making application
under sub-rule (1) of rule 28;
and
(vi) tax collected at source for the assessment year relevant
to the previous year till the date of making application
under sub-rule (1) of rule 28.
(3) 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
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period.
(4) The certificate shall be valid only with regard to the person
responsible for deducting the tax and named therein.
(5) The certificate shall be issued direct to the person responsible
for deducting the tax under advice to the person who made an
application for issue of such certificate.”
(b) in rule 31A, in sub-rule (4), after clause (iv), the following
clauses shall be inserted, namely:-
“(v) furnish particulars of amount paid or credited on which tax
was not deducted in view of the issue of certificate of no deduction
of tax under section 197 by the Assessing Officer of the payee;
(vi) furnish particulars of amount paid or credited on which tax
was not deducted in view of the compliance of provisions of sub-
section (6) of section 194C by the payee.”
56. Sub-rule (1) of Rule 28AA clearly stipulates that where the
Assessing Officer, 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
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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 to the Petitioner. We find that in the
present factual scenario, the action of the Assessing Officer was fully
justified. We say this for the simple reason that in the facts of the
present case, for the previous assessment years also, it was the case of
the Petitioner that by virtue of the provisions of India-China DTAA and
more particularly Article 12(4) thereof, the Petitioner was not liable to
pay any tax in India. This contention of the Petitioner was negated
originally by the Assessing Officer as well as CIT (Appeals) or the DRP,
and which issue is now pending before the ITAT. These details have
been set out in the Writ Petition itself, and for the sake of convenience
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are reproduced hereunder:-
Dispute
A.Y. CIT(A) Tribunal
Resolution Panel
Against
2015-16 – Pending
Petitioner
Against
2016-17 – Pending
Petitioner
Against
2017-18 – Pending
Petitioner
Against
2018-19 – Pending
Petitioner
Against
2019-20 – Pending
Petitioner
Against
2021-22 – Pending
Petitioner
Against
2022-23 – Pending
Petitioner
2023-24 – Pending –
60. In the present case, the Certificate applied for under
Section 197 by the Petitioner was explicitly on the basis that it is not
liable to pay any tax in India. Once this issue is already pending before
the Tribunal and authorities higher than the Assessing Officer have
already taken the view that the Petitioner is liable to tax in India, and
findings of those higher authorities have not been set aside and are
holding the field even today, we are clearly of the view that the Assessing
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Officer could not have issued any Certificate under Section 197 to the
Petitioner, granting him a “NIL withholding tax” Certificate. In fact, if
the Assessing Officer were to do so, he would be holding directly
contrary to what authorities higher to him have already decided against
the Petitioner.
61. In the facts of the present case, assessments have already
been made in the Petitioner’s own case for previous assessment years,
holding them liable to pay tax in India. The challenge to those
assessments is still pending before the ITAT. They have not yet been set
aside. Therefore, in our considered view, the Assessing Officer correctly
rejected the application filed by the Petitioner seeking a “NIL
withholding tax” Certificate.
62. Mr. Sridharan, 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
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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 years.
64. In fact, when one peruses Rule 28AA, the same itself
contemplates that the existing and estimated liability referred to in Rule
28AA(1) shall be determined by the Assessing Officer after taking into
consideration, inter alia, the tax payable on the assessed or returned
income, as the case may be, for the last previous three years. In the
Petitioner’s own case, in the last three previous years, the authorities
concerned, namely either CIT (Appeals) or Dispute Resolution Panel
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(DRP) (both authorities being higher than the Assessing Officer), have
already ruled at least in the three previous years, that payments made by
Benteler India to the Petitioner for the services rendered by it to
Benteler India, would be taxable in India. This is certainly one of the
factors, and in our view, the most important factor to be taken into
consideration before any Certificate is issued by the Assessing Officer
under Section 197(1) of the IT Act.
65. All and all, we find that the impugned order dated 1st
August 2025 passed by the Assessing Officer rejecting the application of
the Petitioner for “NIL withholding tax” Certificate is unexceptionable
and hence calls for no interference under Article 226 of the Constitution
of India.
66. This now only leaves us to deal with the declaration sought
by the Petitioner that the consideration received/receivable by the
Petitioner from Benteler India pursuant to the service agreement
(Exhibit ‘B’ to the Petition) is not taxable in India. Though we have
noted elaborate arguments of both parties on this aspect of the matter,
especially on the interpretation of the India-China DTAA, we are of the
view that in the facts of the present case, it would not be prudent to give
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any findings on the aforesaid issue.
67. We say this for the simple reason that this very issue is
already pending in the Petitioner’s own case for the previous assessment
years before the ITAT. Even in the matters before the ITAT, it is the case
of the Petitioner that it is not liable to pay any tax in India because of
the provisions of the India-China DTAA and has sought refunds of the
tax deducted at source by Benteler India in those respective assessment
years. Since this issue is live and pending before the ITAT, we do not
think that this is a fit case where we should exercise our jurisdiction
under Article 226 of the Constitution of India, nor should we give any
declaration one way or the other, whether the Petitioner is liable to tax
in India or otherwise. Any declaration given by us on this issue would
directly impact the appeals filed by the Petitioner for the previous
assessment years, which are pending before the ITAT.
68. All the arguments that have been canvassed before us by
the Petitioner as well as the Respondents in relation to the
interpretation of the India-China DTAA can be canvassed by the
respective parties before the ITAT, who shall, we are sure, after hearing
the parties, give their findings thereon. In these circumstances, we
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decline to enter upon this dispute between the parties and leave it to the
ITAT to decide the aforesaid issue in the pending appeals of the
Petitioner.
69. In view of the foregoing discussion, Rule is discharged and
the Writ Petition is also disposed of. However, in the facts and
circumstances of the case, there shall be no order as to costs.
70. This order will be digitally signed by the Private Secretary/
Personal Assistant of this Court. All concerned will act on production by
fax or email of a digitally signed copy of this order.
[AMIT S. JAMSANDEKAR, J.] [B. P. COLABAWALLA, J.]
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