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Delhi Tribunal upholds eligibility of the India-Singapore treaty benefits
In the facts of the case, Taxpayer [1] , an Indian Company (ICo), entered into an agreement with a US company (USCo), for resale of cloud services to USCo’s customers, on a principal-to-principal basis. In this regard, ICo made payments to USCo for the purchase of web services for onward resale. USCo discharged equalization levy (EL) at 2% on the gross consideration received from ICo on the basis that the contract was in the nature of online provision of services.
In this backdrop, ICo approached the tax authority for a certificate permitting NIL withholding of tax in respect of the reseller fee paid to USCo. The tax authority denied such certificate on the basis that USCo had a permanent establishment (PE) in India and hence the EL provisions would not be applicable[2] and determined the profits attributable to the Indian PE at 40% of the gross reseller fee paid by ICo and applied the applicable tax rate of 40% - leading to an effective withholding tax rate of 16% on the gross reseller fee.
Aggrieved, the Taxpayer filed a writ petition before the Delhi High Court (HC). The HC held that the issue of whether USCo has a PE in India is already under dispute in USCo’s case and remanded the matter back to the tax authority for fresh consideration.
Further, considering the fact that:
(i)a significant period had already been elapsed
(ii)the issues to be examined under remand were contentious, wherein the examination by the tax authority would take time
(iii)the instant case only pertained to withholding of tax and not final determination of income
the HC followed its own earlier interim order in case of Google Asia Pacific Pte Ltd.[3] and directed ICo to withhold tax at a total of 10% as reduced by 2% EL that had already been paid by USCo.
[1] Amazon Web Services India (P.) Ltd. [2023] 154 taxmann.com 230 (Delhi)[31 August 2023] [2] Section 165A(2)(i) of Finance Act 2016 [3] [TS-57-HC-2022(DEL)] interim order dated 14 September 2022