The Bombay High Court has declined to adjudicate a significant international taxation dispute involving the interpretation of the India–China Double Taxation Avoidance Agreement (DTAA), holding that it would be inappropriate to decide the issue while identical questions are already pending before the Income Tax Appellate Tribunal (ITAT). 

The bench of Justice B.P. Colabawalla and Justice Amit S. Jamsandekar refused to grant a Chinese company a declaration that the consideration received from its Indian subsidiary was not taxable in India and dismissed its challenge to the rejection of a NIL withholding tax certificate under Section 197 of the Income Tax Act. 

The appellant/assessee is a tax resident of China and part of the Austria-based Benteler Group, provides management, finance, human resources, IT, quality management, treasury, taxation, legal and other technical support services to its Indian subsidiary, Benteler India Private Limited.

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The services are rendered entirely from China through personnel stationed there. According to the company, none of its employees travel to India for rendering these services. Benteler India pays service fees on a cost-plus 5% basis after deducting tax at source (TDS) at 10% under Section 195 of the Income Tax Act. 

For Assessment Year 2026-27, the company sought a certificate under Section 197 permitting payments without deduction of tax at source. The Assessing Officer rejected the request on 1 August 2025, prompting the writ petition before the High Court. 

The dispute centred on the interpretation of Article 12(4) of the India–China DTAA governing “Fees for Technical Services” (FTS).

The Chinese company argued that although its services qualify as technical services under the domestic Income Tax Act, the DTAA provides more beneficial treatment under Section 90 of the Act. According to the company, Article 12(4) taxes FTS only where the services are rendered or performed in India. Since all services were admittedly performed from China and it had no Permanent Establishment (PE) in India, the receipts were claimed to be outside India’s taxing rights under the treaty. 

The petitioner therefore sought a declaration that its receipts were not taxable in India, quashing of the rejection of its NIL withholding certificate and refund of tax deducted by the Indian subsidiary. 

The Income Tax Department strongly opposed the petition.

The Revenue argued that the services, though delivered remotely through emails, conference calls and video conferencing, were effectively rendered in India because they were utilized by the Indian subsidiary. It relied on judicial precedents recognising virtual participation as equivalent to physical presence in appropriate legal contexts.

The Department also pointed out that identical receipts had already been held taxable in several earlier assessment years. Appeals against those assessments were still pending before appellate authorities, including the ITAT. Therefore, granting a NIL withholding certificate would be inconsistent with existing assessments and contrary to Rule 28AA of the Income Tax Rules, which requires consideration of tax liability determined in previous years while issuing certificates under Section 197. 

The Court noted that this was not the company’s first attempt to obtain NIL withholding certificates.

Applications for earlier assessment years had also been rejected. Previous writ petitions challenging those rejections were withdrawn after the relevant financial years ended, rendering the matters infructuous. Meanwhile, the substantive taxability issue has remained pending before appellate authorities since Assessment Year 2015-16, with several appeals awaiting adjudication before the ITAT. 

Without expressing any opinion on the correctness of either party’s interpretation of the India–China DTAA, the High Court held that deciding the treaty question in writ jurisdiction would directly affect pending appellate proceedings involving the same assessee and the same issue.

The Bench observed that the controversy regarding taxability under the DTAA is already “live” before the ITAT for earlier assessment years. Since the Tribunal is seized of the matter, it would be inappropriate for the High Court to issue any declaration that could prejudice or influence those pending appeals. 

The Court further observed that all arguments concerning the interpretation of Article 12(4) and the India–China DTAA remain open to be advanced before the Tribunal, which would independently determine the controversy after hearing both parties. 

The court declined to grant the declaration sought by the petitioner, refused to interfere with the rejection of the NIL withholding tax certificate, discharged the rule and disposed of the writ petition without any order as to costs. 

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