The Delhi High Court on Tuesday directed the taxmen to shun their “fetching extra revenue” approach and instead adopt a “pragmatic and justice-oriented approach,” as the former amounts to contradicting India’s stated goal of enhancing the ease of doing business.
A bench comprising Justices Dinesh Mehta and Vinod Kumar said tax authorities should decide cases involving overseas companies seeking tax relief in accordance with the law, instead of being guided by the prospects of revenue generation.
These cases pertain to foreign companies seeking a certificate for lower or nil deduction of tax deducted at source (TDS) , under Section 197 of the Income Tax Act.
The certificate by the department enables a company to receive payments (like interest, royalties, fees) with TDS deducted at a reduced or nil rate, preventing over-deduction where actual tax liability is lower.
“Such an approach of the authorities hit at the very root of the business environment and the very idea of providing ease of doing business. Such orders restrict, rather constrict free flow of trade within the country so also encourages foreign entities from doing business in India. It also creates an environment unconducive to trade & industry and in turn hinders the economic growth of the country.” the court said.
‘Walk the Talk’
“Ease of doing business cannot be confined to slogans and government policies; it has to percolate down in executive actions and quasi-judicial orders.”
Passing similar orders year after year portrays an unhealthy and unwelcoming picture of the country’s bureaucracy on the one hand and gives pseudo satisfaction to the Revenue on the other. Because in any case on furnishing the return, such amount which has a nature of advance tax, has to be refunded with interest in case the transactions are not exigible to tax,” the judgement stated.
The Act of 1961 provides enough power to bring the payment made to foreign companies to tax-net, if such payments lead to generating income eligible for tax under the Act, it added.
The observations came in the case, SFDC Ireland vs Commissioner of Income Tax International Taxation, where the court set aside the decision of the Assistant/Deputy Commissioner of Income Tax, (International Taxation), asking salesforce.com India, the payer/reseller of SFDC Ireland, to deduct tax at the rate of 10% on the amount to be paid to the latter. The court said the department shall issue a certificate to SFDC Ireland for nil tax not only for the assessment year 2026-27 (April-March), but also for subsequent years.
Senior counsel who’s representing SFDC, said neither the company had any permanent establishment in India under the India-Ireland Double Taxation Avoidance Agreement, nor any amount paid to it was taxable under the Act of 1961.
Source from: https://economictimes.indiatimes.com/news/india/dont-go-for-extra-revenue-be-pragmatic-hc-to-taxman/articleshow/126853928.cms?from=mdr
