Virtual Services Treated As Rendered In India: Bombay High Court Denies NIL TDS Certificate To China-Based Entity

The Bombay High Court has refused to grant a nil withholding tax certificate under Section 197 to a China-based company, holding that services delivered through emails and video conferencing can be treated as rendered in India, while also declining to interfere as the core tax dispute is pending before appellate authorities.

A bench of Justices B. P. Colabawalla and Amit S. Jamsandekar observed that “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."

The court also cautioned that deciding the issue finally at this stage “would have a direct impact” on proceedings already pending before appellate forums.

The case concerned Benteler Automotive (China) Investment Ltd, which provides managerial and technical support services to its Indian subsidiary. The company said all services were performed in China and no employees visited India. It argued that under the India-China tax treaty, such income is not taxable in India because the services were not rendered within the country.

It also sought a certificate to allow payments without tax deduction and a refund of tax already deducted. The tax department rejected this request, pointing out that similar income had been taxed in earlier years and those assessments are still under challenge.

The company argued that the treaty requires services to be performed in India to be taxed here and that remote delivery from China falls outside this scope.

It said the treaty provisions, being more beneficial than domestic law, should prevail. The Revenue countered that the services were provided to an Indian entity, used in India, and delivered through continuous virtual interaction. It argued that such delivery is equivalent to physical rendition in India. It also stressed that since identical income had been taxed in earlier years and those findings continue to hold in the field, a nil withholding certificate cannot be granted.

The court agreed with the Revenue's approach. It held that virtual delivery does not take the services outside India when they are provided to and used by an Indian entity. It further noted that the power to grant a nil withholding certificate depends on the existing tax position of the assessee.

Since the same issue has been decided against the company in earlier years and remains pending in appeal, granting such a certificate would run contrary to those findings, the court observed. 

For Petitioner: Senior Advocate Sridharan, 

For Revenue: A.K. Saxena, ASG Anil Singh