Delhi High Court Directs 2% Withholding Tax Certificate For US Software Firm DocuSign
Kapil Dhyani
3 March 2026 9:44 AM IST
The Delhi High Court has directed the Income Tax Department to issue a withholding tax certificate at the rate of 2% in favour of a US-based software company, after finding that the transactions prima-facie look to be not exigible to tax.
A division bench of Justices Dinesh Mehta and Vinod Kumar passed the order while hearing DocuSign's writ petition challenging a certificate issued under Section 197 of the Income Tax Act, 1961.
DocuSign provides electronic signature and digital transaction management services to customers in India.
For the relevant financial year, the company applied for a lower withholding certificate under Section 197, contending that the payments received were not taxable in India as royalty or fees for included services as per the India-USA Double Taxation Avoidance Agreement , particularly in light of the Supreme Court's ruling in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT (2022).
The Department on the other hand contended none of the Authorities has so far examined the nature of transactions carried out by the petitioner and unless the transactions carried out by the petitioner are examined in requisite detail, it cannot be said with certitude that the same are not taxable under the Act of 1961 read with the India-US treaty.
On going through the impugned order however, the High Court was of the opinion that the Competent Authority had not given any sustainable reason.
“He was required to dilate upon the nature of transaction and record his prima-facie opinion and also deal with petitioner's contention and the judgments relied upon,” the Court said.
Nevertheless, noting that almost 85% of the period is already over and the payments made to the petitioner have been subjected to 4% tax, the Court directed a certificate of deduction at 2% “so that the concern of the Revenue that the petitioner can be subjected to scrutiny assessment can be addressed and some respite can be given to the petitioner as a substantial amount is otherwise being withheld by the respondents.”
The petition was therefore partly allowed.
For Petitioner: Senior Advocate Ajay Vohra, with Dr. Shashwat Bajpai & Advocate Mayank Chaturvedi
For Respondent: Puneet Rai, SSC