Rejection of nil TDS certificate under Section 197 upheld as Rule 28AA mandates considering prior years assessments taxing similar FTS income, pending appeal; writ court declines DTAA interpretation sub-judice before ITAT.

JUDGMENT :

B.P. COLABAWALLA, J. 

1. Rule. Respondents waive service. With the consent of parties, Rule made returnable forthwith and heard finally.

2. By this Petition, filed under Article 226 of the Constitution of India, the Petitioner seeks a declaration that the consideration received/receivable by the Petitioner from its Indian subsidiary, Benteler India Private Limited (for short “Benteler India”) pursuant to the Service Agreement entered into between them (Exhibit “B” to the Petition), is not taxable in India. Consequently, a relief is also sought to quash and set aside the impugned order dated 1^st August 2025 passed by Respondent No.1 rejecting the Petitioner’s application for “NIL withholding tax” Certificate and for a direction to the Respondents to issue a “NIL deduction of tax at source” Certificate under Section 197 of the Income Tax Act, 1961 (for short “the IT Act”) as prayed for by the Petitioner in its application dated 1^st July 2025. The Petitioner also seeks a declaration and/or a direction to the Income Tax Authorities to grant a refund to the Petitioner of the amount of tax deducted at source (TDS) by Benteler India pursuant to the above-mentioned Service Agreement.

3. To put it in a nutshell, it is the Petitioner’s case that it is a company incorporated under the laws of China and a resident of China. Under the Service Agreement (Exhibit “B” to Petition) entered into by the Petitioner with Benteler India (its subsidiary), the Petitioner supplies technical services to Benteler India. It is conceded before us that any payment made by Benteler India to the Petitioner [for the supply of technical services] would be taxed in India under the provisions of the IT Act, and more particularly Section 9(1)(vii) thereof. However, since India and China have entered into a Double Taxation Avoidance Agreement [for short the “DTAA”], taxation of the Petitioner would be governed by the provisions of the India-China DTAA as they are more beneficial to the Petitioner [Section 90 of the IT Act]. According to the Petitioner, it has no “Permanent Establishment” (for short “PE”) in India [as understood in Article 5 of the DTAA], and hence, is not liable to pay any tax in India under Article 7 thereof, for the technical services provided by it to Benteler India. The only other provision under which the Petitioner can be brought to tax in India is Article 12 of the DTAA. According to the Petitioner, even under this Article, the Petitioner cannot be taxed in India because the technical services provided by the Petitioner to Benteler India do not fall within the definition of the words “fees for technical services” (for short also referred to as “FTS”), as understood under Article 12 (4) of the India-China DTAA. According to the Petitioner, though it rendered “technical services” to its subsidiary located in India, namely Benteler India, the wordings of Article 12 (4) clearly indicate that for the services provided by the Petitioner to Benteler India to fall within the meaning of the words “fees for technical services” [as defined in Article 12 (4)], the same would have to be rendered and/or performed by the Petitioner in India and not merely from China. According to the Petitioner, if t