The main legal point established is that the concerned officer must consider the nature of rights conferred under agreements and apply relevant legal provisions and judicial precedents when deciding on lower withholding tax certificates.

JUDGMENT

[Physical Hearing/Hybrid Hearing (as per request)]

Rajiv Shakdher, J. (Oral)

Preface:

1. This writ petition is directed against the lower withholding tax certificate dated 03.12.2021, and the undated order which is marked as Annexure-I and appended on page 278 of the case file. The said order, according to the petitioner, was received on 11.02.2022. To be noted, the Financial Year (FY) in issue is FY 2021-2022.

2. The record shows, that the petitioner had filed an application under Section 197 of the Income Tax Act, 1961 [in short, "the Act"] for being granted lower withholding tax certificate. The petitioner had sought a certificate, at "NIL" rate of tax.

3. The impugned certificate, however, pegs the rate of tax at 9.99%. Quite obviously, the petitioner's prayer has been rejected. The reasons for rejecting the prayer made in the petitioner's application are contained in the order dated 19.05.2021.

Broad facts:

4. The petitioner is a non-resident company, incorporated under the laws of Denmark. The petitioner, admittedly, has been issued a tax residency certificate by the concerned authorities in Denmark.

4.1. It is the petitioner's case, that it is in the business of providing IP Video Management Software [hereafter referred to as "Software"] and other video surveillance related products to entities and persons across the globe. Insofar as India is concerned, the petitioner claims, that it has entered into a Distributor Partner Agreement [hereafter referred to as "Distributor Agreement"] with various companies/entities for sale of its Software.

4.2. It is the petitioner's case, that the Distributor Agreement does not confer any right of use of copyright on its partners or the end user. The petitioner claims, that all that the distributor partner acquires under the Distributor Agreement is a license to the copyrighted Software. It is, therefore, the petitioner's case, that this aspect of the matter has been considered in great detail by the Supreme Court in the judgment rendered in Engineering Analysis Center of Excellence Pvt. Ltd. v. Commissioner of Income Tax & Anr, 2021 SCC OnLine SC 159.

5. Mr Shashwat Bajpai, who appears on behalf of the petitioner, says that the concerned officer, in passing the impugned order dated 19.05.2021, has side stepped a vital issue i.e., whether or not the consideration received by the petitioner against the sale of software constituted royalty within the meaning of Section 9(1)(vi) and/or Article 13(3) of the Double Taxation Avoidance Agreement (DTAA) entered into between India and Denmark.

6. Mr Sanjay Kumar, senior standing counsel, who appears on behalf of the respondent/revenue, vociferously opposes the relief claimed by the petitioner.

6.1. It is Mr Kumar's contention, that while examining an application preferred under Section 197 of the Act, the concerned officer is not carrying out an assessment, and therefore, the parameters which apply for assessing taxable income would not get triggered, while rendering a decision qua an application filed under the aforementioned provision.

6.2. It is also Mr Kumar's contention, that under the provisions of Section 195, deduction of withholding tax is the rule, and issuance of a lower withholding tax certificate under Section 197 of the Act is an exception.

7. It is, therefore, Mr Kumar's contention, that the rate of withholding tax indicated in the impugned certificate ought to be sustained.

Reasons:

8. We have heard the learned counsel for the parties, and examined the record. In our view, the impugned order does not deal with the core issue which arose for consideration, and was the basis on which the application had been preferred by the petitioner under Section 197 of the Act.

9. As noted hereinabove, it is the petitioner's case, that the Software sold by it to its distributor partners under the Distributor Agreement does not confer, either on the distributor partner or the reseller, the right to make use of the original copyrigh