JUDGMENT

V. KAMESWAR RAO, J.

1. This petition has been filed seeking to set aside a certificate issued under Section 197 of the Income Tax Act, 1961 (the Act) dated 06.05.2025 along with an order dated 07.05.2025 read with continuation order dated 16.05.2025, dismissing the petitioner’s application for issuance of ‘Nil Withholding Certificate’ for prospective payments amounting to Rs.13,19,12,77,703/-.

2. The petitioner is a company incorporated under the laws of the United State of America (USA) and a non-resident entity, in the business of providing software-based IT solutions and resells its software along with ancillary services to clients in (End-User)India.

3. The respondent is the Deputy Commissioner of Income Tax (DCIT) who has issued the certificate dated 06.05.2025 and passed the order dated 07.05.2025 read with continuation order dated 16.05.2025 under Section 197 of the Act.

ISSUE INVOLVED

4. The petitioner stated that it filed an application for ‘Nil Withholding Certificate’ before the Assessing Officer (AO), Circle International Tax 3(1)(1) DEL, who rejected the application vide the impugned order dated 07.05.2025 by relying upon the assessment orders of preceding years i.e. Assessment Years (AYs) 2021-22 and 2022-23.

5. The issue agitated before this Court is that the assessment orders for AYs 2021-22 and 2022-23 have been set aside by the Income Tax Appellate Tribunal, Delhi Bench D, New Delhi (ITAT) by order dated 18.06.2025. As such the impugned orders/certificate are liable to be set aside, as the assessment orders for AY 2021-22 and AY 2022-23 is the sole basis for the AO to reject the application of the petitioner for ‘Nil Withholding Certificate’.

ACTUAL CONTEXT

6. The petitioner is providing software/solution/products to its clients /customers in India for the last several years. Prior to AY 2021-22, the petitioner has been paying income tax on its receipts from software solution / services in India as ‘Royalty’ under Article 12 of the India-USA Double Taxation Avoidance Agreement (DTAA).

7. Pursuant to the decision of the Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd. v. Commissioner of Income-tax, [2021] 125 taxmann.com 42 (SC) which differentiated the transfer of right to use a copy-righted software and the transfer of right to use a copy of a copy-righted software and that, transfer of copy of a copy-righted software such (resale/EULA software) is not eligible to be taxed as ‘Royalty’, the petitioner changed its tax position on income from software solutions/services. Thereafter, for the AY 2021-22 and 2022-23, the petitioner claimed a refund of Tax Deducted at Source (TDS) that was deposited as royalty income in its return of income. Consequently, a scrutiny assessment was initiated and a final assessment order was passed under Section 143(3) read with Section 144(C) (13) of the Act wherein, the respondent held that the petitioner has a Dependent Agent Permanent Establishment (DAPE) in India through its Indian subsidiary.

8. Thereafter, the petitioner filed an application dated 28.03.2025 for the FY 2025-26 (AY 2026-27) with regard to 24 transactions that the petitioner proposes to enter under Section 197 of the Act for ‘Nil Withholding Certificate’, seeking income from software services / solutions, as software sold under agreement does not come under the definition of ‘Royalty’ in view of the findings of the Supreme Court in Engineering Analysis Centre of Excellence (supra).

9. According to the petitioner, at the time of filing of the application under Section 197 of the Act, the assessment orders for both AY 2021-22 and AY 2022-23 were appealed before the ITAT and a stay for both the years was operational. In the meanwhile, on 06.05.2025, the respondent, without seeking any further queries or questions from the petitioner, issued the impugned certificate directing that, for 24 transactions, the withholding tax/TDS be deducted at 8.75%. On 07.05.2025, the respondent issued a