Facts of the Case

  • The petitioner, Google Asia Pacific Pte Ltd, entered into a Google Cloud Services Reseller Agreement with Google Cloud India Pvt. Ltd.
  • The Income Tax Department issued a certificate directing 10% TDS deduction on payments made to the petitioner.
  • The petitioner had already been subjected to Equalisation Levy @ 2% on the same transactions.
  • The petitioner argued that such deduction leads to double taxation.
  • An interim request was made to allow payments with reduced withholding.

Issues Involved

  1. Whether TDS under Section 195 at 10% can be imposed when Equalisation Levy is already applicable.
  2. Whether surcharge and cess are applicable over DTAA-prescribed withholding tax rates.
  3. Whether reduced withholding can be permitted as an interim arrangement.

Petitioner’s Arguments

  • Imposition of 10% TDS along with 2% Equalisation Levy results in double taxation.
  • Under DTAA, the 10% withholding rate is inclusive of surcharge and cess, and no additional levy is permissible.
  • Relied on precedent:
    • Epcos Electronic Components S.A. v. UOI (2020)
  • Proposed an interim solution of 8% withholding, considering 2% EL already paid.
  • Argued that excess computation by the department was incorrect.

Respondent’s Arguments

  • The Assessing Officer proposed that instead of 8% deduction, a fixed deposit amount (₹98.69 crores) should be directed.
  • Asserted that withholding should align with Section 115A read with DTAA provisions.

Court’s Findings / Order

  • The Court acknowledged that:
    • DTAA rate of 10% includes surcharge and cess.
    • No additional levy can be imposed beyond this rate.
  • Considering the circumstances, the Court ordered:
    • Interim relief allowing payments subject to 8% TDS deduction.
    • Such deduction shall not be treated as non-compliance under Section 201.
  • The arrangement was made purely as an interim measure pending final adjudication.

Important Clarifications

  • DTAA tax rates are inclusive of surcharge and cess.
  • Equalisation Levy and TDS interplay may lead to double taxation concerns, requiring judicial intervention.
  • Interim arrangements can be granted to balance revenue protection and taxpayer hardship.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:440-DB/MMH03022022CW2152022_224803.pdf

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