Facts of the Case

The petitioner, Coursera Inc., filed a writ petition challenging:

  • Order dated 27.09.2021, and
  • Certificate dated 23.09.2021

issued under Section 197(1) rejecting its request for NIL TDS deduction for FY 2021–22.

The petitioner operates as an e-learning platform aggregator, facilitating access to educational courses offered by institutions. Upon course completion, certificates are issued by the respective institutions.

The Assessing Officer (AO) directed withholding tax at 10%, despite earlier observations suggesting a lower rate.

Issues Involved

  1. Whether the petitioner was entitled to a NIL TDS certificate under Section 197.
  2. Whether receipts of the petitioner are taxable in India as:
    • Royalty, or
    • Fees for Included Services (FIS).
  3. Applicability of Section 10(50) post Finance Act 2021 amendment.
  4. Interplay between:
    • Equalisation Levy, and
    • TDS provisions under Section 195.
  5. Whether the impugned order suffered from lack of reasoning and arbitrariness.

Petitioner’s Arguments

  • The petitioner is a tax resident of the USA with no Permanent Establishment (PE) in India.
  • Its income constitutes business profits, not taxable in India under DTAA.
  • Receipts cannot be classified as:
    • Royalty (no copyright transfer), or
    • FIS (no technical/consultancy service).
  • It merely acts as an aggregator platform, not a service provider in technical terms.
  • Already paying Equalisation Levy @2%, hence further TDS is unjustified.
  • The impugned order is arbitrary and non-speaking, lacking reasoning.

Respondent’s Arguments

  • After amendment to Section 10(50) (effective 01.04.2021):
    • Apportionment of income is required.
  • Portion of receipts classified as:
    • Royalty / FTS → taxable under Income Tax Act + DTAA
    • Remaining → subject to Equalisation Levy
  • Therefore, TDS under Section 195 applies to taxable components.

Court’s Findings / Observations

  • The impugned order initially noted that:
    • Receipts are not taxable as royalty/FTS, yet
    • Suggested TDS @4%, but ultimately imposed 10% without justification.
  • No reasoning provided for:
    • Final TDS rate determination
    • Applicability of DTAA provisions
  • The order failed to consider:
    • Amendment to Section 10(50)
    • Proper distinction between:
      • Income subject to Equalisation Levy, and
      • Income subject to TDS
  • Lack of analysis regarding:
    • Petitioner's claim under Article 12 of DTAA
    • Whether petitioner qualifies under any DTAA exemptions

Court Order

  • The impugned order dated 27.09.2021 was set aside.
  • Matter remanded to the Assessing Officer with directions to:
    • Pass a fresh (de novo) reasoned order
    • Consider Section 10(50) amendment
    • Exclude income subject to Equalisation Levy from TDS applicability
    • Provide opportunity of hearing
  • Timeline: Within 4 weeks

Important Clarifications

  • Court did not decide merits of taxability.
  • All contentions of both parties remain open.
  • AO must conduct a reasoned and detailed analysis.

Sections Involved

  • Section 197(1), Income Tax Act, 1961
  • Section 195, Income Tax Act, 1961
  • Section 10(50), Income Tax Act, 1961 (as amended by Finance Act, 2021)
  • Article 12, India–USA Double Taxation Avoidance Agreement (DTAA)
  • Equalisation Levy (Finance Act, 2016 & 2020 amendments)

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:4345-DB/MMH22122021CW147142021_192904.pdf

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