Benteler Automotive (China) Investment Limited, a tax resident of China and the Asia-Pacific headquarters of the Benteler Group, had an arrangement with its Indian subsidiary, Benteler India Pvt. Ltd. Under this agreement, the Chinese entity provided management support, IT services, and technical assistance remotely without sending any employees to India.

Payments were made on a cost-plus 5% basis, and the Indian company deducted TDS at 10%. The company applied for a NIL withholding certificate under Section 197 of the Income-tax Act, arguing that these receipts should not be taxed in India under the India-China DTAA. However, the tax authorities rejected the application. Importantly, the same taxability issue had already arisen in earlier years and was pending before appellate authorities. Challenging this rejection, the petitioner approached the Bombay High Court.

Central Issue: Whether services rendered entirely from China can be treated as “fees for technical services” under Article 12(4) of the India-China DTAA, and whether a NIL withholding certificate should be granted when the same issue is already under appeal.

HC’s Decision: The Court refused to interfere with the tax authorities’ decision. It was observed that since the core issue of taxability was already under dispute for earlier years, granting a NIL certificate at this stage would effectively pre-judge the matter. The Court emphasised that the Assessing Officer acted reasonably in exercising caution, given the ongoing appellate proceedings. Although the petitioner argued that services performed outside India should not be taxable in India, the Court chose not to rule on this question at this stage. Accordingly, the writ petition was dismissed, and the rejection of the NIL withholding certificate was upheld.