Aecom Technical Services Inc. Vs ITO (Delhi High Court)
Delhi High Court held that payment of cross-cost charges doesn’t construed as royalties within scope of Article 12(3) of the India-US DTAA hence order rejecting application for NIL withholding tax set aside. AO directed to issue necessary certificate.
Facts- The petitioner has filed the present petition, inter alia, impugning an order dated 26.07.2024 [impugned order] passed by the Assessing Officer [AO] under Section 197 of the Income Tax Act, 1961 [Act], whereby the petitioner’s application for ‘NIL’ withholding tax, was rejected. However, the AO had held that the deductors are authorised to withhold tax at the rate of 15% (including surcharge and cess) on the payment of ₹114,90,00,000/-.
Conclusion- We do not consider it necessary to examine the question whether the costs cross charged by the petitioner to its AEs, AIPL and AIGSPL, in terms of the respective agreements constitute FTS under Section 9(1)(vii) of the Act. This is because it is apparent that the said charges do not fall within the definition of FIS, as set out in paragraph no.4 of the Article 12 of the India-US DTAA.
Held that the AO also observed that part of the charges was taxable as royalties. The said information was premised on the basis that the petitioner centrally procured software / tools for joint use by its AE. The AO reasoned that cross charges would thus, be the reimbursement of the actual cost of such software / tools and, therefore, taxed as royalty. Given the fact that AIPL and AIGSPL did not acquire any copyright in the software, the cross charges paid by them could not be construed as royalties within the scope of Article 12(3) of the India-US DTAA. Thus, the impugned order is not sustainable and therefore, is, set aside. We, accordingly, direct the AO to issue the necessary certificate or ‘NIL’ withholding Tax Certificate in respect of the cross-cost charges as received by the petitioner from AIPL and AIGSPL.
