Zscaler Inc. Vs DCIT (Delhi High Court)
Section 197 Certificate Can’t Survive Once DAPE Finding Is Set Aside: Delhi HC Quashes 8.75% TDS on Zscaler
Delhi High Court, in Zscaler Inc. vs DCIT (W.P.(C) No. 10556/2025, judgment dated 23.12.2025), set aside the certificate and orders issued u/s 197 directing deduction of tax at 8.75% on payments aggregating to ₹1,319 crore for FY 2025-26. The Assessing Officer had rejected the application for Nil/Lower Withholding Certificate solely on the basis of assessment orders for AYs 2021-22 and 2022-23, holding that Zscaler’s Indian subsidiary constituted a Dependent Agent Permanent Establishment (DAPE) in India and attributing 25% profits thereto.
The High Court noted that the very foundation of the Section 197 order had disappeared, as the ITAT, Delhi Bench, vide order dated 18.06.2025, had categorically held that the Indian subsidiary did not constitute a DAPE and that Zscaler had no PE in India for AYs 2021-22 and 2022-23. The Court held that, in terms of judicial discipline, the Revenue was bound to follow the ITAT’s decision, and the mere intention to file an appeal could not justify ignoring the same.
While reiterating that Section 197 proceedings are provisional and year-specific, the Court held that the AO could not mechanically rely on assessment orders of earlier years which no longer survive. Once the PE finding for the preceding years stood set aside, the impugned certificate based entirely on such findings became unsustainable.
Accordingly, the Delhi High Court quashed the certificate dated 06.05.2025 and the speaking and continuation orders dated 07.05.2025 and 16.05.2025, and remanded the matter to the AO for de-novo consideration of the Section 197 application for AY 2026-27. The AO was directed to decide the issue afresh, uninfluenced by the earlier PE findings, after calling for necessary documents and granting due opportunity of hearing, within a stipulated time frame.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
