GE Energy Parts INC Vs ACIT & Anr. (Delhi High Court)
The Delhi High Court allowed the writ petitions filed by GE Energy Parts Inc. and GE Global Parts and Products GmbH, quashing the Assessing Officer’s order directing deduction of tax at source at 3.5% under Section 197 for AY 2025–26. The petitioners, non-resident companies engaged in offshore supply and repair of gas turbine parts, consistently claimed that they had no Permanent Establishment (PE) in India and had been granted lower-rate TDS certificates at 1.5% in earlier years, including pursuant to earlier High Court directions.
The higher TDS rate for AY 2025–26 was justified by the Revenue on the basis of a finding recorded in AY 2022–23 that the petitioners had a PE in India. However, the Court noted that this very finding had been set aside by the ITAT on 17.10.2025, thereby removing the sole foundation for issuing a higher-rate certificate. Once the PE finding no longer survived, continuation of the 3.5% deduction was held to be unsustainable.
Accordingly, the impugned Section 197 certificate dated 16.05.2025 was quashed, and the Revenue was directed to issue a fresh certificate at 1.5% within 15 days. The Court further directed that, for future years, certificates at the same rate should continue to be issued, subject to safeguards.
Importantly, the Court clarified that the Department may issue a higher-rate certificate in future only if:
(i) the ITAT order setting aside the PE finding is reversed or modified in appeal; or
(ii) fresh material emerges establishing the existence of a PE in India—after giving the assessee an opportunity of hearing.
The ruling reinforces that Section 197 discretion must be exercised on subsisting facts, and a higher TDS rate cannot be sustained once the very basis (PE finding) has been judicially nullified.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
