Ernst And Young LLP Vs ACIT (Delhi High Court)
The Delhi High Court considered a writ petition challenging a certificate and order dated 17.09.2025 issued under Section 195 of the Income Tax Act, 1961. By the impugned order, the Assessing Officer authorised the petitioner to make payments to its UK-based group entity by withholding tax at the rate of 5.25%, rejecting the petitioner’s request for a Nil Withholding Certificate for prospective payments up to 31.03.2026. The rejection was based on the conclusion that the payments constituted business income taxable in India due to the existence of a “virtual service permanent establishment” of the recipient entity under Article 5(2)(k) of the India–UK Double Taxation Avoidance Agreement (DTAA).
The petitioner argued that the sole basis for rejecting the Nil Withholding Certificate was the alleged existence of a virtual service permanent establishment, a concept which, according to it, is not recognised under the DTAA. It was submitted that this issue had already been decided against the Revenue by the Income Tax Appellate Tribunal and affirmed by the Delhi High Court in an earlier case interpreting a similar provision under the India–Singapore DTAA. According to the petitioner, the relevant provisions of the India–UK DTAA and India–Singapore DTAA were pari materia, and therefore the reasoning adopted earlier squarely applied. The petitioner further contended that all relevant documents, including agreements and declarations, had been examined by the Assessing Officer, and there was no allegation of non-compliance or lack of disclosure.
