Law:

Section:

Section 195, read with section 90 of the Income-tax Act, 1961, rule 29B of the Income-Tax Rules, 1962 and Double Taxation Avoidance Agreement between India and USA - Deduction of tax at source - Payment to non-resident - Assessment year 2011-12 - Assessee was an American company engaged in business of providing consultancy on strategic planning and related activities - It operated in India through its branches - It was filing returns in India from assessment year 1993-94 and had received nil withholding certificates under section 195(3) for payments received for services rendered to clients/customers, group entities and for interest received on deposits made with banks from assessment year 1998-99 to assessment year 2010-11 - However, Assessing Officer rejected assessee's application for grant of a nil withholding certificate for assessment year 2011-12 on grounds : (i) that for assessment year 2006-07, draft assessment order was completed and a demand had been raised to tune of Rs. 44.98 crores, though matter was pending before Dispute Resolution Procedure (DRP); and (ii) that for assessment year 2005-06, gross demand raised was Rs. 26.23 crores and after payments till 31-3-2009, net balance outstanding demand was Rs. 9.33 crores, which was under MAP proceedings - Whether as regards first ground, since impugned order itself made it clear that what had been issued was a draft assessment order and matter in question was pending before DRP, denial of certificate under section 195(3) on that ground was not justified - Held, yes - Whether as regards second ground, assessee having invoked Mutual Agreement Procedure (MAP), consequence under MoU between Government of India and Government of USA was suspension of collection of tax demands and withholding taxes on income and, therefore, denial of certificate under section 195(3) on ground of balance outstanding for assessment year 2005-06, was contrary to law - Held, yes FACTS The assessee was an American company, engaged in the business of providing consultancy on strategic planning and related activities. It operated in India through its branches. It was filing returns in India from the assessment year 1993-94 and had…

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