India: Withholding not required on estimated payments; application of beneficial treaty rate upheld

The KPMG member firm in India prepared reports about two recent tax-related decisions of the Karnataka High Court (read more at the hyperlinks provided below).

• Withholding (tax deduction at source) not required on estimated payments to unidentifiable payees: The court held that the taxpayer was not required to withhold (deduct tax at source) on estimated payments made to unidentifiable payees, which were reflected in the taxpayer’s books and records at year-end. The taxpayer included estimated amounts of expenses incurred for various professional services in its books and records at year-end, but the actual amounts and the identity of the recipients was not known at that time. Indeed, the estimates were reversed the following year. Under those facts, the court held that the taxpayer had no liability for withholding (deducting tax at source) on the estimated payments. The case is: Subex Ltd. v. DCIT. Read a January 2023 report [PDF 412 KB]
  
  
• Beneficial rate under income tax treaty applies even if taxpayer does not provide permanent account number (PAN): The court held that the beneficial 10% withholding tax rate under the appliable income tax treaty applied even though the taxpayer did not provide its PAN to the withholding agent, which would normally trigger the application of a 20% withholding rate under Section 206AA of the Income-tax Act, 1961. The case is: CIT v. Wipro Ltd. Read a January 2023 report [PDF 423 KB]