My client remitted design fees to a Netherlands company without deducting, relying on article 7, and the officer says s.90(4) bars the treaty because the residence certificate was obtained later - is that the end of it?
The client is an Indian private limited company making process equipment, assessed at a circle in Pune. In the year ended 31 March 2025 it paid a Netherlands-resident company Rs 4,60,00,000 for detailed design and drafting, in four remittances of Rs 1,15,00,000 each on 7 June 2024, 12 September 2024, 9 December 2024 and 14 March 2025. All the work was done in Rotterdam and nobody came to India. The client deducted nothing, on the view that the fee was business profit within article 7 of the India-Netherlands agreement of 1988 and that there was no permanent establishment here, and filed a Form 15CB from a chartered accountant with each remittance saying so. It held no residence certificate at the time. The Netherlands tax authority issued certificates on 18 August 2025 for calendar years 2024 and 2025, and a Form 10F went on the portal on 2 September 2025. The order under s.201(1) and s.201(1A) dated 26 March 2026 holds that s.90(4) bars the treaty claim, treats the fee as fees for technical services under s.9(1)(vii), applies the s.115A rate of twenty per cent with surcharge at two per cent and cess at four, and raises short deduction of Rs 97,59,360 with interest of Rs 17,07,888 computed tranche by tranche at one per cent a month - twenty-two months on the June remittance, nineteen, sixteen and thirteen on the others - Rs 1,14,67,248 in all. A notice proposing to disallow the whole Rs 4,60,00,000 under s.40(a)(i) has followed.
Separate the two questions the order runs together, and answer them in order. The first is whether the fee was chargeable in India at all: if it was not, s.195 never bit, no certificate was needed and s.90(4) is beside the point. The second is whether a certificate obtained after the payment but before the claim is adjudicated saves the treaty claim. The s.40(a)(i) notice decides the urgency: it reaches the whole Rs 4,60,00,000 and not the tax on it, and it is heard by a different officer in a different proceeding.
Section 195 requires deduction only where the sum is chargeable under the provisions of the Act. The Supreme Court has held that the obligation arises only where the sum paid is chargeable under ss.4, 5 and 9, that a remittance to a non-resident does not by itself attract it, and that a payer who is certain nothing is chargeable need not apply under s.195(2) at all. Section 90(4) is worded as a bar on a non-resident's entitlement to claim relief under an agreement. A payer who says the receipt is not taxable under the Act is not claiming relief under the agreement; he is saying there is nothing for the agreement to relieve. The distinction fixes the order of the argument and it fixes who has to produce what.
Section 90(4) provides that an assessee, not being a resident, to whom an agreement applies shall not be entitled to claim any relief under it unless a certificate of his being a resident is obtained by him from the Government of that country. Section 90(5) adds that he shall also provide such other documents and information as may be prescribed, which is Rule 21AB, and the vehicle is Form 10F carrying five particulars - status, nationality or country of incorporation, the tax identification number in the country of residence, the period for which the certificate is applicable, and the address there during that period. Rule 21AB(2) excuses any particular the certificate itself already carries, and Rule 21AB(2A) imposes a standing obligation to keep the documents substantiating what was stated. Two things follow. The obligation is the non-resident's, not the payer's. And the Indian officer cannot supply the certificate: Rule 21AB(3) and (4) give the Form 10FA route only to a person resident in India.
These are two arguments and the library holds separate lines on each. On the consequence of having no certificate at all, a High Court dismissed a writ holding that a non-resident claiming treaty relief is hit by s.90(4) unless he obtains a certificate of residence from the government of the country of which he claims to be resident, and that a passport, an appointment letter and a salary certificate are no substitute. On the sufficiency of a certificate that does exist, the Supreme Court has held that s.90(4) speaks of the certificate only as an eligibility condition, does not make it sufficient or conclusive evidence of residence, beneficial ownership or entitlement, and does not stop the authorities examining the substance of the arrangement. The first line is the officer's case here. The second is not, and giving it away costs nothing.
Section 90(4) says the assessee shall not be entitled to claim any relief under the agreement unless a certificate of his being a resident is obtained by him from the Government of that country. The words fix a condition on the claim; they do not fix a date by which the certificate must exist. The claim here is made in the s.201 proceeding and in the payee's return, both after 18 August 2025, and the certificates in hand cover calendar years 2024 and 2025, which between them span all four remittances. Rule 21AB(2A) points the same way, because it contemplates the substantiating documents being called for by an income-tax authority after the event rather than filed before it. That is the whole of the argument, and it is an argument from the text and the structure of the rule.
Section 90(5) is a separate obligation from s.90(4) and the order has run them together. Electronic filing of Form 10F was made compulsory from 16 July 2022, but non-residents who had no permanent account number and were not required to have one were exempted from e-filing and could file on paper, first until 31 March 2023 and then until 30 September 2023; from October 2023 the portal opened a registration category for that class. The library's entry on that relaxation is marked superseded by amendment because the relaxation expired, so it is authority for the window it covers and spent for anything later - which matters if any earlier year with this payee falls inside it. For the year on this file the form went in on the portal, so the s.90(5) limb is answered and only timing remains.
The deductor's position is not the payee's. A High Court has declined to admit a Revenue appeal where the assessee had filed its withholding statements and a Form 15CB, the accountant's certificate on liability to deduct prescribed by Rule 37BB, for every remittance to a non-resident, and the officer had not disputed them, holding that the assessee could not then be treated as an assessee in default under s.201. A second High Court decision holds that chargeability is a jurisdictional condition for s.195 and not a question of quantum, so that where the non-resident's own assessment establishes that no tax was payable there is nothing to deduct, the payer is not in default, and no disallowance follows. Four contemporaneous certificates recording the article 7 analysis are the best material this client has.
Producing the certificate moves the fight rather than ending it. Section 90(2A) provides that notwithstanding s.90(2) the provisions of Chapter X-A apply to the assessee even if they are not beneficial to him, so the treaty override is switched off for the general anti-avoidance rule. The Supreme Court has held that a certificate does not prevent an enquiry where the interposed entity is shown to be a device. Against that stands the older Supreme Court position: a resident of a third state taking advantage of a treaty between two others is not by itself illegal, and where the treaty carries no limitation of benefits clause no disabling condition can be read into it. And the Principal Purpose Test, where it applies at all, has been held at Tribunal level to put on the Revenue the burden of showing that obtaining the benefit was one of the principal purposes.
If the demand is paid and the treaty claim later succeeds, the money goes back to whoever paid it, and the route has to exist before it is needed. The Supreme Court has held that a resident deductor who deposited tax under a s.195(2) order and succeeded on appeal is entitled not only to refund of the tax but to interest on it from the date of payment, the case falling under the residual limb of s.244A(1)(b), and the Board has directed that no appeals be filed on that ground. Separately, a High Court has set aside a refusal to condone delay under s.119(2)(b) where a non-resident had suffered deduction although he had no liability at all and the Commissioner passed an ex parte order ignoring the explanation, remanding with a direction to condone. Where the payee has filed no Indian return for the year, that application should go in now.
The pure timing point - a certificate obtained after the payment but covering the period of the payment - is more often won than lost at the first appellate stage, but it is won on the documents and the chronology rather than on authority, because there is none. Where no certificate is produced even at the appellate stage the claim fails, and the only decision in this library on that footing dismissed the taxpayer outright. The s.40(a)(i) disallowance usually falls with the s.201 order, but not in the same year and not before the same officer, so the company can carry a demand on the payment and a demand on the tax at the same time for two or three years. Interest under s.201(1A) is rarely deleted where any of the tax survives.
