Delhi High Court Mandates Nil TDS Certificate for Foreign Entity: Rejects Revenue’s Arbitrary Withholding on Pretext of Interim Orders

In a significant judicial development concerning the taxation of cross-border transactions and the issuance of lower deduction certificates, the Delhi High Court has delivered a decisive judgment in the case of SFDC Ireland Limited Vs CIT. The Court admonished the Revenue authorities for mechanically issuing Tax Deducted at Source (TDS) certificates at higher rates despite the absence of a Permanent Establishment (PE) in India and contrary to binding judicial precedents.

This ruling reinforces the principle that while tax assessments are annual proceedings, the Revenue cannot arbitrarily deviate from settled positions regarding an assessee's taxability without a demonstrable change in facts or law. The judgment serves as a critical reference point for foreign companies operating in India under the protection of Double Taxation Avoidance Agreements (DTAA).

Factual Matrix of the Dispute

The controversy centered around a writ petition filed by the assessee, SFDC Ireland Limited, a company incorporated and tax-resident in the Republic of Ireland. The assessee challenged an order dated 26 September 2025 and the consequent certificate issued on 11 September 2025 by the Assistant/Deputy Commissioner of Income Tax (International Taxation).

Nature of Business

The assessee is engaged in the provision of standardized, cloud-based Customer Relationship Management (CRM) platforms. Their business model involves offering applications for sales, service, marketing, and analytics through a reseller in India, specifically Salesforce.com India Private Limited. The assessee asserted that:

  • It is a tax resident of Ireland under Article 4 of the India-Ireland Double Taxation Avoidance Agreement (DTAA).
  • It does not maintain a place of business, employees, or any physical presence in India.
  • It does not constitute a Permanent Establishment (PE) in India under Article 5 of the DTAA.

History of Litigation

The core grievance stemmed from the Revenue's repetitive approach to withholding taxes.

  1. FY 2023-24: The Revenue initially issued a certificate requiring 10% TDS. This was challenged, and the High Court set it aside, leading to a Nil rate certificate.
  2. FY 2024-25: The Revenue issued a certificate at 2%, which was again quashed by the High Court on 17 February 2025, resulting in a Nil rate certificate.
  3. Current Dispute (FY 2025-26): Despite the history of litigation and no change in the business model or facts, the Competent Officer issued a certificate mandating a 10% deduction on payments made to the assessee.

The Revenue’s Stance and Arguments

The Revenue authorities attempted to defend the issuance of the 10% TDS certificate on several grounds, raising procedural and substantive objections regarding the assessee's status.