Software and SaaS services under India-USA DTAA warrant examination before determining high-rate withholding tax certificates.

The Petitioner, a USA-based tax resident, provides a web-based Vendor Management System (VMS) via a Software as a Service (SaaS) model to Indian clients like Infosys Limited.

The Petitioner sought a "NIL" tax withholding certificate under Section 197 of the Income Tax Act, 1961, for FY 2025-2026, arguing its services are not "fees for included services" under the India-USA Double Taxation Avoidance Agreement (DTAA).

The Respondent (Competent Authority) rejected this and issued a certificate at a 15% rate on August 20, 2025.

The Petitioner challenged this, noting that for AY 2024-25 and 2025-26, its returns were processed and refunds of TDS were granted.

Whether the services provided by the Petitioner under the SaaS model constitute taxable income in India as "fees for included services" under the India-USA DTAA.

Whether the Competent Authority was justified in issuing a Section 197 certificate at a 15% rate despite previous years' refunds and the nature of the software agreements.

The court considered Section 197 of the Income Tax Act, 1961, which allows for the grant of a certificate for deduction of tax at a lower or "NIL" rate if the total income of the recipient justifies it.

It referenced the "fees for included services" provision under the India-USA Double Taxation Avoidance Agreement (DTAA) regarding the taxability of technical/software services.

Additionally, the court took note of CBDT guidelines prescribing a 30-day timeline for processing Section 197 applications.

The Petitioner argued that its VMS software provides no enduring benefit, requires annual renewal, and does not involve the supply of manpower by the Petitioner itself.

While the Revenue contended that previous refunds were not based on a formal "regular assessment" under Section 143(3) and thus not binding, the Court found that the Petitioner had demonstrated a "fairly arguable case" upon a prima-facie review of the agreement clauses.

However, since no adjudicating authority had yet conducted a full scrutiny of the transactions, the Court declined to grant a "NIL" rate.

The Court found the 15% rate excessive but noted the need for a protective rate of 2% to ensure the Petitioner files a return and remains subject to potential scrutiny criteria.

The Court directed the Competent Authority to issue a fresh certificate at a 2% rate within 15 days.

Furthermore, the Court directed the Authority to decide any future Section 197 applications within the mandatory 30-day period if the nature of the transactions remains unchanged.