Indian State High Court holds 10% Tax Withheld on Coursera's receipts unreasonable
The Indian State High Court (Delhi HC), sets aside an order directing a withholding of tax of 10% on Coursera's receipts in India and directs the Indian Income Tax Department to pass a de novo order excluding the receipts already subjected to the Equalization Levy.
Coursera is a US tax-resident and an e-platform operator, acting as an aggregator of educational institutions and providing easier access to various courses. The organisation filed a writ petition challenging Revenue’s order against rejection of its application for NIL Tax Withheld Certificate in respect of its receipts for financial year 2021/22 (equivalent to Assessment Year 2020/21), whereby Revenue directed the customers of Coursera to withhold tax of 10% without giving reasons for arriving at such a rate.
Delhi HC observes that the impugned order noted, “the receipts from Indian customers are not chargeable to tax as royalty/FTS under the provisions of the Act read with India US tax treaty and since the assessee has been suo moto paying equalization levy at 2% on receipts from Indian customer … such receipts may be subjected to tax withheld … keeping in the interest of Revenue”, thus, remarks that “There is no reasoning as to how the rate finally granted has been arrived at”.
Delhi HC opines that the impugned order does not take into account the impact of the amendment carried out in section 10(50) by Finance Act, 2021 with effect from 1 April 2021, whereby the amounts taxable as royalty/fees for technical services under the Act and the relevant DTAA would not be considered for the charge of the Equalization Levy. It further notes that although Revenue held that the Assessee is not eligible for benefit under article 12(5)(c) of the India-US DTAA, the order does not contain any reasoning or discussion on the applicability or otherwise of various sub-articles of the DTAA to the facts of the case. Therefore, it sets aside the order and directs the Revenue to pass a fresh reasoned order taking into account the amendments to section 10(50) within a period of 4 weeks and accordingly, disposes of the writ petition.
Section 10(50) of the Indian Finance Act states that the Equalization Levy will not be charged on income in the nature of royalty or fee for technical services where such income is taxable under the Act read with DTAA.