The Bombay High Court has touched on the issue over whether a business’s virtual presence in India is the same as having a physical presence and thus required to pay tax. The court states that without any specific provision in either the law or the double taxation avoidance agreement (DTAA), it is unable to accept this broad proposition that tax is payable in India.
This issue arose in the case of Benteler Automative (China) Investment v Assistant Commissioner of Income Tax and Ors (2026) in which the company was appealing the rejection of its application for a nil withholding tax certificate from the authorities.
A nil withholding tax certificate allows an entity to receive payments from other entities without any tax deducted at source.
Benteler Group is an Austria-based company with one of its companies, Benteler Automative (China) Investment, incorporated in China. Benteler China has an Indian subsidiary named Benteler India. Benteler China had provided technical services to Benteler India virtually and entirely from China, and did not have a permanent establishment in India.
The payment for technical services from China became the main focus of the case with Indian tax authorities, who rejected Benteler China’s application for a nil withholding tax certificate, saying that the amount paid was taxable in India.
Benteler China argued that under the DTAA between India and China, the payments Benteler India made to Benteler China for technical services would not be taxable in India. It argued that under the DTAA provision, taxing of payments would be required only when services were performed or rendered in India, and not virtually from China.
Tax authorities argued that under section 9(1)(vii) of the Income Tax Act, 1961, the payments would be taxable in India.
Under established jurisprudence in India, tax authorities argued that since the technical services rendered by Benteler China to Benteler India were through emails, conference calls and video conferences etc., they were considered the same as physically performing these services in India, and hence taxable.
Tax authorities relied on the cases of State of Maharashtra v Praful B Desai (2003), Kishan Chand Jain v Union of India (2023) and Armin R Panthaky v Rohinton Panthaky (2024) among others for their arguments.
Authorities also presented evidence that for the previous four assessment years, the fees for technical services, paid by Benteler India to Benteler China were taxed in India. However, Benteler China is challenging these assessments before the Income Tax Appellate Tribunal (ITAT) and are pending conclusion. Hence, the tax authorities had to reject the application for a nil withholding tax certificate, in view of pending court proceedings.
The court stated that, “without there being any specific provision, either in law or in the DTAA, we are unable to accept this broad proposition that because the services were rendered by the petitioner to Benteler India virtually, the same amounted to the said services being rendered physically [to Benteler India] in India”.
However, the court declined to give findings on the issue raised due to the ongoing judicial process before the ITAT.
