More Stories

Informist, Tuesday, Dec. 23, 2025

 

NEW DELHI – The Delhi High Court Tuesday asked the income-tax department to consider afresh US cloud security company Zscaler Inc.'s plea seeking a "nil withholding certificate" for prospective payments of INR 13.19 billion in the financial year 2025-26 (Apr-Mar). The certificate is an authorisation issued by the department that lets a taxpayer receive specific payments without tax being deducted at source, or being deducted at a lower rate, if the taxpayer's actual tax liability for the year is zero or minimal.

 

The court said the only basis on which Zscaler could be taxed is if it were proven to have a dependent agent permanent establishment in India. Though the assessing officer in assessment years 2021-22 (Apr-Mar) and 2022-23 did conclude that the petitioner company had a dependent agent permanent establishment in India in the form of Zscaler Softech India Pvt. Ltd., the Income Tax Appellate Tribunal had set that finding aside in June.

 

The tax department argued that when it had rejected the application for the nil withholding certificate, it did not have the relevant documents before it, including the agreement between Zscaler and Zscaler Softech for FY26, which remains in the exclusive possession of the assessee. So it was forced to rely on assessment orders of preceding assessment years.

 

The high court, however, said it is settled in taxation law that each assessment year must be seen on the basis of facts applicable to that year. The appellate tribunal's order for assessment years 2021-22 and 2022-23, holding that the assessee did not have a dependent agent permanent establishment in India, had settled the issue of whether the assessee's receipts were taxable in India for those years.

 

The court noted that no documents had been brought before it to confirm whether assessments were carried out for assessment years 2023-24 and 2024-25, and if so, what the assessing officer's conclusions were. If such assessments were not carried out, then it follows that there is no finding of a permanent establishment against the petitioner, it said. "In these facts, we are of the view that appropriate shall it be for the AO (assessing officer) to reconsider the issue of certificate under Section 197 for the AY (assessment year) 2025-26 by examining the issue afresh, in the facts of the present assessment year," it said.

 

Zscaler, a company incorporated in the US, is in the business of providing software-based information technology solutions and reselling its software along with ancillary services to clients in India. The company said it had filed an application for nil withholding certificate with the assessing officer, who had rejected it by relying upon the orders for assessment years 2021-22 and 2022-23, which had since been set aside by the appellate tribunal. Therefore, it argued, the tax department's denial of the certificate was liable to be set aside.  End

 

Reported by Surya Tripathi

Edited by Rajeev Pai

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2025. All rights reserved.