Delhi High Court Reduces Withholding Tax on US Firm Cvent Inc. from 15% to 2% Under Section 197
Audit-based demands unsustainable without fresh material facts
Tribunal stresses on fairness and cash flow protection for foreign companies
By Legal Reporter
New Delhi: March 02, 2026:
In a significant ruling that strengthens investor confidence, the Delhi High Court has reduced the withholding tax rate for US-based Cvent Inc. from 15% to 2%, under Section 197 of the Income Tax Act, 1961. The court held that the earlier certificate issued at 15% was unsustainable, as the company had fully disclosed all material facts and no fresh evidence justified a higher deduction.
This judgment is expected to have far-reaching implications for multinational corporations operating in India, particularly those providing technology and service solutions, as it underscores the principle that tax certainty and fairness are essential for business stability.
Case Background
- Cvent Inc., a US-based event management software company, applied for a lower withholding tax certificate under Section 197.
- The Income Tax Department initially issued a certificate fixing the rate at 15%, citing past assessments.
- Cvent challenged the decision, arguing that all material facts had been disclosed and that no fresh grounds existed for such a high rate.
- The Delhi High Court agreed, reducing the withholding tax to 2%, thereby aligning the deduction with the company’s actual tax liability.
Court’s Observations
- Full Disclosure: Since Cvent had disclosed all relevant facts, reassessment or higher withholding was unjustified.
- Audit Objections Not Evidence: Past assessments or audit objections cannot be treated as fresh material to justify higher tax.
- Cash Flow Protection: Excessive withholding strains working capital, especially for service providers.
- Judicial Consistency: The ruling aligns with earlier judgments that prevent arbitrary reassessment or withholding.
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Relevant Laws and Rules
1. Income Tax Act, 1961 – Section 197
- Allows taxpayers to apply for a lower or nil TDS certificate.
- Ensures that tax deducted at source (TDS) matches actual liability.
2. Section 147 & 148 – Reassessment Provisions
- Reassessment beyond four years requires proof of failure to disclose material facts.
- Courts have consistently held that mere change of opinion is not sufficient.
3. Judicial Precedents
- Kelvinator of India Ltd. (Supreme Court): Reassessment cannot be based on mere change of opinion.
- ITAT rulings: Audit objections alone do not justify reopening or higher withholding.
Broader Implications
- For Foreign Companies: Provides relief and certainty, encouraging investment in India.
- For Tax Authorities: Reinforces the need for credible evidence before issuing higher withholding certificates.
- For Judiciary: Strengthens oversight of tax administration, ensuring fairness.
- For Policy Makers: Highlights importance of balancing revenue collection with investor confidence.
[Additional Legal Resource]
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Conclusion
The Delhi High Court’s ruling in the Cvent Inc. case is a landmark in India’s tax jurisprudence. By reducing withholding tax from 15% to 2%, the court has reinforced the principle that tax administration must be fair, evidence-based, and aligned with actual liability.
This judgment is expected to boost investor confidence, reduce litigation, and improve India’s reputation as a predictable and transparent tax jurisdiction.
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