2006 (2) TMI 492 - AT - Income Tax

Summary

Issues:
1. Whether the payment made by the assessee to non-resident companies for technology constitutes royalty under the Income-tax Act and Double Taxation Avoidance Agreement (DTAA) between India and USA.
2. Whether interest under section 244A claimed by the assessee on refund was rightly denied by the CIT(A).

Analysis:
1. The assessee, a Public Sector Undertaking, entered into agreements with non-resident companies for technology transfer. The CIT(A) held the payment made by the assessee as royalty under section 9(1)(vi) of the Income-tax Act and article 12 of the DTAA. The assessee contended that no copyright transfer occurred, citing precedents like Motorola Inc. case and Samsung Electronics Co. Ltd. case. The tribunal noted that the DTAA defined royalty as payments for copyright use, which did not apply in this case. The tribunal highlighted the difference between royalty and fees for included services, which the authorities overlooked. The matter was remitted back to the CIT(A) for a fresh consideration in line with relevant case laws and provisions.

2. In a separate appeal, the assessee challenged the denial of interest under section 244A by the CIT(A). The tribunal found merit in the assessee's submissions but deferred a decision as the main issue was remitted back to the CIT(A). The tribunal directed the CIT(A) to reconsider the interest claim in light of the assessee's submissions. Ultimately, all the appeals and cross-objections were allowed for statistical purposes, indicating a favorable outcome for the assessee pending further review by the CIT(A).