9911796707
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Issues Involved:
1. Taxability of various payments under different agreements. 2. Definition and scope of "royalty" under the Double Taxation Avoidance Agreement (D.T.A. Agreement) between India and Germany. 3. Applicability of Explanation 2 to section 9(1) of the Income-tax Act, 1961. 4. Apportionment of payments between royalty and technical assistance. 5. Deduction of expenses related to royalty income. 6. Basis of taxation (accrual vs. receipt). 7. Application of Rule 114 for dividend income assessment. Summary: Issue 1: Taxability of Various Payments The appeal concerns the assessment year 1980-81 for M/s Siemens Aktiengesellschaft, West Germany, involving payments under 11 agreements grouped into 14 items categorized as fees, royalties, lump sum fees, service charges for delegation of personnel, and additional assistance. The Tribunal examined whether these payments were taxable in India under the D.T.A. Agreement between India and Germany. Issue 2: Definition and Scope of "Royalty" The Tribunal considered whether the payments constituted "royalty" under the D.T.A. Agreement. The assessee argued that none of the payments partook the nature of 'royalty' within the meaning of the term as used in the D.T.A. Agreement. The Tribunal referenced the Andhra Pradesh High Court's decision in CIT v. Visakhapatnam Port Trust [1983] 144 ITR 146, which emphasized that only specific types of income mentioned in the D.T.A. Agreement could be taxed in India. Issue 3: Applicability of Explanation 2 to Section 9(1) The Revenue relied on Explanation 2 to section 9(1) of the Income-tax Act, 1961, which defines "royalty." However, the Tribunal held that this definition could not be applied to interpret the D.T.A. Agreement, as the Agreement prevails over the Income-tax Act. The Tribunal emphasized that the general meaning of "royalty" should be considered. Issue 4: Apportionment of Payments The Tribunal found that payments described as fees for technical know-how and training of personnel required apportionment. It held that 60% of such payments constituted royalty and were taxable in India, while the remaining 40% were for training and not taxable. Similarly, for lump sum fees, 50% were considered royalty and taxable, while the other 50% for technical assistance were not taxable. Issue 5: Deduction of Expenses The Tribunal allowed a deduction of 20% for expenses related to earning royalty income, considering that only net income should be taxed. This applied to both agreements entered into before and after 1-4-1976. Issue 6: Basis of Taxation The Tribunal upheld its earlier decision that income should be taxed on an accrual basis, following the decision of the Madras High Court in CIT v. Standard Triumph Motor Co. Ltd. [1979] 119 ITR 573. Issue 7: Application of Rule 114 The Tribunal followed its earlier decision and the Special Bench ruling in Allied Chemical Corpn. v. IAC [1983] 3 ITD 418, declining to apply Rule 114 for assessing dividend income. Conclusion: The Tribunal partially allowed the appeal, holding certain payments as taxable royalty income while exempting others. It also allowed deductions for related expenses and upheld the accrual basis of taxation.
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