2010 (7) TMI 562 - AT - Income Tax

Subscription income or royalty DTAA between India and Ireland - In the case of WIPRO vs ITO (2004 -TMI - 57806 - ITAT BANGALORE-B) wherein a similar subscription received by the assessee from WIPRO Ltd. under identical service agreement was held to be not chargeable to tax in India by the Tribunal after rejecting all the contentions raised on behalf of the Revenue in support of its stand that the said amount was chargeable to tax in India Held that the subscription income received by the assessee from the Indian clients was not in the nature of royalty taxable in India Appeal is allowed

Summary

Issues:
Interpretation of taxability of subscription income under DTAA between India and Ireland.

Analysis:
The judgment by the Appellate Tribunal ITAT, Mumbai involved an appeal by an assessee against the addition of subscription income made by the Assessing Officer (A.O.) as royalty taxable in India. The assessee, a company incorporated in Ireland, distributed Gartner Group's research products through subscriptions to Indian customers. The A.O. treated the subscription income as royalty taxable in India, despite the assessee's claim that it was not taxable in India under the DTAA between India and Ireland. The CIT(A) upheld the A.O.'s decision, disagreeing with a similar decision in the case of WIPRO Ltd. by the Tribunal.

The Tribunal analyzed a similar issue in the case of WIPRO Ltd. and held that the subscription payments were not taxable in India as they were for obtaining market data and publications, not for transfer of copyright. The Tribunal's decision in the WIPRO Ltd. case was applicable to the present case, as both involved similar subscription income from Indian clients. The A.O. and CIT(A) did not follow the Tribunal's decision in the WIPRO Ltd. case, leading to the Tribunal's criticism of their failure to adhere to judicial discipline.

The Tribunal emphasized the importance of judicial discipline, citing Supreme Court precedents that require subordinate authorities to follow higher appellate authorities' orders. In line with this principle, the Tribunal held that the subscription income received by the assessee was not royalty taxable in India, deleting the addition made by the A.O. and upheld by the CIT(A). The appeal of the assessee was allowed, and the appeal of the Revenue was dismissed.

In conclusion, the Tribunal's judgment highlighted the significance of following higher appellate authorities' decisions to ensure consistency and avoid chaos in the administration of tax laws. The Tribunal's decision in the WIPRO Ltd. case was deemed applicable and binding in the present case, leading to the deletion of the addition of subscription income as royalty taxable in India.