2010 (9) TMI 627 - AT - Income Tax

DTAA - . The assessee claimed that it being a resident of Germany in terms of the definition of Resident as per the DTAA between India and Germany, it is entitled to the benefits under the said DTAA - The assessee had applied tax on the royalty income earned by it at the rate of 10% as per Article 12 of the DTAA - The AO was of the view that the assessee was not liable to tax in Germany and, therefore, was not resident of Germany - Since the immediately preceding assessment year has been decided by the Tribunal in assessee s favour, in our considered opinion, no interference is warranted in the impugned order on this issue Interest - While coming to this conclusion the provisions of section 209(1)(d) were duly considered and the reliance was placed on the Special Bench order in the case of Motorola Inc. Vs. DCIT 2005 -TMI - 63055 - the learned CIT(A) has rightly held that the interest under sections 234B and 234C is not payable by the non-residents whose total income is subject to deduction of tax at source Appeal is dismissed

Summary

Issues:
1. Entitlement to benefits of DTAA between India and Germany
2. Liability to pay advance tax and interest under sections 234B and 234C

Entitlement to benefits of DTAA between India and Germany:
The appeal by the revenue pertains to the order of CIT(A) relating to A.Y. 2005-06, where the assessee, a limited liability partnership resident of Germany, declared royalty income earned from an Indian company and applied tax at 10% as per the DTAA between India and Germany. The main contention was whether the assessee could be considered a resident of Germany under the DTAA. The DTAA defined "resident" as a person liable to tax in that state due to domicile, residence, or place of management. The assessee argued that it paid trade tax in Germany, making it a resident under the DTAA. The AO initially disagreed, citing OECD Commentary on Partnership taxation in Germany. However, the CIT(A) ruled in favor of the assessee, following a similar decision in a previous year. The Tribunal upheld the CIT(A)'s decision, stating that since the DTAA provisions were applicable in the prior year, no interference was warranted in the current case.

Liability to pay advance tax and interest under sections 234B and 234C:
The second issue revolved around the charging of interest under sections 234B and 234C. The Tribunal referenced a previous decision for A.Y. 2002-03, where it was concluded that the levy of interest under section 234B was not valid for non-residents subject to tax deduction at source. Citing the Motorola Inc. case, the Tribunal upheld the CIT(A)'s decision that interest under sections 234B and 234C was not applicable in this scenario. The Tribunal dismissed the revenue's appeal on this ground as well, in line with the decision from the previous assessment year.

In conclusion, the Tribunal upheld the CIT(A)'s decision in favor of the assessee regarding the entitlement to DTAA benefits and the non-applicability of interest under sections 234B and 234C for non-residents subject to tax deduction at source. The appeal by the revenue was dismissed on both grounds.