2012 (10) TMI 129 - AT - Income Tax

Indo-UK DTAA - Taxation on marketing contributions and value added service - at 15% on gross basis as per Article 13 of DTAA OR 10% u/s 115A(1)- Held that - Considering a copy of the order u/s 154 for assessment year 2006-2007 the receipts from marketing contributions and value added service has been held to be taxable at the rate of 10% along with surcharge and education cess. It is observed that this order u/s 154 was passed on 24.03.2009 and the Tribunal order for assessment year 2007-2008 was passed on 18.11.2011 i.e. after the passing of the rectification order u/s 154. Thus the ends of justice will meet adequately if the impugned order on this issue is set aside and the matter is restored to the file of A.O. for deciding it in consonance with the directions contained in Tribunal order. Royalty income - applying tax rate of 15% or 10% as per section 115A - Held that - The Tribunal has decided this issue in assessee s favour for assessment year 2007-2008 which has been concluded that the concessional rate of 10% should be applied - in favour of assessee. Charging of interest u/s 234B - Held that - As decided in DIT (INTERNATIONAL TAXATION) Versus NGC NETWORK ASIA LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT interest u/s 234B cannot be charged where tax is deductible at source in relation to royalty and FTS. Thus direct AO to compute interest u/s 234B to follow as above stated.

Issues:
1. Treatment of marketing contributions as royalty income under section 9(1)(vi) and Article 12 of the Indo-UK treaty.
2. Taxation of marketing contributions at 15% instead of 10% under section 115A(1).
3. Classification of receipts from Value Added Services (VAS) as fees for technical services under section 9(1)(vii) and Article 13 of the Indo-UK tax treaty.
4. Taxation of receipts from Value Added Services at 15% instead of 10% under section 115A(1).
5. Application of tax rate of 15% to royalty income instead of 10% under section 115A.
6. Charging of interest under section 234B.
7. Charging of interest under section 234A.
8. Initiation of penalty under sections 271A, 271B, and 271(1)(c) being premature.

1. Treatment of Marketing Contributions as Royalty Income:
The first ground raised was regarding the treatment of marketing contributions as royalty income under section 9(1)(vi) and Article 12 of the Indo-UK treaty. The learned AR did not press this ground, leading to its dismissal.

2. Taxation of Marketing Contributions at 15%:
The second ground challenged the taxation of marketing contributions at 15% instead of 10% under section 115A(1). The Tribunal had previously ruled in favor of the assessee for a similar issue in the preceding year, and the current ground was allowed based on this precedent.

3. Classification of Receipts from Value Added Services (VAS):
The third ground contested the classification of receipts from Value Added Services (VAS) as fees for technical services under section 9(1)(vii) and Article 13 of the Indo-UK tax treaty. The Tribunal upheld the Assessing Officer's decision on this issue, citing a previous order against the assessee.

4. Taxation of Receipts from Value Added Services at 15%:
Ground four challenged the taxation of receipts from Value Added Services at 15% instead of 10% under section 115A(1). The Tribunal decided to set aside the impugned order and restore the matter to the Assessing Officer for further consideration in line with previous directions.

5. Application of Tax Rate to Royalty Income:
The fifth ground questioned the application of a 15% tax rate to royalty income instead of 10% under section 115A. The Tribunal ruled in favor of the assessee based on a previous decision for the assessment year 2007-2008.

6. Charging of Interest under Section 234B:
Ground six addressed the charging of interest under section 234B. Following a precedent set by the jurisdictional High Court and the Tribunal's direction in the assessee's previous case, the Tribunal held that interest under section 234B cannot be charged where tax is deductible at source in relation to royalty and Fees for Technical Services (FTS).

7. Charging of Interest under Section 234A:
The Tribunal decided on ground seven concerning the charging of interest under section 234A based on the resolution of the previous issue related to interest under section 234B.

8. Initiation of Penalty:
Grounds eight, nine, and ten pertained to the initiation of penalty under sections 271A, 271B, and 271(1)(c) being premature, and these grounds were dismissed.

In conclusion, the appeal was partly allowed based on the Tribunal's decisions on various grounds relating to taxation, classification of income, interest charges, and penalty initiation.

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