2018 (9) TMI 2048 - AT - Income Tax

Tax rate for royalty income - Determination of tax liability on income earned by way of Royalty earned by the assessee in India - India-USA DTAA - assessee has adopted different rates for royalty income arising as per agreement entered into before 01/06/2005 and similar royalty income as per agreement entered into on or after 1/6/2005 - HELD THAT - While deciding the first issue, being tax rate for royalty income, the ld.CIT(A) has followed the Tribunal order in assessee s own case for earlier years 2007-08, 2008-09 and 2009- 10. In para.7.8 of the Tribunal order reproduced by him, it is noted by the Tribunal that the assessee has adopted different rates for royalty income arising as per agreement entered into before 01/06/2005 and similar royalty income as per agreement entered into on or after 1/6/2005 Tribunal had given a categorical finding that royalty income in respect of agreement entered into before 1/6/2005 is from one source and royalty income in respect of agreements entered into on or after 1/6/2005 are from difference source. Since no difference in facts could be pointed out by the ld. DR of the Revenue as per written submissions reproduced above, we find no reason to take a contrary view in the present years. Therefore, respectfully following the earlier Tribunal order followed by the ld.CIT(A), in the present years, we decline to interfere with the order of the ld.CIT(A) on this issue in all these three years. This issue is decided in favour of the assessee and against the revenue. Estimation of current tax liability after reducing tax deductible or collectible at source and Advance Tax - Scope of amendment in the provisions of section 209 by the Finance Act, 2012 w.e.f. 1/4/2012 by way of insertion of a Proviso below sub-section (1) of section 209 - HELD THAT - Three years are involved i.e. AY 2011-12, 2012-13 and 2013-14. In AY 2011-12, this proviso is not applicable because the same is applicable from 1/4/2012 i.e. AY 2012-13. Therefore, insofar as AY 2011-12 is concerned, we find no reason to interfere with the order of the ld.CIT(A), but for AY 2012-13 and 2013-14, this proviso is applicable and since the ld.CIT(A) has not considered the amendment to section 209, we feel it proper to send the matter back to the file of the ld.CIT(A) for fresh decision in the light of this proviso to section 209 (1) of the Act.

Summary

Issues:
- Determination of tax liability on royalty income
- Chargeability of interest u/ss. 234A, 234B, and 234C of the IT Act

Analysis:
1. Determination of tax liability on royalty income:
- The appeals by the Revenue were against the orders of the CIT(A) for assessment years 2011-12, 2012-13, and 2013-14. The Revenue contested the tax rate on royalty income, arguing that the assessee cannot selectively apply provisions of the Act or Treaty for different categories of royalty income. The Tribunal had previously ruled in favor of the assessee, allowing separate application of provisions for different streams of royalty income.
- The Revenue argued that the assessee erred in applying provisions of the Act and Treaty separately for each category of royalty income, contrary to the provisions of section 115A(1)(b). The AO had compared the overall tax liability under the Act and Treaty, granting the benefit of taxing royalty income as per the Act. The Tribunal upheld the assessee's method of calculating tax liability on royalty income, emphasizing the separate and independent nature of tax computations for different categories of royalty income.
- The Tribunal found no difference in facts between the present years and earlier years, where the same issue was decided in favor of the assessee. Therefore, following the earlier Tribunal order and the CIT(A)'s decision, the Tribunal declined to interfere with the order of the CIT(A) on the tax rate for royalty income. The issue was decided in favor of the assessee and against the Revenue.

2. Chargeability of interest u/ss. 234A, 234B, and 234C of the IT Act:
- The issue of interest u/s. 234B was raised, highlighting the mandatory and consequential nature of interest liability. It was noted that an amendment in section 209 affected the decision of the CIT(A) for AY 2012-13 and 2013-14. The Tribunal found that the proviso to section 209(1) was not applicable for AY 2011-12 but was relevant for subsequent years.
- For AY 2011-12, the Tribunal upheld the CIT(A)'s decision. However, for AY 2012-13 and 2013-14, where the proviso to section 209(1) applied, the matter was remanded back to the CIT(A) for a fresh decision considering the amendment to section 209(1) of the Act.
- Consequently, the appeal of the Revenue for AY 2011-12 was dismissed, while the appeals for AYs 2012-13 and 2013-14 were partly allowed for statistical purposes.

This detailed analysis of the judgment highlights the key issues of determination of tax liability on royalty income and the chargeability of interest under specific sections of the IT Act, providing a comprehensive understanding of the Tribunal's decision on each issue involved.