2019 (4) TMI 2092 - HC - Income Tax

Royalty receipts - interpretation of Section 9(1)(vi) Explanation (2)(iii) and (iva) of the Income Tax Act 1961 as well as Article 12(3) of the Indo US Double Taxation Avoidance Agreement (DTAA) - ITAT held that the payments received by the assessee were not royalty - HELD THAT - The provisions of the Indo-US DTAA especially Article 12(3) is identical to the substantive Section 9(1)(vi) Explanation 2(iii) and (iva) of the Income Tax Act 1961. Article 12(3) treats the entire subject matter in a composite manner. This Court is of the opinion that the Revenue s arguments are unfounded because the judgment in New Skies Satellite 2016 (2) TMI 415 - DELHI HIGH COURT specifically dealt with the provision which the revenue relies upon i.e. sub-clauses (iii) and (iva) of Explanation (2) to Section 9(1)(vi). This discussion is evident from paras 11 14 and 28 in New Skies Satellite (supra). In these circumstances the principle enunciated in Asia Satellite Telecommunications 2011 (1) TMI 47 - DELHI HIGH COURT and applied in New Skies Satellite (supra) i.e. if the substance or content of subject matter dealt with and interpretation given in a particular statute or identical subject matter also needs similar treatment in the context of the principle of international taxation. The only departure or exception would be if the contracting states agree to alter the terms of the treaty. New Skies Satellite (supra) also held that the mere change in law with retrospective application would not in any manner be treated as an act curative to the judgment of the court. Even if the amount were taxable this would be covered by the judgment of this court in Director of Income Tax International Taxation vs. GE Packaged Pover Inc 2015 (1) TMI 1168 - DELHI HIGH COURT

Summary

Issues: Interpretation of Section 9(1)(vi), Explanation (2)(iii) and (iva) of the Income Tax Act, 1961, and Article 12(3) of the Indo US Double Taxation Avoidance Agreement (DTAA).

In this judgment, the primary issue revolves around the interpretation of Section 9(1)(vi), Explanation (2)(iii) and (iva) of the Income Tax Act, 1961, and Article 12(3) of the Indo US Double Taxation Avoidance Agreement (DTAA). The ITAT ruled that the payments received by the assessee were not considered royalty, aligning with previous decisions of the court. The Revenue argued that the previous judgments did not directly address the specific provisions in question, emphasizing the need for a comprehensive review of the issue regarding payments for the use of natural, scientific, or commercial equipment.

Regarding the provisions of the Indo-US DTAA and the Income Tax Act, the court found that the judgments in question had indeed addressed the relevant clauses, contrary to the Revenue's assertion. The court highlighted that the principle of international taxation necessitates a consistent interpretation when dealing with similar subject matters across different statutes unless altered by the contracting states. The court also emphasized that a change in law retroactively does not invalidate the court's previous judgment.

Considering the rejection of the Revenue's review petition in a previous order, the court concluded that no substantial question of law was present in the current case. Additionally, even if the amount in question was deemed taxable, the court referenced a prior judgment to support the taxability of such amounts. Consequently, the appeals were dismissed based on the court's analysis and interpretation of the relevant provisions and previous decisions.