2019 (6) TMI 1689 - AT - Income Tax

Income deemed to accrue or arise in India - Royalty receipt - Appellant liability to be assessed to tax in India - India-USA Double Taxation Avoidance Agreement - HELD THAT - Identical issues were considered by the co-ordinate bench 2019 (4) TMI 1426 - ITAT DELHI wherein held the issue in favour of the assessee and answer the issue stating that the income received by the assessee cannot be taxed as royalty in India. Needless to say, that the question of interest is only consequential in nature. Revenue went in further appeal before the Hon'ble High Court of Delhi. The Hon'ble High Court 2019 (4) TMI 2092 - DELHI HIGH COURT relying on the judgment in the case of GE Packaged Power Inc 2015 (1) TMI 1168 - DELHI HIGH COURT confirmed the order of the Tribunal - we allow the grounds raised by the assessee.

Issues Involved:
1. Assessment of tax liability in India for the appellant.
2. Classification of receipts as "Royalties" under the Income-tax Act and DTAA.
3. Taxability of revenues earned from non-resident customers in India.
4. Categorization and taxation of revenues from non-resident customers.
5. Levying of interest under Section 234B of the Act.
6. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Issue 1: Assessment of Tax Liability in India
The appellant contested the tax liability assessment in India, arguing that they are not liable to be taxed in India. The appellant also sought direction to follow the High Court's orders in their favor for previous assessment years. The Tribunal referred to the appellant's case history and previous decisions, concluding that the issues were in favor of the appellant based on consistent views from previous judgments.

Issue 2: Classification of Receipts as "Royalties"
The dispute revolved around whether the receipts earned by the appellant qualified as "Royalties" under the Income-tax Act and the India-USA DTAA. The Assessing Officer categorized the receipts as royalties, leading to tax implications. However, the Tribunal, following precedents and High Court decisions, ruled in favor of the appellant, stating that the income received cannot be taxed as royalties in India.

Issue 3: Taxability of Revenues from Non-Resident Customers
The Panel and Assessing Officer deemed revenues earned from non-resident customers as chargeable to tax in India. The appellant challenged this categorization, arguing that being a resident of the USA, they are covered by the DTAA and should not be taxed under Indian provisions. The Tribunal, consistent with previous judgments, held in favor of the appellant, stating that the income received cannot be taxed as royalty in India.

Issue 4: Categorization and Taxation of Revenues from Non-Resident Customers
The Panel and Assessing Officer categorized revenues from non-resident customers into three categories without providing a reasonable basis. The Tribunal, following previous decisions and High Court rulings, sided with the appellant, stating that the impugned receipts cannot be held as royalty and consequently cannot be taxed in India.

Issue 5: Levying of Interest under Section 234B
The Assessing Officer levied interest under Section 234B of the Act, despite the appellant's argument that they were not obligated to pay advance tax in India due to not being liable to tax. The Tribunal, in line with previous judgments, allowed the appellant's grounds, indicating that the interest levied was not justified.

Issue 6: Initiation of Penalty Proceedings
The Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act. However, the Tribunal, following consistent views and High Court decisions, allowed the appellant's appeal, indicating that the penalty proceedings were not warranted.

In conclusion, the Tribunal, supported by previous judgments and High Court decisions, ruled in favor of the appellant on all issues, allowing the appeal and confirming that the income received by the appellant cannot be taxed as royalty in India.

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