2021 (10) TMI 1389 - AT - Income Tax

Royalty receipt - Explanation 2 to section 9(i)(vi) of the Income-tax Act, 1961 and Article 12(3) of the India-USA Double Taxation Avoidance Agreement ( DTAA ) - appellant being a resident of USA is covered by the beneficial provisions of DTAA between India and USA and accordingly, could not be taxed under the provisions of the Act - HELD THAT - After going through the decisions of the Hon'ble High Court of Delhi in the case of the appellant, we find that the quarrel has now been well settled in favour of the assessee and against the Revenue by the decision of the Hon'ble High Court of Delhi 2012 (9) TMI 1081 - DELHI HIGH COURT Similar view was taken in Assessment Year 2013-14 by this Tribunal 2019 (6) TMI 1689 - ITAT DELHI wherein the Tribunal has placed strong reliance on the decision of the Hon'ble High Court of Delhi in the case of Asia Satellite Telecommunications Co. Ltd 2011 (1) TMI 47 - DELHI HIGH COURT and New Sky Satellite 2016 (2) TMI 415 - DELHI HIGH COURT and since the order of the Tribunal was based on these decisions of the Hon'ble Jurisdictional High Court of Delhi, the Hon'ble High Court dismissed the appeal of the Revenue holding that no question of law arises.

Issues Involved:
1. Assessment of income under the Income Tax Act, 1961
2. Tax liability of the appellant in India
3. Nature of receipts as "Royalties"
4. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and USA
5. Impact of retrospective amendment on DTAA interpretation
6. Taxability of receipts from non-resident customers
7. Penalty proceedings under section 271(i)(c) of the Act

Analysis:

1. Assessment of Income under the Income Tax Act, 1961:
The appellant contested the assessment of its income at INR 1,05,13,94,035 for the relevant year. The Assessing Officer had made the assessment under section 143(3) r.w.s 144C(13) of the Income Tax Act, 1961. The appellant raised grievances regarding the assessment, leading to the appeal before the tribunal.

2. Tax Liability of the Appellant in India:
The appellant, a US company, argued that it should not be liable to tax in India as it was a tax resident of the USA under the Double Taxation Avoidance Agreement between India and the USA. The Assessing Officer rejected this contention during the scrutiny assessment proceedings. However, the tribunal, after considering the decisions of the Hon'ble High Court of Delhi in similar cases, ruled in favor of the appellant, directing the Assessing Officer to treat the appellant's income as not liable to tax in India.

3. Nature of Receipts as "Royalties":
The tribunal examined whether the receipts of the appellant fell under the category of "Royalties" as per the provisions of the Income Tax Act and the India-USA Double Taxation Avoidance Agreement. The appellant disputed this characterization, leading to a detailed analysis by the tribunal based on legal interpretations and precedents.

4. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and USA:
The appellant argued that being a resident of the USA, it should benefit from the provisions of the DTAA between India and the USA, and thus, should not be taxed under the Indian Income Tax Act. The tribunal reviewed the relevant provisions of the DTAA and the arguments presented by both parties before reaching a decision.

5. Impact of Retrospective Amendment on DTAA Interpretation:
A crucial aspect of the case involved the retrospective amendment in the Income Tax Act, 1961, and its impact on the interpretation of the India-USA DTAA. The appellant contended that the amendment should not automatically affect the interpretation of the DTAA. This issue required a thorough analysis of legal principles and the interplay between domestic laws and international agreements.

6. Taxability of Receipts from Non-Resident Customers:
The tribunal also deliberated on the taxability of the appellant's receipts from non-resident customers under specific provisions of the Income Tax Act and the DTAA. The tribunal assessed the categorization of these receipts and the basis for determining the percentage of revenue subject to taxation in India.

7. Penalty Proceedings under Section 271(i)(c) of the Act:
Lastly, the tribunal addressed the penalty proceedings initiated by the Assessing Officer under section 271(i)(c) of the Income Tax Act. The tribunal's decision on the appeal encompassed a comprehensive review of all issues raised by the appellant, ultimately allowing the appeal and pronouncing the order in favor of the appellant.

This detailed analysis of the judgment highlights the complex legal arguments, interpretations, and precedents considered by the tribunal in resolving the various issues raised by the appellant regarding its tax liability and the nature of its receipts under the Income Tax Act and the India-USA Double Taxation Avoidance Agreement.

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