2022 (5) TMI 1504 - AT - Income Tax

Income taxable in India - Royalties within the ambit of 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 ) - whether 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 - The similar issues have been cropped up and the same have been considered and decided by this Tribunal in 2021 (10) TMI 1389 - ITAT DELHI Thus respectfully following the ratio laid down above direct the AO to treat the income of the assessee as not liable to tax in India. Appeal of the assessee allowed.

Issues:
1. Assessment of income of the appellant for the subject year.
2. Direction to hold the appellant not liable to tax in India.
3. Classification of receipts as "Royalties" under the Income-tax Act and DTAA.
4. Applicability of beneficial provisions of DTAA between India and USA.
5. Impact of retrospective amendment on the interpretation of DTAA.
6. Taxability of receipts from non-resident customers under section 9(i)(vi)(c) of the Act and India-USA DTAA.
7. Initiation of penalty proceedings under section 271(i)(c) of the Act.

Detailed Analysis:
1. The appeal was filed against the final assessment order for the assessment year 2016-17, assessing the income of the appellant at a specific amount. The grounds of appeal challenged the assessment conducted by the Assessing Officer.

2. The appellant argued that they should not be liable to tax in India, referencing previous decisions by the Hon'ble Dispute Resolution Panel and the High Court of Delhi in their favor for other assessment years. The appellant contended that the orders in their favor should be followed for the current assessment year as well.

3. The dispute revolved around the classification of the appellant's receipts as "Royalties" under the Income-tax Act and the India-USA Double Taxation Avoidance Agreement (DTAA). The appellant contested that the receipts should not fall under this category.

4. Additionally, the appellant claimed that being a resident of the USA, they should benefit from the provisions of the DTAA between India and the USA, which would exempt them from being taxed in India under the provisions of the Income-tax Act.

5. The appellant argued against the retrospective amendment's impact on the interpretation of the DTAA, emphasizing that such amendments should not automatically affect the DTAA's provisions.

6. The issue of taxability of receipts from non-resident customers under specific sections of the Income-tax Act and the India-USA DTAA was raised. The appellant contested the categorization and percentage of revenue taxed from non-resident customers by the Panel and the Assessing Officer.

7. Lastly, the appellant challenged the initiation of penalty proceedings under section 271(i)(c) of the Act, claiming that the penalty was not justified based on the circumstances of the case.

The Tribunal, after considering the arguments and previous decisions, ruled in favor of the appellant, directing the Assessing Officer to treat the income of the assessee as not liable to tax in India for the assessment year in question. The decision was based on the findings and decisions of the Hon'ble High Court of Delhi and the Coordinate Bench of the Tribunal in similar cases, which had ruled in favor of the appellant.

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