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2022 (4) TMI 1511 - AT - Income TaxIncome deemed to accrue or arise in India - Royalty receipt - Fees for Technical Services (FTS) as defined u/s 9(1)(vii) of the Income-tax Act 1961 as well as within the meaning of Article 12(3) of the India-Belgium Double Taxation Avoidance Agreement - payments received as consideration for the use of or the right to use any secret formula or process - As submitted interpretation of the term process under Explanation 6 cannot be read into DTAA as the term used in DTAA under Article 12(3) is secret process - assessee argued that consideration for services rendered to Indian Company as per Carrier Service Agreement(CSA) - Whether payment received by assessee could be considered as Royalty as per section 9(1)(vi) read with Explanation 2 5 6 of the Act ? - Assessee submitted that assessee was not liable to deduct tax in India - CIT.DR at the outset submitted that the disallowance has been made as Royalty and therefore applicability if FTS need not be touched upon - also submitted as on analysing the DTAA between India and Belgium DTAA rendered via protocol attached to the Tax Treaty between India Hungary rendered via Protocal attached to the Tax Treaty between Indian Greece that the payments received by the assessee on account of Service rendered to Hutch cannot be brought to tax in view of the principle of most favoured nation (MFN) clause in the Tax Treaty unless there is a right to use secret process by Hutch in India. HELD THAT - We deem it just and proper to remand the issue back to the Ld.AO for a de novo consideration. We also direct the Ld.AO to consider the issue based on the recorded arguments advanced by both sides keeping all contentions open. AO is directed to verify the submissions of both sides by keeping in mind the principle laid down by the Hon ble Supreme Court in case of Engineering Analysis 2021 (3) TMI 138 - SUPREME COURT that domestic law cannot be read into treaties unless the treaties are amended bilaterally. Needless to say that proper opportunity of being heard must be granted to assessee. Grounds raised by assessee stands allowed for statistical purposes.
Issues Involved:
1. Jurisdiction under Section 147 of the Income Tax Act. 2. Classification of payment as 'royalty' under Section 9(1)(vi) of the IT Act and Article 12(3) of the India-Belgium DTAA. 3. Applicability of retrospective amendments to Section 9(1)(vi) of the IT Act. 4. Taxability of payment for services utilized for income from a source outside India. 5. Production of evidence by the assessee. 6. Payment of tax by the assessee versus the payer in India. 7. Levy of interest under Sections 234A, 234B, and 234C of the IT Act. Issue-wise Detailed Analysis: 1. Jurisdiction under Section 147 of the Income Tax Act: The Ld. AO reopened the assessment under Section 147 after noting that the assessee did not file a return for the income received from Hutch, which was taxable in India. The tribunal upheld the AO's jurisdiction, agreeing that there was a reason to believe that income had escaped assessment. 2. Classification of Payment as 'Royalty': The AO and DRP classified the payment received by the assessee as 'royalty' under Section 9(1)(vi) of the IT Act and Article 12(3) of the India-Belgium DTAA. The assessee argued that the payment was for internet services and should not be classified as 'royalty'. The tribunal considered various precedents and OECD commentary, emphasizing that the term 'process' in the DTAA refers to a 'secret process'. The tribunal noted that the retrospective amendments to Section 9(1)(vi) of the IT Act do not affect the definition of 'royalty' under the DTAA. The tribunal also highlighted the principle that domestic law cannot override treaty provisions unless the treaty is amended bilaterally. 3. Applicability of Retrospective Amendments to Section 9(1)(vi) of the IT Act: The tribunal observed that the retrospective amendments to Section 9(1)(vi) introduced by the Finance Act, 2012, which expanded the definition of 'process', do not apply to the DTAA. The tribunal relied on the Supreme Court's decision in Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT, which emphasized that amendments to domestic law cannot unilaterally alter treaty provisions. 4. Taxability of Payment for Services Utilized for Income from a Source Outside India: The tribunal did not specifically address this issue in detail but implied that the classification of the payment as 'royalty' under the DTAA would determine its taxability. 5. Production of Evidence by the Assessee: The tribunal admitted additional grounds raised by the assessee, noting that no new facts needed to be investigated. The tribunal directed the AO to reconsider the issue de novo, ensuring that proper opportunity is given to the assessee to present evidence. 6. Payment of Tax by the Assessee versus the Payer in India: The tribunal did not specifically address this issue but implied that the classification of the payment as 'royalty' would determine the tax liability. 7. Levy of Interest under Sections 234A, 234B, and 234C of the IT Act: The tribunal noted that the levy of interest under Sections 234A, 234B, and 234C is consequential and automatic as per the specific provisions of the Act. Conclusion: The tribunal remanded the issue back to the AO for a de novo consideration, directing the AO to verify the submissions of both sides and consider the principles laid down by the Supreme Court in the Engineering Analysis case. The appeal filed by the assessee was allowed for statistical purposes.
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