2022 (8) TMI 1446 - AT - Income Tax

Income taxable in India - royalty receipts - India- UK Treaty - HELD THAT - As we observed that similar issue was considered and adjudicated by the Coordinate Bench in assessee s own case for the A.Y. 2017-18 2017 (4) TMI 1109 - SUPREME COURT and decided the issue in favour of the assessee to hold that the impugned payment made by the Branch to the H.O. towards reimbursement of cost of data processing cannot be held to be covered within the scope of expression royalty under Article12(3)(a) of the India Belgium DTAA. Accordingly, the conclusion drawn by the learned Commissioner (Appeals) is affirmed. DRP erred in holding that a unilateral amendment of the term 'process' under the Act would get imported into the definition of 'royalty' given under Article 13 of India-UK tax treaty. Land Earth Station ('LES') constitutes a PE of the assessee in India or not? - As decided in assessee own case 2020 (10) TMI 1188 - ITAT MUMBAI assessee did not have any PE in India during the year under consideration. Non granting the TDS credit - Considering the overall merits on the submissions made by the assessee we are inclined to remit this issue back to the file of Assessing Officer with a direction to verify the records submitted by the assessee on merit and verify the same. It is needless to say that assessee may be given a proper opportunity of being heard. In the result the issue under consideration is remitted back to the file of Assessing Officer for statistical purpose

Summary

Issues Involved:
1. Determination of total income.
2. Classification of amounts received as 'Royalty' under the India-UK DTAA.
3. Adherence to previous ITAT decisions.
4. Impact of unilateral amendment of the term 'process'.
5. Computation of profitability on an ad-hoc basis.
6. Existence of Permanent Establishment (PE).
7. Grant of TDS credit.
8. Levy of interest under sections 234A and 234B.
9. Initiation of penalty proceedings under Section 270A.

Detailed Analysis:

1. Determination of Total Income:
The assessee declared a total income of Nil, which was contested by the Assessing Officer (AO) and the Dispute Resolution Panel (DRP), resulting in an assessed income of Rs. 5,32,74,538. The AO's assessment was based on treating the receipts from Tata Communications Limited (TCL) as 'Royalty' under the Income Tax Act and the India-UK DTAA.

2. Classification of Amounts Received as 'Royalty':
The AO and DRP held that the amounts received by the assessee from TCL were taxable as 'Royalty' under Article 13(3)(a) of the India-UK DTAA. The assessee contended that these receipts were not 'Royalty' and cited previous ITAT decisions in its favor. The ITAT upheld the assessee's position, referencing multiple prior judgments that concluded such receipts were not 'Royalty'.

3. Adherence to Previous ITAT Decisions:
The ITAT noted that similar issues had been adjudicated in favor of the assessee in previous years (AY 2000-01 to 2005-06, AY 2007-08 to 2012-13, AY 2013-14 to 2014-15, AY 2015-16, and AY 2016-17). The tribunal followed these precedents, emphasizing consistency in judicial decisions.

4. Impact of Unilateral Amendment of the Term 'Process':
The AO and DRP's reliance on the unilateral amendment of the term 'process' under the Act to classify receipts as 'Royalty' was contested. The ITAT ruled in favor of the assessee, stating that unilateral amendments could not alter the definition of 'Royalty' under the DTAA, following the principles established in previous rulings.

5. Computation of Profitability on an Ad-hoc Basis:
The AO computed the profitability on an ad-hoc basis at 30% of the gross receipts from TCL by applying Rule 10 of the Income-tax Rules, 1962. The ITAT found this issue academic and did not adjudicate it at this stage.

6. Existence of Permanent Establishment (PE):
The DRP concluded that the Land Earth Station (LES) and Liaison Office (LO) constituted a PE of the assessee in India. The ITAT rejected this, referencing previous decisions that the LES was owned and operated by TCL, and the LO's activities did not constitute a PE. The tribunal reiterated that the factual matrix had not changed from previous years, where it was established that the assessee did not have a PE in India.

7. Grant of TDS Credit:
The assessee claimed TDS credit of Rs. 40,90,845, which was not granted in the assessment order. The ITAT remitted this issue back to the AO for verification and appropriate action, emphasizing the need to grant TDS credit in the year the corresponding income is offered to tax.

8. Levy of Interest Under Sections 234A and 234B:
The ITAT noted that the grounds related to the levy of interest under sections 234A and 234B were consequential and premature, thus not requiring adjudication at this stage.

9. Initiation of Penalty Proceedings Under Section 270A:
The initiation of penalty proceedings under Section 270A was acknowledged but not adjudicated, as it was deemed premature.

Conclusion:
The ITAT ruled in favor of the assessee on most grounds, particularly regarding the classification of receipts as 'Royalty' and the existence of a PE in India. The tribunal followed precedents set in previous years and remitted the issue of TDS credit back to the AO for verification. The grounds related to the levy of interest and penalty proceedings were deemed premature and not adjudicated.