2016 (6) TMI 248 - AT - Income Tax

Eligibility to provisions of DTAA between India and Singapore - Benefits under India-Singapore Tax Treaty v/s income assessed under section 115A - Non granting of benefits under the India Singapore Tax Treaty to the Appellant denied on the basis that it is not the beneficial owner of the income received from royalty and interest - r DTAA between India and Singapore - Held that - It is not the case of Revenue that the amount has not been remitted to Singapore, but the benefit of Tax Treaty have been denied to the assessee since the said amount has not been remitted in the current fiscal year i.e. financial year 2009-10. Where the amount has been remitted to Singapore and has been subject to the tax, we find no merit in the orders of Assessing Officer / DRP in denying the benefit of Treaty provisions to the assessee in taxing the income at lower rates. Thus where the assessee who had entered into an agreement with its principal in UK and received the know-how, which in turn, it could sub-license and had in furtherance provided services to its sub-licensee and received sub-licensee fees from sub-licensee i.e. INPL, then such royalty income having been received by the assessee non-resident company on its own right as the beneficial owner of the same, such royalty income is to be subject to tax at concessional tax rate at 10%. Similarly, the interest income earned by the assessee was also received by it being its beneficial owner and which in turn, has been remitted though not in the instant year, is taxable at concessional rate of taxes. - Decided in favour of assessee.

Summary

Issues Involved:
1. Non-granting of benefits under the India–Singapore Tax Treaty.
2. Non-applicability of Article 24 – Limitation of Relief of the treaty.
3. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Issue-wise Detailed Analysis:

1. Non-granting of benefits under the India–Singapore Tax Treaty:
The primary issue was whether the benefits under the India–Singapore Tax Treaty should be granted to the assessee. The assessee, a Singapore-incorporated company and a tax resident of Singapore, claimed lower tax rates on royalty and interest income received from Indian entities under the DTAA. The Assessing Officer denied these benefits, asserting that the assessee was not the beneficial owner of the income, but rather a conduit for Imerys Minerals Ltd., UK. The assessee argued that the know-how agreement between the UK and Singapore entities was on a principal-to-principal basis and not as an agent. The Tribunal examined various agreements and evidence, concluding that the assessee was indeed the beneficial owner of the royalty and interest income, thus eligible for the concessional tax rates of 10% for royalty and 15% for interest under Articles 11 and 12 of the DTAA.

2. Non-applicability of Article 24 – Limitation of Relief of the treaty:
The second issue pertained to the application of Article 24 of the DTAA, which limits the relief of tax benefits if the income is not remitted to or received in the other Contracting State (Singapore) in the same fiscal year. The Assessing Officer argued that since the royalty and interest income was not remitted to Singapore in the fiscal year 2009-10, the assessee was not entitled to the DTAA benefits. The assessee contended that there was no requirement in the DTAA for the income to be remitted in the same fiscal year. The Tribunal agreed with the assessee, stating that the DTAA should be interpreted liberally, and the income remitted in subsequent years still qualified for the concessional tax rates. The Tribunal referenced previous judgments supporting the assessee's position, including the Supreme Court's ruling in Union of India Vs. Azadi Bachao Andolan.

3. Initiation of penalty proceedings under section 271(1)(c) of the Act:
The Tribunal did not specifically address the initiation of penalty proceedings under section 271(1)(c) in detail, as the primary focus was on the taxability and beneficial ownership of the income. However, given the Tribunal's decision to grant the DTAA benefits to the assessee, it implicitly suggests that the grounds for penalty may not be substantiated.

Conclusion:
The Tribunal allowed the appeal of the assessee, granting the benefits of the India–Singapore Tax Treaty, recognizing the assessee as the beneficial owner of the royalty and interest income. The Tribunal also held that the limitation of relief under Article 24 did not apply as the income was eventually remitted to Singapore, albeit not in the same fiscal year. The appeal was allowed in favor of the assessee, and the order was pronounced on April 15, 2016.