2017 (10) TMI 827 - AT - Income Tax

Income chargeable to tax in India - whether receipt by the assessee is not Royalty under Article 12 of the Double Taxation Avoidance Agreement between India and Thailand - Held that - Admittedly, the Hon ble Delhi High Court in assessee s own case 2016 (2) TMI 415 - DELHI HIGH COURT has considered the above issue in AY 2007-08 and AY 2009-10 on the identical facts and circumstances deciding that the amendment made by the Finance Act 2012 will not affect Article 12 of the DTAA and therefore, the income earned by the assessee cannot be held to be royalty and consequently to chargeable to tax in India.

Summary

Issues Involved:
1. Nature of Receipts: Business Income vs. Royalties
2. Taxability of Receipts in India
3. Interest Charged Under Sections 234B and 234D
4. Permanent Establishment in India
5. Consultancy Services Income Taxability
6. Applicability of Amendments by Finance Act 2012 to DTAA
7. Principles of Natural Justice

Detailed Analysis:

Nature of Receipts: Business Income vs. Royalties:
The primary issue raised by the revenue was whether the receipts of the assessee should be classified as business income or royalties. The CIT(A) held that the receipts are in the nature of business income. The revenue contended that these receipts should be considered royalties as per the Indian Income Tax Act and the Double Taxation Avoidance Agreement (DTAA) between India and Thailand. The Tribunal, following the Delhi High Court's decision in the assessee's own case, concluded that the receipts are not royalties but business income, thus not chargeable to tax in India.

Taxability of Receipts in India:
The revenue argued that the receipts from telecasting services and transponder services are taxable in India. The assessee contended that these receipts are not taxable in India under the DTAA between India and Thailand. The Tribunal, relying on the Delhi High Court's judgment, held that the income from these services does not constitute royalties and is not taxable in India as per Article 12 of the DTAA, despite retrospective amendments to the Income Tax Act by the Finance Act 2012.

Interest Charged Under Sections 234B and 234D:
The revenue's appeal included the issue of deleting interest charged under Sections 234B and 234D of the Income Tax Act. The Tribunal, following the High Court's decision, upheld the deletion of such interest, as the primary issue of taxability of receipts was decided in favor of the assessee.

Permanent Establishment in India:
The revenue argued that the assessee had a permanent establishment (PE) in India, making the receipts taxable. The Tribunal, based on the High Court's decision, concluded that the assessee did not have a PE in India, and thus, the receipts could not be taxed as royalties.

Consultancy Services Income Taxability:
The assessee also challenged the taxability of consultancy services income. The Tribunal, following the High Court's decision, held that the consultancy services income is not taxable in India under the DTAA between India and Thailand.

Applicability of Amendments by Finance Act 2012 to DTAA:
The revenue contended that the amendments made by the Finance Act 2012 to Section 9(1)(vi) of the Income Tax Act should apply to the DTAA. The Tribunal, relying on the High Court's judgment, held that such amendments do not affect the interpretation of Article 12 of the DTAA. The court emphasized that unilateral amendments to domestic law cannot alter the terms of an international treaty unless both parties to the treaty agree to the amendments.

Principles of Natural Justice:
The assessee argued that the revenue's actions were contrary to the principles of natural justice. The Tribunal, following the High Court's decision, found that the revenue's assessment was based on conjectures and surmises, and thus, the principles of natural justice were violated.

Conclusion:
The Tribunal dismissed the revenue's appeals for the Assessment Years 2005-06 and 2006-07 and allowed the assessee's appeals for the Assessment Years 2008-09 and 2010-11. The Tribunal's decision was based on the Delhi High Court's judgment, which held that the receipts in question are not royalties and are not taxable in India under the DTAA between India and Thailand. The amendments made by the Finance Act 2012 to the Income Tax Act do not affect the DTAA's provisions.