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2020 (10) TMI 1188 - AT - Income TaxIncome accrued in India - taxing the receipts from TCL as 'Royalty' under Section 9(1)(vi) of the Act as well as Article 13(3)(a) of the India-UK Tax Treaty - HELD THAT - As decided in own case 2018 (12) TMI 1321 - ITAT MUMBAI the amounts received by the assessee from TCL for providing Satellite Telecommunication Services is not to be held as royalty in its hands. The Grounds of appeal Nos. 2 to 5 are allowed in terms of our aforesaid observations. PE in India - Liaison Office (LO) of the assessee constituted its PE in India and that the Land Earth Stations (LES) constituted a PE of the assessee in India - HELD THAT - A.O/DRP had in the aforesaid preceding years concluded that the LO and LES were to be treated as the PE on the assessee in India, remains the same, as are involved in the appeal of the assessee for the year under consideration, we therefore respectfully follow the aforesaid order of the Tribunal. Accordingly, in the backdrop of our aforesaid observations, we herein conclude that the assessee did not have any PE in India during the year under consideration. The Grounds of appeal Nos. 6 7 are allowed in terms of our aforesaid observations. Computing of the income of the assessee attributable to its PE in India - profitability on an adhoc basis at 30% of its gross receipts from TCL by applying Rule 10 of the Income Tax Rules, 1962 - HELD THAT - Since we have upheld the primary stand of the assessee that there does not exist any PE of the assessee in India, thus, the dispute in Ground of appeal No. 8 having been rendered as merely academic is dismissed as infructuos. A.O levying surcharge, secondary education cess and higher secondary education cess over and above the tax computed at the rate prescribed under the India-U.K. tax treaty on the receipts of the assessee while calculating its income tax liability for the year under consideration - HELD THAT - Tax computed at the rate prescribed under the India-U.K. tax treaty is not be subjected to any additional taxes in the form of surcharge or education cess. We thus set aside the view taken by the lower authorities and direct the A.O to recompute the tax liability of the assessee in terms of our aforesaid observations. The Ground of appeal No. 9 is allowed. Granting TDS credit - HELD THAT - As the adjudication of the said issue would require verification of the records, we therefore, restore the matter to the file of the A.O to verify the factual position. In case there is a short credit of TDS allowed to the assessee, then the credit for the balance amount shall be allowed by the A.O, as per law. Ground of appeal No. 10 is allowed for statistical purpose.
Issues Involved:
1. Determination of total income. 2. Classification of amounts received as 'Royalty'. 3. Adherence to previous Tribunal decisions. 4. Consideration of advance ruling in ISRO's case. 5. Application of Explanation 5/6 to Section 9(1)(vi) to the India-UK Tax Treaty. 6. Existence of a Permanent Establishment (PE) through the Liaison Office (LO). 7. Existence of a PE through the Land Earth Station (LES). 8. Ad-hoc profitability estimation at 30% of gross receipts. 9. Levy of surcharge and education cess. 10. Grant of TDS credit. 11. Levy of interest under Section 234B. 12. Initiation of penalty proceedings under Section 271(1)(c). Detailed Analysis: 1. Determination of Total Income: The Tribunal addressed the appellant's grievance that the total income was incorrectly determined at ?5,89,84,812 instead of 'Nil' as declared. The Tribunal scrutinized the assessment process and the grounds of appeal raised by the appellant. 2. Classification of Amounts Received as 'Royalty': The Tribunal examined whether the amounts received from Tata Communications Limited (TCL) were to be classified as 'Royalty' under Section 9(1)(vi) of the Act and Article 13(3)(a) of the India-UK Tax Treaty. It was noted that the Tribunal had previously ruled in favor of the appellant for A.Y. 2000-01 to A.Y. 2005-06, determining that such receipts were not 'Royalty'. The Tribunal reaffirmed this position, citing that the legal landscape had not changed significantly to warrant a different conclusion. 3. Adherence to Previous Tribunal Decisions: The Tribunal upheld the appellant's argument that the previous decisions in its own case should be followed, as the facts and circumstances remained unchanged. The Tribunal referred to its consolidated order dated 14.07.2017, which had ruled that the receipts from TCL were not 'Royalty'. 4. Consideration of Advance Ruling in ISRO's Case: The Tribunal considered the appellant's reliance on the advance ruling in ISRO's case, which was affirmed by the Supreme Court. The Tribunal noted that the AAR had held that amounts received for transponder services were not taxable as 'Royalty'. This precedent was found applicable to the appellant's case. 5. Application of Explanation 5/6 to Section 9(1)(vi) to the India-UK Tax Treaty: The Tribunal addressed the appellant's contention that the definition of 'Royalty' under Explanation 5/6 to Section 9(1)(vi) should not apply to the India-UK Tax Treaty. The Tribunal concluded that amendments to domestic law could not alter the definitions within the treaty unless the treaty itself was amended. 6. Existence of a Permanent Establishment (PE) through the Liaison Office (LO): The Tribunal examined whether the LO constituted a PE in India. It was determined that the LO did not carry out any income-generating activities and merely acted as a communication channel, adhering to the RBI's conditions for liaison offices. The Tribunal concluded that the LO did not constitute a PE. 7. Existence of a PE through the Land Earth Station (LES): The Tribunal reviewed whether the LES constituted a PE. It was found that the LES was owned and operated by TCL, not the appellant. The Tribunal reaffirmed that the LES did not constitute a PE for the appellant in India. 8. Ad-hoc Profitability Estimation at 30% of Gross Receipts: The Tribunal addressed the AO's estimation of the appellant's profitability at 30% of gross receipts. Since it was determined that the appellant did not have a PE in India, this issue was rendered academic and dismissed as infructuous. 9. Levy of Surcharge and Education Cess: The Tribunal ruled that the tax computed under the India-UK Tax Treaty should not be subjected to additional taxes in the form of surcharge or education cess. This conclusion was based on precedents from other Tribunal decisions. 10. Grant of TDS Credit: The Tribunal noted a discrepancy in the TDS credit granted and directed the AO to verify the records and allow the correct credit, if any shortfall was found. 11. Levy of Interest under Section 234B: The Tribunal dismissed the appellant's ground regarding the levy of interest under Section 234B as it was not pressed during the hearing. 12. Initiation of Penalty Proceedings under Section 271(1)(c): The Tribunal dismissed the ground regarding the initiation of penalty proceedings under Section 271(1)(c) as premature. Conclusion: The Tribunal allowed the appeal in terms of its observations, concluding that the amounts received by the appellant from TCL were not 'Royalty', the appellant did not have a PE in India, and the tax liability should be recomputed without surcharge or education cess. The matter of TDS credit was remanded to the AO for verification.
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