9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (10) TMI 92 - AT - Income TaxIncome accrued in India - taxable event - amount received from the Indian entity on transfer of copyrighted articles as Royalty - as argued receipt is in the nature of reimbursement and hence not taxable - HELD THAT - As assessee acquired only a limited right of user in respect of specific software products from PTC Inc. and two other vendors, which are in the nature of copyrighted articles. As such, there cannot possibly be a situation of it passing on the copyright in them to its group entities. It hardly needs to be accentuated that no one can transfer a better right in a product than he himself has. Since the assessee itself obtained only a limited access to the software products de hors the right to copy the same, the sequitur is that it could not have transferred anything more than that to its entities globally including India. No question of treating the amount received from the Indian entity on transfer of copyrighted articles as Royalty in the hands of the assessee within the meaning of Article 12(3) of the DTAA. Respectfully following the ratio decidendi in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. 2021 (3) TMI 138 - SUPREME COURT we hold that the authorities below were not justified in including the amount in question in the total income of the assessee as Royalty as relying on SAMSUNG ELECTRONICS CO. LTD. 2009 (9) TMI 526 - KARNATAKA HIGH COURT which is no more a good law after the advent of the Engineering Analysis (SC)(supra). Resultantly, the receipt is held to be not taxable notwithstanding the rejection of the contention of Reimbursement. If the receipt from the Indian entity is not Royalty, can it be charged to tax as regular business income? - Absent any permanent establishment of an assessee in India, the receipt cannot be included in the total income on that score. The assessee made sale of finished goods in India including the first transaction of ₹ 7.21 crore and odd as taken note by the AO on page 7 of the draft order. DRP excluded it from the total income after receiving remand report from the AO accepting that the assessee did not have any permanent establishment in India. The same raison d'etre applies here also and hence the amount of ₹ 86,55,225 cannot be charged as Business profits as well under the DTAA. In the final analysis, the receipt is not chargeable to tax. Taxability of Reimbursement of Travelling, Freight and other charges - assessee contended before the DRP that it was a mere case of reimbursement of Travelling and related expenses incurred on behalf of its Indian entity without any mark up and hence the same did not constitute its income - HELD THAT - The amount pertaining to only three employees has been recovered as such from the Indian entity. Again, there is another invoice of GO Riteway Transportation at page 1963 of the paper book with value of 8,898.04 USDs. Employees of the Indian entity have been named at two places in such an invoice. The exact amount as charged by GO Riteway Transportation group from the assessee has been recovered from the Indian entity. This invoice is also for transportation. Similar is the position regarding other invoices which are in relation to Lodging and Boarding of Indian employees recovered from the Indian entity without any profit element. In view of the above discussion, it is clear that one-to-one link is overtly established between the amount paid by the assessee to third party vendors and that recovered from the Indian entity, which is evidently without any mark up. As it is only reimbursement of cost not containing any profit element, there can be no question of including such receipts in the total income of the assessee. This issue is determined in favour of the assessee. Reimbursement of Internet charges from the Indian entity - AO included such amount in the total income as per the draft order - assessee assailed the same before the DRP, which rejected the assessee's contention by observing that no evidence was furnished - HELD THA - The assessee has placed a tabulation of sample invoices of Internet charges allocated by it to the Indian entity on page 44 of the written submissions. A vendor called Verizon raised invoices on the assessee, sample of which have been placed at page 2008 to 2022 of the paper book. These invoices distinctly point out 'Location/Service Index', namely, the user. Indian address with the exact amount of charge has been mentioned, which has been recovered - it is not a case of cost sharing of total costs between all the entities on some allocation key but charging the exact amount paid for the Indian entity. This indicates that the assessee paid the amount in question to Verizon for internet access and then recovered it from the Indian entity as such without any mark up. As it is also a case of reimbursement, there cannot be any question of including it in the total income of the assessee. We, therefore, order to exclude Reimbursement of Internet charges from the Indian entity from the total income of the assessee on this score. The assessee succeeds. Rate of tax at which the income declared by the assessee has been charged - HELD THAT - The purpose of an assessment is to determine the correct amount of income and tax payable thereon. If the Act provides for soft-peddling, then that cannot be whisked away by the Officers. As it is a matter of exercising the option and the assessee did it in a particular way which was more beneficial to it albeit during the course of the assessment proceedings itself, the claim ought not to have been denied. Be that as it may, even though the judgment in Goetze (supra) provides that the AO has no power to entertain claim made otherwise than by way of a revised return, it unequivocally provides 'that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Tribunal under s. 254 of the IT Act, 1961'. Thus it is evident, that there is no such constraint on the power of the Tribunal and it can grant rightful relief on a point for which no claim was made in the return of income. We, therefore, hold that no fault can be found with the assessee exercising the option as per section 90(2) of the Act to be governed by the reduced rate of tax of 10% plus surcharge etc. in terms of section 115A of the Act. It is, therefore, directed that tax be charged on the declared income of the assessee from Royalty and FTS at 10% under the Act.
Issues Involved:
1. Taxability of revenue from software licenses. 2. Taxability of revenue from sale of other capital goods. 3. Taxability of reimbursement of traveling, freight, and other charges. 4. Taxability of reimbursement of internet charges. 5. Appropriate tax rate for declared income. Detailed Analysis: 1. Taxability of Revenue from Software Licenses: The assessee, a USA-based company, allocated costs of software licenses purchased from third-party vendors to its group entities, including the Indian entity, on a cost-to-cost basis without any markup. The DRP and AO treated the amount received from the Indian entity as Royalty under section 9(1)(vi) of the Income-tax Act, 1961, and the DTAA between India and the USA. However, the Tribunal, following the Supreme Court's decision in Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT, held that the amount received was not Royalty since the assessee did not transfer any copyright but only a limited right to use the software. Consequently, the receipt was not taxable as Royalty. 2. Taxability of Revenue from Sale of Other Capital Goods: The AO included ?10,02,903/- in the total income of the assessee from the sale of other capital goods. The DRP allowed partial relief, reducing the disallowance to ?5,71,033/-. The assessee did not press this ground during the hearing, and hence, it was dismissed. 3. Taxability of Reimbursement of Traveling, Freight, and Other Charges: The assessee contended that the amount of ?12,68,764/- was a mere reimbursement of expenses incurred on behalf of the Indian entity without any markup. The Tribunal, after examining the details and invoices, found a clear one-to-one link between the amounts paid to third-party vendors and those recovered from the Indian entity. Since the reimbursement did not contain any profit element, it was not taxable. 4. Taxability of Reimbursement of Internet Charges: The AO included ?30,31,448/- in the total income, which was contested by the assessee as reimbursement of internet charges. The Tribunal found that the exact amount paid by the assessee to the internet service provider was recovered from the Indian entity without any markup. Hence, it was held to be a reimbursement and not taxable. 5. Appropriate Tax Rate for Declared Income: The assessee declared an income of ?6,01,50,239/- and offered it to tax at 15% under Article 12 of the DTAA. However, the assessee later claimed that the correct rate should be 10% as per the amended section 115A of the Income-tax Act, 1961. The DRP rejected this claim on the ground that it was not made in the income tax return. The Tribunal held that the assessee could exercise the option under section 90(2) of the Act to be governed by the more beneficial provisions of the Act. Therefore, the income was directed to be taxed at 10%. Conclusion: The Tribunal partly allowed the appeal, holding that the revenue from software licenses was not taxable as Royalty, the reimbursement of traveling, freight, and internet charges was not taxable, and the declared income should be taxed at 10% as per section 115A of the Income-tax Act, 1961. The issue regarding the sale of other capital goods was dismissed as not pressed, and the ground regarding insurance charges was also dismissed.
|
