2022 (2) TMI 481 - AT - Income Tax

Income accrued in India - consideration earned by the Appellant from supply of CAS and Middleware products to the Indian customers - addition under royalties' as defined u/s. 9(1)(vi) of the Act and Article 12(3) of the India-Swiss Confederation Double Taxation Avoidance Agreement ('India-Swiss tax treaty') - HELD THAT - Issue decided by the Hon'ble Tribunal in Appellant's own case 2020 (7) TMI 640 - ITAT DELHI for the previous AY 2016-17 and even covered by the recent judgment of the Hon'ble Supreme Court in the case of Engineering Analysis Centre For Excellence Private Limited Vs. Commissioner Of Income Tax Another 2021 (3) TMI 138 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the assessment order and rectification order.
2. Taxability of revenues from the supply of Conditional Access Systems (CAS) and Middleware products.
3. Shortfall in the grant of credit for Taxes Deducted at Source (TDS).
4. Initiation of penalty proceedings.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order and Rectification Order:
The appellant challenged the assessment order dated 28-12-2020 and the rectification order dated 11-01-2021, arguing that these orders were bad in law and void-ab-initio. The tribunal found these grounds to be general in nature and did not require specific adjudication.

2. Taxability of Revenues from Supply of CAS and Middleware Products:
The appellant contended that the consideration earned from the supply of CAS and Middleware products to Indian customers did not fall within the ambit of "royalties" as defined under Section 9(1)(vi) of the Income Tax Act and Article 12(3) of the India-Switzerland Double Taxation Avoidance Agreement (India-Swiss tax treaty). The appellant further argued that the revenue earned represented business income, which was not taxable in India in the absence of a Permanent Establishment (PE) in India, as per the provisions of the Act and Article 5 read with Article 7 of the India-Swiss tax treaty.

The tribunal noted that the issues raised were covered by the appellant's own case in ITA No. 9130/Del/2019 for AY 2016-17 decided on 06-07-2020 and the Supreme Court judgment in Engineering Analysis Centre for Excellence Private Limited Vs. Commissioner of Income Tax & Another - AIR 2021 SC 124/432 ITR 471 (SC). The tribunal observed that the revenue from the sale of hardware equipment and CAS and Middleware products was not considered "royalty" under the DTAA and was thus not taxable in India in the absence of a PE. Consequently, the tribunal allowed grounds No. 3 and 4 in favor of the appellant.

3. Shortfall in Grant of Credit for TDS:
The appellant argued that the Ld. DCIT erred in restricting the credit for TDS to ?5,52,23,879 as per the rectification order dated 11 January 2021, instead of ?5,66,27,192 as claimed by the appellant. The tribunal remitted the issue to the AO with a direction to grant an opportunity to the appellant to reconcile the details of the TDS and allow necessary credit as per law. This ground was allowed for statistical purposes.

4. Initiation of Penalty Proceedings:
The appellant contended that the initiation of penalty proceedings under Section 270A of the Act was erroneous. The tribunal found this ground to be premature and dismissed it.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions to the AO regarding the reconciliation of TDS credit. The tribunal upheld the appellant's contentions regarding the non-taxability of revenues from the supply of CAS and Middleware products, aligning with previous judgments and the Supreme Court's ruling.