2022 (10) TMI 450 - AT - Income Tax

Income deemed to accrue or arise in India - Royalty Income - amount received for conducting research activities, which are in the nature of various rights transferred by the assessee to its Indian customers for commercial use - As per CIT-A revenue received by the assessee on account of granting various licences is not taxable as Royalty Income and so also the amount received for conducting research activities, which are in the nature of various rights transferred by the assessee to its Indian customers for commercial use - HELD THAT - In our considered opinion, as per section 90 subsection (2) of the Act, where India has executed a tax treaty, then, the non-resident assessee has the option of being taxed under the tax treaty to the extent its provisions are more beneficial and based upon provisions of India-UK DTAA, we have to consider the treatment given by the Assessing Officer in light of the relevant Article of India-UK DTAA. Article 13(3)of India-UK DTAA shows that the transaction shall fall under the ambit of Royalty only when payments are received from a buyer to exploit the underlying copyrights of an article or payment is made for information concerning industrial, commercial or scientific experience. We are of the considered view that the impugned quarrel is now well settled by the decision of the Hon'ble Supreme Court in favour of the assessee and against the Revenue in the case of Engineering Analysis Center of Excellence Pvt Ltd. 2021 (3) TMI 138 - SUPREME COURT - we find no reason to interfere with the findings of the ld. CIT(A) and direct the Assessing Officer to delete the impugned addition. Decided in favour of assessee.

Summary

Issues:
- Taxability of revenue received by the assessee on account of granting various licenses and conducting research activities.
- Interpretation of the term "Royalty Income" under India-UK DTAA.
- Application of section 90(2) of the Income Tax Act regarding tax treaties.
- Consideration of relevant judicial precedents in determining tax liability.

Analysis:
1. Taxability of Revenue: The appeals by the Revenue challenged the orders of the CIT(A) regarding the taxability of revenue received by the assessee for granting licenses and conducting research activities. The CIT(A) held that the revenue received was not taxable as "Royalty Income." The assessee, an internationally renowned university, engaged in various activities through its divisions, including research, education, publishing, and examination services.

2. Interpretation of Royalty Income: The Assessing Officer added the receipts to the total income of the assessee, alleging that the services provided were akin to Fees For Technical Services (FTS) under the India-UK DTAA. Additionally, the AO claimed that the receipts from examination-related services could be taxed as Royalty Income. The CIT(A) disagreed with this assessment, stating that the AO failed to provide a basis for taxability as royalty.

3. Application of Tax Treaties: Section 90(2) of the Income Tax Act allows non-resident assessees the option to be taxed under tax treaties if more beneficial. The ITAT considered the provisions of the India-UK DTAA in light of the treatment given by the Assessing Officer. Article 13(3) of the India-UK DTAA defines Royalty, emphasizing payments for the use of copyrights or information concerning industrial, commercial, or scientific experience.

4. Judicial Precedents: The ITAT referred to a decision of the Hon'ble Supreme Court in a similar case, where it was held that payments made for the resale/use of computer software did not constitute royalty for the use of copyright. Relying on this precedent, the ITAT concluded that the revenue received by the assessee was not taxable as royalty under the India-UK DTAA. Consequently, the appeals of the Revenue were dismissed, upholding the findings of the CIT(A) and directing the Assessing Officer to delete the addition made to the assessee's income.

In conclusion, the judgment clarified the taxability of revenue received by the assessee, emphasizing the interpretation of Royalty Income under the India-UK DTAA and the application of relevant tax treaty provisions and judicial precedents in determining tax liability.