2022 (10) TMI 833 - AT - Income Tax

Income taxable in India - Taxability of income earned from testing and other services - India- Finland DTAA - HELD THAT - This issue is covered against the assessee by the order of coordinate bench in assessee s own case for the immediately preceding AY 2015-16 2019 (6) TMI 777 - ITAT KOLKATA as quoted by the Ld. DRP in its order. Thus we find no reason to take a divergent view on the identical issue. Accordingly, this ground of the assessee is dismissed. Levy of surcharge and education cess on the tax computed at the special rate provided under the provisions of Article 12 of the India Finland DTAA - HELD THAT - As relevant articles in the two treaties of India Singapore and India Finland bear similarity and the findings given as recorded by ITAT Kolkata in the case of DIC Asia-Pacific Pte Ltd 2012 (6) TMI 686 - ITAT, KOLKATA are applicable in the present case. Thus, for the reasons set out in the said decision, we are of the view that surcharge and education cess cannot be levied in respect of tax liability of the assessee under DTAA. Accordingly, groundno. 3 of the assessee is allowed.

Summary

Issues Involved:
1. Taxability of income earned from testing and other services.
2. Levy of surcharge and education cess.
3. Levy of interest under Section 234B of the Income-tax Act.

Detailed Analysis:

1. Taxability of Income Earned from Testing and Other Services:
The primary issue revolves around whether the income earned from testing and other services performed entirely in Finland is taxable in India under Article 12 of the India-Finland Double Taxation Avoidance Agreement (DTAA). The assessee contended that since the services were performed in Finland, the income should not be taxable in India. However, the Assessing Officer (AO) and the Dispute Resolution Panel (DRP) held that the income is taxable in India because the results of the testing were used by customers in India. This interpretation was based on the provision that royalties or fees for technical services are deemed to arise in a contracting state where the payer is located or where the services are used. The Income Tax Appellate Tribunal (ITAT) upheld this view, referencing its earlier decision in the assessee's own case for AY 2015-16, confirming that the income is taxable in India since the results were used in India.

2. Levy of Surcharge and Education Cess:
The second issue pertains to whether surcharge and education cess can be levied on the tax computed at the special rate under Article 12 of the India-Finland DTAA. The assessee argued that these additional charges should not be applied, citing a precedent from the ITAT Kolkata in the case of DIC Asia-Pacific Pte Ltd. v. ADIT, which dealt with the India-Singapore DTAA and concluded that education cess should not be levied. The ITAT found that the relevant articles in the India-Finland DTAA are similar to those in the India-Singapore DTAA and thus agreed with the assessee. Consequently, the ITAT ruled that surcharge and education cess cannot be levied on the tax liability under the DTAA, allowing this ground of appeal.

3. Levy of Interest under Section 234B of the Act:
The third issue concerns the levy of interest under Section 234B of the Income-tax Act. The ITAT noted that this issue is consequential in nature and does not require specific adjudication. Therefore, no detailed judgment was provided on this ground.

General and Additional Grounds:
The first ground of appeal, which is general in nature, was not adjudicated upon. The appellant also reserved the right to add, alter, amend, or withdraw any ground of appeal before or at the time of the hearing.

Conclusion:
The appeal was partly allowed. The ITAT upheld the taxability of income from testing and other services in India but ruled in favor of the assessee regarding the non-levy of surcharge and education cess on the tax liability under the DTAA. The issue of interest under Section 234B was deemed consequential and not specifically adjudicated. The order was pronounced in the open court on 18th October 2022.