2022 (10) TMI 1104 - AT - Income Tax

Income accrued in India - Addition treating the entire receipt as Royalty u/s 9(1)(vi) taxable @ 10% under the India Germany Double Taxation Avoidance Agreement ( DTAA ) - HELD THAT - We find that the identical issue was raised before the Co-ordinate Bench of the Tribunal in the case of M/s. Springer Verlag GmbH 2022 (8) TMI 1297 - ITAT DELHI no merit in the findings of the ld. CIT(A) by treating the commission as managerial service under the India Germany DTAA. There is no dispute that the assessee has received commission as per the Commissionaire Agreement with SIPL which is nothing but export commission/sales commission, which has been treated as FTS. Thus we set aside the findings of Ld.CIT(A) and direct the AO to delete the addition. Thus, Ground No.2 raised by the assessee is allowed. Addition in respect of subscription fee collected from third party customers - HELD THAT - it is not the case of the Revenue that there was transfer of copyright by the assessee - As respectfully following the judgement of Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. 2021 (3) TMI 138 - SUPREME COURT , AO directed to delete the additions.

Summary

Issues Involved:
1. Assessment of total income.
2. Recharacterization of commission income.
3. Treatment of subscription fee as royalty income.
4. Levy of interest under sections 234A and 234B.
5. Initiation of penalty proceedings under section 271(1)(c).

Issue-wise Detailed Analysis:

1. Assessment of Total Income:
The assessee contested the assessment of total income at Rs. 16,90,72,945/- against the returned income of NIL. This ground was general in nature and required no separate adjudication.

2. Recharacterization of Commission Income:
The Ld. CIT(A) recharacterized the commission income of Rs. 22,89,835/- from Springer Nature India Private Limited (SNIPL) as Fee for Technical Services (FTS) under Article 12 of the India-Germany DTAA and the Act. The Tribunal found that the services provided under the Commissionaire Agreement, such as customer service, order handling, and invoicing, were not managerial services. The Tribunal referenced the Co-ordinate Bench's decision in the case of Springer Verlag GmbH, which held that mere provision of support services does not constitute managerial services. Consequently, the Tribunal concluded that the commission income should not be characterized as FTS and directed the AO to delete the addition.

3. Treatment of Subscription Fee as Royalty Income:
The subscription fee of Rs. 16,67,83,110/- collected from third-party customers was treated as royalty income by the AO and upheld by the Ld. CIT(A). The Tribunal referred to the Supreme Court's judgment in Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT, which clarified that payments for the resale/use of software do not constitute royalty if there is no transfer of copyright. The Tribunal found that the subscription fees collected by the assessee were for accessing e-journals, which are copyrighted articles, and there was no transfer of copyright. Therefore, the subscription fees should not be taxed as royalty. The Tribunal directed the AO to delete the addition.

4. Levy of Interest under Sections 234A and 234B:
The levy of interest under sections 234A and 234B was deemed consequential. Since the primary issues were resolved in favor of the assessee, the interest levied under these sections was also affected accordingly.

5. Initiation of Penalty Proceedings under Section 271(1)(c):
The initiation of penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars and concealment of income was considered premature and dismissed. The Tribunal noted that if the primary grounds were decided in favor of the assessee, no penalty should be levied. It also referenced the Supreme Court's decision in Reliance Petroproducts (P.) Ltd. vs. CIT, which held that merely because a claim is not accepted by the revenue, it does not attract penalty under section 271(1)(c).

Conclusion:
The appeal was partly allowed. The Tribunal directed the AO to delete the additions related to the recharacterization of commission income as FTS and the treatment of subscription fees as royalty income. The grounds related to the levy of interest and initiation of penalty proceedings were dismissed as consequential and premature, respectively.