2023 (4) TMI 812 - AT - Income Tax

TDS u/s 195 - Income taxable in India - licence fee - payment made by the assessee in the nature of Royalty under the provisions of the India Israel tax treaty and the same - Whether would be taxable in India at the rate of 10% of the gross amount of the royalties? - HELD THAT - We find that the coordinate bench of the Tribunal in assessee s own case in Celltick Mobile (India) Pvt. Ltd. 2021 (3) TMI 1121 - ITAT MUMBAI allowed the appeal filed by the assessee and deleted similar addition made in the hands of the assessee for non-deduction of TDS while making the licence fees payment to Celltick Israel. Since a similar issue has been decided in Revenue s appeal for the assessment year 2016-17, the decision rendered therein shall apply mutatis mutandis. As a result, grounds raised by the Revenue are dismissed.

Summary

Issues Involved:
1. Taxability of license fee paid to Celltick Technologies Limited in India.
2. Deductibility of tax on remittance to Celltick Technologies Limited.
3. Applicability of Section 40(a)(i) for non-deduction of TDS.

Summary:

Issue 1: Taxability of License Fee in India

The Revenue challenged the decision of the learned CIT(A) which held that the license fee paid to Celltick Technologies Limited is not taxable in India. The assessee argued that the license fee paid to its parent company, Celltick Israel, should not be taxed in India as per the India-Israel tax treaty. The Assessing Officer (AO) had classified the payment as Royalty, taxable at 10% under the treaty, and added it to the assessee's income due to non-deduction of TDS. However, the learned CIT(A) allowed the appeal based on the Tribunal's decision in the assessee's favor for the assessment year 2014-15, where it was held that the income was not taxable in India.

Issue 2: Deductibility of Tax on Remittance

The AO's addition was based on the assessee's failure to deduct TDS on the remittance to Celltick Israel. The assessee contended that since Celltick Israel had declared the income in its tax return and paid the due taxes, no TDS was required as per section 40(a)(i) r/w section 201. The Tribunal found that the assessee had provided the necessary documentation, including a certificate from a Chartered Accountant in Form 26A, supporting that Celltick Israel had disclosed the payment in its return of income and paid the taxes. The learned CIT(A) upheld this position, noting that similar additions were deleted in previous years and no contrary evidence was provided by the Revenue.

Issue 3: Applicability of Section 40(a)(i)

The Tribunal observed that the second proviso to section 40(a)(i), which deems the assessee to have deducted and paid taxes if the payee has filed a return and paid taxes, is applicable retrospectively. The Tribunal referenced the Bombay High Court and Delhi High Court decisions, which held that similar provisions were curative and applied retrospectively. Consequently, the Tribunal found no fault in the learned CIT(A)'s order and dismissed the Revenue's appeals for all assessment years involved.

Conclusion:

In conclusion, the Tribunal dismissed all the appeals by the Revenue, upholding the learned CIT(A)'s decision that the license fee paid to Celltick Technologies Limited is not taxable in India, and no TDS is required on the remittance, following the retrospective applicability of the second proviso to section 40(a)(i).