2024 (3) TMI 1349 - HC - Income Tax

Royalty v/s business income - distribution revenue earned by the appellant assessee - taxed as royalty, as per section 9(1)(vi) and Article 12 of the DTAA between India and the USA OR a business income - HELD THAT - The fact of the Mutual Agreement Procedure having been adhered to by respective parties and consequent to the adjudication completed therein, the assessee having agreed to pay 10% of advertising and subscription revenue is not disputed. As would be manifest from a reading of of our order the aforesaid practice is also stated to have been accepted by the Revenue for Assessment Years 2007-08 and 2008-09. In view of the aforesaid and bearing in mind the principles of consistency, we find no justification to entertain the challenge.

Summary

Issues:
1. Whether distribution revenue earned by the appellant assessee can be taxed as royalty or as business income?
2. Whether the income of the assessee company should be determined based on the resolution made under Mutual Agreement Procedure (MAP) in respect of earlier years?

Analysis:
The High Court was presented with two main issues for consideration in the instant appeals. The first issue revolved around determining whether the distribution revenue earned by the appellant assessee should be taxed as royalty under section 9(1)(vi) of the Act and Article 12 of the DTAA between India and the USA, or as business income. The second issue was whether the income of the assessee company for the current assessment year should be determined based on the resolution made under the Mutual Agreement Procedure (MAP) in respect of earlier years.

In the judgment, the Court noted that the respondent/assessee had consistently offered 10% of the advertising and subscription revenue for levy of tax after the Mutual Agreement Procedure (MAP) was entered into between the Governments of India and the United States. The Court highlighted that the appellant/revenue had accepted the regime put in place by MAP for Assessment Years 2007-2008 and 2008-2009. The Court acknowledged the adherence to the Mutual Agreement Procedure and the acceptance of the revenue practice by both parties for the mentioned assessment years.

Considering the facts and the principles of consistency, the Court found no justification to entertain the challenge raised by the Revenue. Therefore, the Court disposed of the appeals while leaving the questions of law open to be addressed in appropriate proceedings. The judgment emphasized the importance of adhering to the resolution made under the Mutual Agreement Procedure and the acceptance of the revenue practice by both the assessee and the Revenue for specific assessment years.

In conclusion, the High Court's judgment upheld the practice of taxing 10% of advertising and subscription revenue as agreed upon under the Mutual Agreement Procedure for certain assessment years. The Court's decision highlighted the significance of consistency and adherence to the resolution made under the Mutual Agreement Procedure in determining the tax liability of the assessee company.