2022 (4) TMI 1638 - AT - Income Tax

Income deemed to accrue or arise in India - 'royalty' or 'fee for technical services' - India- Netherlands DTAA - taxability of data transmission charges received by the assessee is a recurring issue between the parties from assessment year 2000-01 onwards - HELD THAT - It is a common point between the parties that the issue is squarely covered by the decision of the Tribunal and the Hon'ble jurisdictional High Court in assessee s own case in preceding assessment years. We find, the dispute relating to taxability of data transmission charges received by the assessee is a recurring issue between the parties from assessment year 2000-01 onwards. However, not only the Tribunal but the Hon'ble jurisdictional High Court under identical facts and circumstances have held that the amount received by the assessee towards data transmission charges is neither royalty nor FTS under the India Netherlands DTAA. Tribunal has held that the amount received by the assessee towards data transmission charges is neither in the nature of royalty nor FTS. We hold that the amount received by the assessee towards data transmission charges, being not in the nature of royalty and FTS, is not taxable in India. Accordingly, we delete the addition. Decided in favour of assessee.

Summary

Issues Involved:

1. Taxability of payments received for data transmission services as "royalty" or "fee for technical services" (FTS) under the Income-Tax Act and the India-Netherlands Double Taxation Avoidance Agreement (DTAA).
2. Non-grant of credit for taxes deducted at source.
3. Charging of interest under Section 234B of the Income-Tax Act.
4. Initiation of penalty proceedings under Section 270A of the Income-Tax Act.

Issue-wise Detailed Analysis:

1. Taxability of Payments as Royalty or FTS:

The core issue in the appeal was whether the payments received by the assessee for providing data transmission services could be classified as "royalty" or "fee for technical services" (FTS) under the Income-Tax Act, 1961, and the India-Netherlands DTAA. The assessee, a non-resident company based in the Netherlands, argued that these payments were business profits and not taxable in India due to the absence of a Permanent Establishment (PE) in India. The Assessing Officer (AO) contended that the payments were in the nature of royalty under Section 9(1)(vi) of the Act and Article 12(4) of the DTAA, as they involved the use of a process. Alternatively, the AO considered the payments taxable as FTS. The Tribunal noted that similar issues had been adjudicated in favor of the assessee in previous assessment years by both the Tribunal and the jurisdictional High Court, which held that such payments were neither royalty nor FTS under the DTAA. The Tribunal reiterated that domestic law amendments, such as those introduced by the Finance Act, 2012, could not unilaterally alter the terms of an international treaty. Consequently, the Tribunal upheld the assessee's position, ruling that the payments were not taxable in India.

2. Non-grant of Credit for Taxes Deducted at Source:

The assessee raised a grievance regarding the non-grant of credit for taxes deducted at source amounting to INR 62,72,654. The Tribunal directed the Assessing Officer to verify the relevant facts and materials on record and grant credit for TDS in accordance with the law.

3. Charging of Interest under Section 234B:

The issue of charging interest under Section 234B of the Income-Tax Act was raised by the assessee. However, the Tribunal did not specifically adjudicate this ground, as it was consequential in nature and dependent on the resolution of the primary issue regarding the taxability of payments.

4. Initiation of Penalty Proceedings under Section 270A:

The assessee also contested the initiation of penalty proceedings under Section 270A of the Income-Tax Act. Similar to the interest issue, the Tribunal did not specifically address this ground, as it was consequential and dependent on the outcome of the main taxability issue.

Conclusion:

The Tribunal allowed the appeal, holding that the payments received by the assessee for data transmission services were not taxable in India as royalty or FTS under the India-Netherlands DTAA. The Tribunal directed the Assessing Officer to grant credit for TDS and noted that the issues of interest and penalty were consequential and did not require separate adjudication. The decision emphasized the importance of adhering to judicial discipline and respecting the consistent view of higher judicial authorities in similar cases.