2004 (12) TMI 304 - AT - Income Tax

Deduction Of Tax At Source - Assessee in default - levy of interest u/s 201(1A) - Payments made towards obtaining of market data and client's strategy details - HELD THAT - It is trite law that provision of section 195 can be invoked only if the payment is otherwise taxable in India. The only provision invoked is section 9(1)(vi) to bring the payment as chargeable to tax in India. Since we hold that said section is not attracted, payment made is not subject to deduction of tax at source u/s 195. On this basis we feel the law is very clear that the payments to GG is not liable for taxation in India, consequently the assessee has no obligation to deduct tax u/s 195 of the Income-tax Act. When the law is clear and unambiguous on the liability to tax, it is not possible to confirm the liability on emotional plea of national interest as held by Hon'ble Supreme Court in Azadi Bachao Andolan's case 2003 (10) TMI 5 - SUPREME COURT . The plea of national interest as made by DR though appeals at first sight, on close inspection we find nothing but a plea to ignore law or enactment, such pleas the Tribunal has no power to entertain. Further in the era of globalization when nation after nation are embracing each other in economic collaborations or co-operation, non-discriminatory treatment to one and all is the underlying principle. It would be incorrect to argue a case on a misplaced feeling that foreigners are getting away without paying any tax in India. We find that DTAA offers fair chance to Indian Business Houses outside India and similar treatment should also be extended in India. That is the basis of principle of reciprocity, one of the basic principles entering into agreement for avoidance of Double Taxation. The law should enforce all liability for tax no matter whether it is imposed on nationals or foreigners. Similarly if something is not found to be taxable the same should be excluded as otherwise there would be no difference between levy of tax and expropriation of property. While levy of tax is legal, expropriation is illegal. Thus, we feel the appeals are allowable and accordingly we hold that order of the authorities below is to be cancelled as unsustainable. Accordingly, the tax liability u/s 201(1) and interest levied u/s 201(1A), both are deleted. In the result, all the appeals are allowed.

Summary

Issues Involved:
1. Whether the payments made to Gartner Group are liable for tax in India as 'Royalty' or 'fees for technical services' u/s 9(1)(vi)/(vii) of the Income-tax Act and relevant provisions of DTAA.
2. Whether the assessee is liable to deduct tax at source u/s 195 of the Income-tax Act on the payments made to Gartner Group.

Summary:

Issue 1: Taxability of Payments as 'Royalty' or 'Fees for Technical Services'

The Assessing Officer (AO) held that the payments made to Gartner Group (GG) were 'Royalty' or alternatively 'fees for technical services' and thus liable for tax in India u/s 195 r.w.s. 9(1)(vi)/(vii) of the Income-tax Act and relevant provisions of DTAA. The CIT(A) supported this view, stating that the payments amounted to royalty for technical experience or know-how imparted by GG, USA.

Issue 2: Obligation to Deduct Tax at Source u/s 195

The assessee argued that the payments were for subscription to web-based journals and not for any technical services or royalty. The payments were for accessing data published by GG, which is copyrighted and does not transfer any rights to the assessee. The data server is located outside India, and GG does not have any permanent establishment in India. Therefore, the payments do not fall within the scope of section 9(1)(vi) or 9(1)(vii) of the Act or Article 12(3)(a) of the DTAA.

Tribunal's Findings:

1. DTAA Provisions: The Tribunal emphasized that if the provisions of DTAA are beneficial to the assessee, they should prevail over the Income-tax Act, as upheld by the Supreme Court in Azadi Bachao Andolan's case.

2. Nature of Payments: The payments to GG were for accessing a database and not for any specific technical service or transfer of rights. The information provided by GG is available to anyone willing to pay and is not imparted individually to the assessee.

3. Royalty Definition: The payments do not qualify as 'royalty' under section 9(1)(vi) or Article 12(3)(a) of the DTAA, as they do not involve the transfer of rights in a copyright or any technical, industrial, commercial, or scientific experience.

4. Taxability: Since the payments are not covered under section 9(1)(vi) or 9(1)(vii) of the Act or the DTAA, they are not taxable in India. Consequently, the assessee is not liable to deduct tax at source u/s 195.

Conclusion:

The Tribunal held that the payments made to GG are not liable for taxation in India, and the assessee has no obligation to deduct tax at source u/s 195. The orders of the authorities below were cancelled, and the tax liability u/s 201(1) and interest levied u/s 201(1A) were deleted. All appeals were allowed.