2008 (7) TMI 443 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of the beneficial rate of tax under the India-Germany Double Taxation Avoidance Agreement (DTAA).
2. Chargeability of interest u/s 234B.

Summary:

1. Applicability of the beneficial rate of tax under the India-Germany Double Taxation Avoidance Agreement (DTAA):

The Revenue appealed against the CIT(A)'s order granting the assessee the beneficial rate of tax under the DTAA, arguing that the assessee was not a 'resident' of Germany as per Article 4 of the DTAA. The AO contended that the "trade tax" paid by the assessee in Germany was a turnover tax and not an income tax, thus disqualifying the assessee from DTAA benefits. The CIT(A) held that the "trade tax" was computed on business profits, not turnover, and thus the assessee was entitled to DTAA benefits. The Tribunal upheld the CIT(A)'s decision, stating that the assessee was a "resident" of Germany, liable to pay trade tax, and thus eligible for the DTAA's beneficial tax rate of 10% on royalties and fees for technical services, as opposed to the 20% rate under the IT Act, 1961.

2. Chargeability of interest u/s 234B:

The AO charged interest u/s 234B, which the CIT(A) deleted, stating the assessee was not liable to pay advance tax. The Tribunal agreed, noting that u/s 195, any person paying the non-resident assessee was responsible for deducting tax at source. Since the assessee was a non-resident and all payments to it were subject to TDS, it was not liable for advance tax, and thus, interest u/s 234B could not be levied. The Tribunal referenced the Special Bench order in Motorola Inc. vs. Dy. CIT, supporting the CIT(A)'s decision to delete the interest.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming that the assessee was entitled to the DTAA's beneficial tax rate and not liable for interest u/s 234B.