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2024 (9) TMI 722 - AT - Income TaxRoyalty receipts - receipts of the assessee from equipment rental - eligibility of receipts of the assessee company for the benefit u/s. 44BB - income from equipment rental is sourced in India in view of Section 5(2) r.w.s. 9 of the Act as such services are utilized in India as well as Under Article 12 of India- Malaysia DTAA - HELD THAT - As decided in own case 2023 (2) TMI 120 - ITAT DELHI DRP has made a fundamental error in ignoring the exceptions provided under clause (iva) to explanation 2 to section 9(1)(vi) of the Act while concluding that the amount received is in the nature of royalty u/s 9(1)(vi) read with section 115A of the Act. One more fundament error committed by DRP is in holding that section 44BB will be applicable only in a case where non-resident has a PE in India. The aforesaid conclusion of learned DRP is based on complete misinterpretation of the provision and goes against the very essence of the provision, which does not put the condition of existence of PE for applicability of the provision. Thus, in our view, the conclusion drawn by DRP that the amounts received are in the nature of royalty u/s 9(1)(vi) read with section 115A of the Act is unacceptable. We accept the position taken by the assessee in offering the income to tax under section 44BB of the Act, as, it is in accordance with the statutory provision. Accordingly, we direct the AO to compute the income in both the assessment years under dispute under the provisions of section 44BB - Assessee appeal allowed.
Issues:
Appeals against assessment orders under Income Tax Act for AYs 2013-14, 2014-15 & 2015-16; Assessment of income as royalty under Section 9(1)(vi) and Article 12 of India-Malaysia DTAA; Reopening of assessment under Section 148; Objections before Dispute Resolution Panel (DRP); Interpretation of Section 44BB; Application of Section 115A; Comparison of Section 44BB, 44DA, and Section 9(1)(vi); Judicial precedents on taxability of income from equipment rental; Admissibility of relief granted in previous assessment years. Analysis: In the judgment delivered by the Appellate Tribunal ITAT Delhi, the appeals by the assessee against assessment orders for AYs 2013-14, 2014-15 & 2015-16 were taken up together due to identical issues. The primary issue revolved around the tax treatment of the assessee's income from equipment rental, whether it should be considered as royalty under Section 9(1)(vi) and Article 12 of India-Malaysia DTAA. The Assessing Officer (AO) had reopened the assessment for AY 2013-14, making additions as royalty income. The DRP rejected objections, leading to the present appeal. The Tribunal analyzed the provisions of Section 44BB, which governs the taxation of income from activities related to the business of extraction/exploration of mineral oils. It distinguished between Section 44BB, Section 44DA, and Section 9(1)(vi) to determine the taxability of the assessee's income. The Tribunal emphasized that income received by the assessee from equipment rental fell under the purview of Section 44BB and should be taxed on a gross basis at the rate of 10%. It also highlighted the errors in the DRP's interpretation of the law and upheld the position taken by the assessee. The Tribunal referred to various judicial precedents, including decisions by the ITAT Delhi and the Delhi High Court, to support its conclusion that the income should be taxed under Section 44BB. The Tribunal's decision was consistent with the findings in previous assessment years for the same assessee, which had been upheld by the Delhi High Court. Therefore, the Tribunal allowed the appeals for AYs 2013-14, 2014-15 & 2015-16, stating that the facts and issues were identical to those in previous years, and the relief granted in earlier assessments should apply mutatis mutandis to the current assessment year.
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