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2024 (11) TMI 364 - AT - Income Tax


Issues Involved:

1. Validity of assessment orders issued by the National Faceless Assessment Centre under section 143(2) of the Income-tax Act, 1961.
2. Taxability of income from the sale of software licenses as business income under the India-Austria Double Taxation Avoidance Agreement (DTAA).
3. Entitlement of the assessee to treaty benefits under the India-Austria DTAA.
4. Allegations of treaty shopping and lack of commercial substance by the assessee.

Issue-wise Detailed Analysis:

1. Validity of Assessment Orders:

The assessee challenged the validity of the assessment orders issued by the National Faceless Assessment Centre, arguing that the notice under section 143(2) of the Act was invalid due to jurisdictional issues as per the CBDT notification. The assessee contended that the assessment proceedings for a foreign company should not fall under the faceless assessment scheme. However, the tribunal found that the issue is covered against the assessee by the decision of the Karnataka High Court in Adarsh Developers Vs. DCIT. Therefore, the tribunal upheld the validity of the assessment orders, dismissing the assessee's ground on this issue.

2. Taxability of Income from Sale of Software Licenses:

The core issue was whether the income from the sale of software licenses should be taxed as business income in India. The assessee, a non-resident corporate entity incorporated in Austria, argued that the income should be treated as royalty income under the India-Austria DTAA. However, the Assessing Officer contended that the income should be treated as business income due to the lack of economic ownership of the IPs by the assessee. The tribunal found that the assessee had been offering the income as royalty income under the treaty provisions in previous years. However, following the Supreme Court's decision in M/s. Engineering Analysis Centre of Excellence Pvt. Ltd., the assessee claimed exemption from taxation for the income from the sale of software licenses. The tribunal concluded that the income from the sale of software licenses should be treated as business income, but it cannot be taxed in India in the absence of a Permanent Establishment (PE).

3. Entitlement to Treaty Benefits:

The assessee claimed entitlement to treaty benefits under the India-Austria DTAA, supported by a valid Tax Residency Certificate (TRC) issued by the Austrian Revenue Authorities. The tribunal emphasized the sanctity of the TRC, noting that it cannot be doubted unless there is strong evidence of fraud or illegal activity. The tribunal referred to several judicial precedents, including decisions by the Bombay and Delhi High Courts, which upheld the conclusivity of the TRC. The tribunal found no evidence of fraud or illegal activity by the assessee and concluded that the assessee is entitled to the treaty benefits under the India-Austria DTAA.

4. Allegations of Treaty Shopping and Lack of Commercial Substance:

The Assessing Officer alleged that the assessee was involved in treaty shopping and lacked commercial substance, claiming that the assessee was incorporated in Austria to avoid taxation in the USA. The tribunal dismissed these allegations, finding them contrary to the facts on record. The tribunal noted that the assessee had been operating in Austria since 2007, filing regular tax returns, and being assessed to tax by the Austrian Revenue Authorities. The tribunal also highlighted that the revenue earned from the sale of software licenses in India formed a small part of the assessee's total revenue. The tribunal concluded that the allegations of treaty shopping were based on conjectures and lacked corroborative evidence.

Conclusion:

The tribunal allowed the appeals, directing the Assessing Officer to delete the additions made on the basis of the disputed issues. The tribunal upheld the assessee's entitlement to treaty benefits under the India-Austria DTAA and found that the income from the sale of software licenses cannot be taxed in India in the absence of a PE. The tribunal's decision was pronounced in the open court on 6th November 2024.

 

 

 

 

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