2012 (12) TMI 737 - HC - Income Tax

Royalty and fees for technical services - whether taxable on receipt basis ? - Held that - As under Article IIXA of the DTA Treaty with the Federal Germany Republic as per Notification dated 26th August 1985 the assessment of royalty or any fees for technical services should be made in the year in which the amounts are received and not otherwise - ITAT in holding that royalty and fees for technical services should be taxed on receipt basis cannot be faulted - in favour of assessee. Levy of interest u/s 234B - Held that - As decided in DIT (INTERNATIONAL TAXATION) Versus NGC NETWORK ASIA LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the payee-assesses - in favour of assessee.

Summary

Issues:
1. Taxation of royalty and fees for technical services on receipt basis.
2. Tax deductibility of entire income for nonresident assessee and levy of interest under Section 234B.

Analysis:
1. The first issue raised in this appeal concerns the taxation of royalty and fees for technical services on a receipt basis. The Income Tax Appellate Tribunal, with reference to the Double Taxation Avoidance Treaty with the Federal Republic of Germany, determined that such amounts should be assessed in the year they are received. The Tribunal's decision was based on the notification dated 26th August 1985. The appellant argued that a previous Special Bench decision was relevant, but the Court found it unrelated to the present case due to the timeline. Consequently, the Court upheld the Tribunal's decision to tax royalty and fees for technical services on a receipt basis.

2. The second issue pertains to the tax deductibility of the entire income for a nonresident assessee and the applicability of interest under Section 234B. The Court noted that this question had been settled against the Revenue in a previous judgment of the Bombay High Court in the case of Director of Income Tax (International Taxation) v. NGC Network Asia LLC Limited. As a result, the Court declined to entertain this issue based on the precedent set by the aforementioned judgment.

In conclusion, the appeal was disposed of with no order as to costs, with the Court affirming the taxation of royalty and fees for technical services on a receipt basis and declining to address the issue of tax deductibility and interest under Section 234B based on the precedent established by previous judgments.