2014 (1) TMI 1281 - AT - Income Tax

Taxability of Royalty u/s 9(1)(vi) of the Act and Article 12 of Ireland DTAA - Payment received from customers Held that - The decision in CIT (IT) v. Wipro Ltd. 2011 (10) TMI 473 - KARNATAKA HIGH COURT followed - a customer of the present assessee made payment without deduction of tax at source u/s 195 of the Act - the payments made for online use of database was for licence to use said database and hence the consideration was royalty, liable for deduction of tax at source u/s 195 of the Act Decided against Assessee.

Summary

Issues:
Taxability of payments received by the appellant from customers in India as "royalty" under Section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of India - Ireland Double Taxation Avoidance Agreement.

Analysis:

Issue 1: Taxability of payments as "royalty"
The appellant, a company incorporated in Ireland, received payments from Indian customers for providing access to subscription research products over the internet. The Assessing Officer treated the payments as 'Royalty' under Section 9(1)(vi) of the Act and the India - Ireland Double Taxation Avoidance Agreement. The Dispute Resolution Panel also upheld this view. The appellant contended that conflicting judgments existed on whether the payments should be considered as 'royalty' or 'business profits.' The appellant relied on favorable decisions by the Mumbai Bench and the Pune Bench of the Tribunal. However, the Tribunal dismissed the appeal, emphasizing the judgment of the Hon'ble Karnataka High Court in a similar case involving Wipro Ltd., where the court held such payments to be 'royalty' subject to tax deduction at source. The Tribunal reasoned that adopting a contrary view to that of the High Court was not acceptable, thus upholding the taxability of the payments as 'royalty.'

Conclusion:
The Tribunal upheld the Assessing Officer's decision to treat the payments received by the appellant from Indian customers as 'royalty' under Section 9(1)(vi) of the Income-tax Act, 1961 and the India - Ireland Double Taxation Avoidance Agreement. The appeal was dismissed, citing the judgment of the Hon'ble Karnataka High Court as a precedent for considering such payments as 'royalty.'