2022 (7) TMI 1375 - AT - Income Tax

Income deemed to accrue or arise in India - royalty income received in India as taxable u/s 5(2) of the Act and alternatively taxable as Royalty Income under Section 9(1)(i) of the Act and Article 12(3) of the India-USA DTAA as well - Business profit attributable to the PE of the assessee in India - Royalty received by the assessee from Warner Bros Picture India Ltd in pursuance to the agreement for distribution and exhibition of the films in India - HELD THAT - As it is an admitted position that issue stood squarely covered in assessee s favour by the lead decision of this Tribunal in assessee s own case for the A.Y. 2006-07 2011 (12) TMI 195 - ITAT MUMBAI wherein it is held As rightly held by the CIT (A) even if income arises to the Non-Resident due to the business connection in India, the income accruing or arising out of such business connection can only be taxed to the extent of the activities attributed to permanent establishment. In this case, the assessee does not have any permanent establishment in India. Since the Indian company who obtained the rights is acting independently, Agency PE provisions are not applicable to the assessee company. The assessee relied on the decision of Ishikawajma-Harima Heavy Industries Ltd vs. Director of Income Tax 2007 (1) TMI 91 - SUPREME COURT that incomes arising to a Non-Resident cannot be taxed as business income in India, without a PE. As the assessee does not have any permanent establishment in India, the incomes arising outside Indian Territories cannot be brought to tax. Therefore, there is no need to differ from the findings of the CIT (A) and accordingly the Revenue Appeal is dismissed.

Summary

Issues:
1. Taxability of royalty income received in India.
2. Applicability of India-USA DTAA.
3. Assessment based on previous tribunal decisions.
4. Dismissal of objections by Ld. DRP.

Issue 1: Taxability of Royalty Income Received in India
The appellant, a non-resident corporate entity, received royalty income from an Indian company under a distribution agreement. The Assessing Officer treated the income as taxable under the Income-tax Act and the India-USA DTAA. The appellant claimed the income as exempt based on Explanation 2 to Section 9(1)(vi) of the Act. The Assessing Officer proposed an assessment considering a portion of the income as business income. The appellant contended that the income should not be taxed as royalty, citing previous tribunal decisions and DTAA provisions.

Issue 2: Applicability of India-USA DTAA
The appellant argued that the income received did not qualify as royalty under the DTAA provisions between India and the USA. The Tribunal analyzed the DTAA terms and previous tribunal decisions to determine the taxability of the income. The appellant emphasized that the DTAA excluded certain payments from the definition of royalty, supporting their claim for exemption.

Issue 3: Assessment Based on Previous Tribunal Decisions
The appellant presented various tribunal orders from A.Y. 2006-07 to 2017-18 where similar issues were decided in their favor. The Tribunal reviewed the lead decision from A.Y. 2006-07 and subsequent rulings, establishing a consistent interpretation in favor of the appellant. The Tribunal relied on the principle of stare decisis to uphold the appellant's position based on past decisions.

Issue 4: Dismissal of Objections by Ld. DRP
The appellant raised objections before the Ld. DRP, highlighting the coverage of the issue in previous tribunal orders. However, the Ld. DRP dismissed the objections, citing ongoing departmental appeals before the High Court in earlier years. The Tribunal found no distinguishing features in the current case to deviate from the established tribunal decisions. Consequently, the impugned additions were deleted, and the appellant's appeal was allowed.

In conclusion, the Tribunal ruled in favor of the appellant, considering the consistent interpretation of tribunal decisions and the provisions of the India-USA DTAA. The judgment emphasized the importance of precedent and upheld the appellant's claim for exemption from tax on the royalty income received in India.