9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (8) TMI 1129 - AT - Income TaxValidity of direction of the Dispute Resolution Panel (DRP) u/s 144C - Levy of interest u/s 234B - Failure to deduct tax (TDS) on part of person making payment to assessee - subscription revenue received by the Appellant - whether in the nature of Royalty - The AO further observed that though it has been held that assessee is having a PE in India, but the income is not computed as provided under Article 13(6) of the India-UK treaty as the assessee has disputed the existence of PE itself. - providing services through its server located at Geneva. Held that - ITAT in earlier decision has decided that, that subscription charges received by the assessee from its customers in India is in the nature of royalty. The ITAT, further held that once the receipt in question has been decided as royalty in nature then there is no need to go into the question of assessee having PE in India and applying Article 13(6) of the India-UK Tax Treaty to determine the income attributable in India. The facts remained unchanged. The assessee failed to bring on record any evidence to prove that the finding of facts recorded by the ITAT for earlier year is incorrect. Therefore considering the facts and circumstances and also respectfully following the decision of the ITAT in assessee s own case for earlier years, we are of the considered view that subscription charges received by the assessee from the customers in India is in the nature of royalty. Article 13(6) can be pressed into service only in the case when the existence of PE of non-resident is not in dispute. In this case the assessee has contended before the lower authorities that it does not have any PE in India and under these facts and circumstances the provisions of Article 13(6) cannot be invoked in the case when the receipt is found as royalty. Levy of interest u/s 234B - Held that - when a duty is cast on the payer to deduct tax at source, on failure of the payer to do so, no interest can be imposed on the payee under Section 234B of the Act. The appeals filed by Revenue as well as the assessee are dismissed.
Issues Involved:
1. Whether the subscription revenue received by the assessee is in the nature of 'Royalty' or 'Fees for technical services' under the Income Tax Act and the India-UK tax treaty. 2. Whether the provisions of Article 13(6) of the India-UK tax treaty apply, given the existence of a Permanent Establishment (PE) in India. 3. The applicability of surcharge and education cess on the tax liability. 4. The chargeability of interest under Section 234B of the Income Tax Act. Issue-wise Detailed Analysis: 1. Nature of Subscription Revenue: The primary issue was whether the subscription revenue received by the assessee should be characterized as 'Royalty' or 'Fees for technical services' under the Income Tax Act and the India-UK tax treaty. The assessee, a UK-based company, provided an electronic deal matching system to Indian subscribers. The Assessing Officer (AO) treated the revenue as 'Royalty' under both the Income Tax Act and the India-UK tax treaty. The Dispute Resolution Panel (DRP) upheld this characterization, relying on the ITAT Mumbai's decision in the assessee's own case for previous assessment years 2008-09 and 2009-10. The ITAT confirmed that the subscription charges received were in the nature of 'Royalty' because the assessee provided not just a service but also the use of its system and software, which facilitated commercial transactions for the subscribers. 2. Applicability of Article 13(6) of the India-UK Tax Treaty: The assessee argued that if it had a PE in India, its income should be taxed under Article 13(6) of the India-UK tax treaty. However, the AO and the DRP noted that the assessee had disputed the existence of a PE in India. The ITAT held that Article 13(6) could only be applied if the existence of a PE was not in dispute. Since the assessee contended that it did not have a PE in India, Article 13(6) was not applicable. The ITAT reiterated that once the income was characterized as 'Royalty,' there was no need to consider the PE issue. 3. Surcharge and Education Cess: The assessee challenged the AO's levy of surcharge and education cess on the tax liability. The DRP directed the AO to verify the agreements submitted by the assessee and apply the correct tax rate of 10% as prescribed under Section 115A of the Income Tax Act, instead of the 20% levied in the draft assessment order. 4. Chargeability of Interest under Section 234B: The Revenue contested the DRP's direction to delete the interest charged under Section 234B of the Income Tax Act. The DRP had followed the decision of the Bombay High Court in DIT vs. NGC Network Asia LLC, which held that if the payer failed to deduct tax at source, no interest could be imposed on the payee under Section 234B. The ITAT upheld the DRP's direction, noting that the Revenue did not present any contrary decision to challenge this finding. Conclusion: The ITAT dismissed both the Revenue's and the assessee's appeals. It upheld the DRP's findings that the subscription revenue was 'Royalty,' Article 13(6) of the India-UK tax treaty was not applicable, the correct tax rate should be verified and applied, and interest under Section 234B should not be charged. The judgment emphasized the importance of consistent application of legal principles and previous rulings in determining tax liabilities.
|
