2019 (7) TMI 291 - AT - Income Tax

Income accrued in India - royalty from Brew Operators agreement - chargeable to tax in the hands of the assessee u/s. 9 (i) (vi) b of the IT Act as well as article 12 of Indo-US-DTAA - HELD THAT - Respectfully following the order of the Tribunal in assessee s own case for A. Y 2014-15 2019 (2) TMI 1656 - ITAT DELHI and in absence of any distinguishable feature brought to our notice by the ld. DR against the order of the Tribunal, we hold that the royalty from BREW Operator Agreement is not chargeable to tax in the hands of the assessee u/s 9(1)(vi) as well as Article 12 of the Indo-US-DTAA. Following similar reasonings, we also hold that the CIT(A) is not justified in upholding the action of the Assessing Officer in bringing to tax the royalty from Test Tools Agreement. The grounds raised by the assessee are accordingly allowed.

Summary

Issues Involved:
1. Taxability of revenue received under BREW agreements.
2. Levy of interest under section 234C of the Income Tax Act.
3. Initiation of penalty under section 271(1)(c) of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Taxability of Revenue Received Under BREW Agreements:
The primary issue revolves around whether the revenue received by the assessee under BREW agreements constitutes "royalty" and is therefore taxable under section 9(1)(vi) of the Income Tax Act, 1961, and Article 12 of the India-US tax treaty. The assessee argued that the revenue is towards the sale of a copyrighted article, not for the right to use the copyright. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the income from licensing BREW software to Tata Teleservices, Sistema Shyam, and Virgin Mobile is taxable as royalty.

The Tribunal referred to its previous decisions in the assessee's own case for earlier assessment years, where it was held that the revenue from BREW Operator Agreement is not chargeable to tax as royalty. The Tribunal reiterated that the payment in question is for a copyrighted article, not the copyright itself, and thus does not constitute royalty under section 9(1)(vi) of the Act and Article 12 of the Indo-US DTAA. The Tribunal relied on the Delhi High Court's judgment in the case of DIT v. Infrasoft Ltd., which distinguished between the acquisition of a "copyright right" and a "copyrighted article."

The Tribunal concluded that the CIT(A) was not justified in upholding the AO's action of taxing the royalty from the BREW Operator Agreement and Test Tools Agreement. Therefore, the grounds raised by the assessee regarding the taxability of revenue under BREW agreements were allowed.

2. Levy of Interest Under Section 234C of the Income Tax Act:
The assessee contested the levy of interest under section 234C of the Act on the assessed income, arguing that interest should be calculated on the returned income. However, the Tribunal noted that the assessee did not press this ground of appeal, and hence, it was dismissed as not pressed.

3. Initiation of Penalty Under Section 271(1)(c) of the Income Tax Act:
The assessee also challenged the initiation of penalty proceedings under section 271(1)(c) of the Act. The Tribunal found this ground to be premature at this stage and dismissed it without adjudication.

Conclusion:
The Tribunal allowed the appeal filed by the assessee partly, holding that the revenue from BREW Operator Agreement and Test Tools Agreement is not chargeable to tax as royalty under section 9(1)(vi) of the Income Tax Act and Article 12 of the Indo-US DTAA. The grounds related to the levy of interest under section 234C and the initiation of penalty under section 271(1)(c) were dismissed. The appeal was partly allowed for statistical purposes.