2020 (10) TMI 367 - HC - Income Tax

Liability to pay interest u/s 234B - interest accrue or is leviable in the case of the assessee which is a foreign company and no advance tax is liable to be paid by it as its income is liable to tax deduction at source - HELD THAT - This substantial question of law has already been answered against the revenue by this Court in M/S. TEXAS INSTRUMENTS INCORPORATED 2020 (9) TMI 873 - KARNATAKA HIGH COURT Determining the rate of tax u/clauses of Section 115(A)(1)(b) - Taxation of Income by way of Royalty or Fees for Technical Services - tax payable on royalty income received in pursuance of agreement entered into on or after 01.06.2005 and provisions of Article 12 of the Indo-US DTAA for computing the tax payable on royalty income received in pursuance of agreements entered into on or before 01.06.2005 - HELD THAT - The contracts or agreements being source of income had been entered into on different dates and the statute recognizes such differentiation and provides for separate tax rates for each stream. Therefore, the tax on royalty income cannot be levied on an aggregate basis and taxability of royalty under sub- clauses (A), (AB), (BB) and (C) of Section 115(a)(b) are separate and distinct. The assessee therefore can compute tax at the rate beneficial to it which is in accordance of provisions of Section 90(2) of the Act, wherein the expression 'to the extent' makes it evident that provisions of the Act or Treaty, whichever is beneficial, is applicable to the assessee. Tribunal has rightly held that the date of agreement while determining the rate of tax under the aforesaid clauses of Section 115(A)(1)(b) are separate and independent. It is also pertinent to note that the explanatory note to the provisions of Finance Act, 2013, were issued by Circular No.3/2014 dated 24.01.2014. in order to correct the anomaly prevalent in Section 115A with regard to rates of taxes in case of non-resident tax payer, in respect of income by way of royalty and piece for technical services as provided under Section 115A, was increased by way of amendment from 10% to 25%. Thus, from perusal of the aforesaid explanatory notes, it is evident that different rates of taxes in respect of royalty and piece for technical services were provided under different agreements. Therefore, the Tribunal has rightly taken the view that for the purposes of computing tax payable on the royalty income received, it has to be taxed with reference to the provisions of the agreement. - Decided against revenue.

Issues:
1. Interpretation of provisions of Section 115A(1)(b)(AA) of the Income Tax Act for computing tax on royalty income.
2. Applicability of provisions of Article 12 of the Indo-US DTAA for computing tax on royalty income.
3. Levy of interest under Section 234B of the Act on a non-resident assessee.
4. Computation of total income for a foreign company under different agreements.
5. Application of tax rates under DTAA and Section 115A of the Act.
6. Correctness of Tribunal's decision on bifurcation of income sources for tax computation.
7. Interpretation of Section 90(2) of the Act for determining beneficial tax provisions.

Analysis:

1. The appeal involved the interpretation of Section 115A(1)(b)(AA) of the Income Tax Act for computing tax on royalty income. The Tribunal held that the sub-clauses under this section are mutually exclusive and independent, requiring separate computation of tax for each sub-clause. The Tribunal's decision was supported by the Supreme Court's ruling in 'UNION OF INDIA Vs. AZADI BACHAO ANDOLAN' (2003) 263 ITR 706 (SC).

2. The issue of applicability of provisions of Article 12 of the Indo-US DTAA for computing tax on royalty income was raised. The Tribunal found that the tax rates under different agreements need to be considered separately, and the tax should be levied based on the most beneficial rate to the assessee as per Section 90(2) of the Act.

3. The question of levy of interest under Section 234B of the Act on a non-resident assessee was addressed. The Tribunal ruled that the non-resident assessee was not liable for advance tax payment, leading to the deletion of interest under Section 234B. This decision was upheld in the appeal.

4. The case involved the computation of total income for a foreign company under different agreements. The Tribunal emphasized that the income sources from various agreements cannot be aggregated for tax purposes, and tax rates under different clauses of Section 115A(1)(b) are distinct and separate.

5. The Tribunal's decision on the application of tax rates under DTAA and Section 115A of the Act was discussed. It was concluded that the tax on royalty income should be computed based on the provisions of the specific agreement, considering the rates provided under different agreements separately.

6. The correctness of the Tribunal's decision on bifurcation of income sources for tax computation was analyzed. It was found that the Tribunal's approach aligns with the provisions of the Act and ensures that tax is levied at the most beneficial rate to the assessee.

7. The interpretation of Section 90(2) of the Act for determining beneficial tax provisions was crucial in this case. The Tribunal correctly applied this section to allow the assessee to compute tax based on the most advantageous rate available, whether under the Act or DTAA, depending on the specific agreement's terms.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision on the interpretation and application of relevant provisions for computing tax on royalty income, determining total income for a foreign company, and addressing the levy of interest on a non-resident assessee.

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