2020 (11) TMI 466 - AT - Income Tax

Income accrued in India - royalty taxable under section 9 (l)(vi) of the Income Tax Act, 1961 read with article 12(3) of India Switzerland Double Taxation Avoidance Agreement - Indo Swiss tax treaty - HELD THAT - As decided in DUN BRADSTREET ESPANA, IN RE 2004 (10) TMI 88 - AUTHORITY FOR ADVANCE RULINGS Article 12(3) of Indo Swiss DTAA, that we are currently dealing with, is verbatim the same as Article 13(3) of India Spain DTAA that Hon'ble Authority of Advance Ruling was dealing with. The conclusions so arrived at by the Authority for Advance Ruling, which now stand approved by Hon'ble jurisdictional High Court 2011 (7) TMI 957 - BOMBAY HIGH COURT are equally applicable in the context of Indo Swiss DTAA as well. It is only elementary that when the assessee is not taxable under the provisions of the respective DTAA, there is no occasion to examine the taxability under the Income Tax Act 1961, since the provisions of the Income Tax Act 1961 apply only when these provisions are more favourable to the assessee vis-a-vis the provisions of the applicable DTAA. When the above position was brought to the notice of the learned Departmental Representative, he simply placed his reliance on the stand of the authorities below. He could not, however, neither point out any legally distinguishable features between the case before Hon'ble jurisdictional High Court vis-a-vis this case, nor any other reasons for not following the binding precedent from Hon'ble jurisdictional High Court. Once our Hon'ble jurisdictional High Court has expressed a view, it cannot be open for us to be swayed by a contrary view expressed by any other Hon'ble High Court. No decision from Hon'ble jurisdictional High Court, contrary to the above decision of Hon'ble jurisdictional High Court, was brought to our notice. - we delete the impugned addition as royalty in the hands of the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of ? 23,01,00,058 as royalty under section 9(1)(vi) of the Income Tax Act, 1961, and Article 12(3) of the Indo-Swiss DTAA.
2. Procedural issue regarding the delay in pronouncement of the order due to COVID-19 lockdown.

Issue-wise Detailed Analysis:

1. Addition of ? 23,01,00,058 as Royalty:

The primary issue in the appeal was the correctness of the addition of ? 23,01,00,058 made by the Assessing Officer (AO) on account of alleged royalty under section 9(1)(vi) of the Income Tax Act, 1961, and Article 12(3) of the Indo-Swiss Double Taxation Avoidance Agreement (DTAA).

The appellant, a Swiss company engaged in providing market research reports on the pharmaceutical sector, argued that the license access granted to its customers was non-exclusive and non-transferable. The AO, however, treated the consideration received for this access as royalty, relying on judgments by the Karnataka High Court and the ITAT.

The Tribunal examined the facts of the case, noting that the appellant provided statistical database compilations and did not transfer any copyright or intellectual property. The Tribunal referenced the jurisdictional High Court's decision in DIT vs. Dun and Breadstreet Information Services India Pvt Ltd, which held that payments for business information reports did not constitute royalties. The Tribunal concluded that the same principles applied to the Indo-Swiss DTAA, as Article 12(3) of the Indo-Swiss DTAA was identical to Article 13(3) of the India-Spain DTAA considered in the earlier ruling.

The Tribunal found no legally distinguishable features between the present case and the precedent set by the jurisdictional High Court. Consequently, the Tribunal deleted the addition of ? 23,01,00,058 as royalty, providing relief to the appellant.

2. Procedural Issue Regarding Delay in Pronouncement of Order:

The second issue addressed was the procedural delay in pronouncing the order due to the COVID-19 lockdown. The Tribunal acknowledged that the hearing was concluded on 6th February 2020, but the order was pronounced on 13th July 2020, beyond the 90-day period specified in Rule 34(5) of the Income Tax Appellate Tribunal Rules, 1963.

The Tribunal noted that the term "ordinarily" in Rule 34(5) allowed for flexibility in exceptional circumstances. The nationwide lockdown imposed on 24th March 2020, and subsequent extensions, constituted such extraordinary circumstances. The Tribunal referenced the Supreme Court and Bombay High Court orders extending limitations due to the lockdown, emphasizing that the period of lockdown was not an "ordinary" period.

The Tribunal concluded that the 90-day period should be computed by excluding the lockdown period, thus justifying the delay in pronouncement. The Tribunal's interpretation aimed to balance legal requirements with pragmatic considerations during the unprecedented COVID-19 pandemic.

Conclusion:

The Tribunal allowed the appeal, deleting the addition of ? 23,01,00,058 as royalty and addressing the procedural delay in pronouncement due to the COVID-19 lockdown. The corrigendum issued corrected typographical errors in the original order, ensuring clarity and accuracy in the final judgment.