2024 (2) TMI 450 - AT - Income Tax

Accrual of income in India - taxability of administrative fee received by the assessee as royalty u/s 9(1)(vi) as well as under Article 12(3) of India-USA DTAA - assessee is a non-resident corporate entity incorporated in United States of America (USA) - HELD THAT - What the assessee provides is a database containing unique numbers, which has to be provided to the mobile equipment manufacturers for implanting in the mobile devices so that the devices can be tracked and put in the black list in case of theft or misuse so as to prevent crime. As per article 12(3) of India-USA DTAA, the amount received cannot fall within the ambit of royalty, as the consideration received cannot be construed to be for use or right to use any copyright of literary, artistic or scientific work including motion picture films and works on film or video tape for use in connection with television. Neither it can be a consideration for any patent, trade mark, design or model, plan, secret formula or process. It also cannot be for information concerning industrial, commercial or scientific experience. It also cannot be considered to be payment for use of or the right to use industrial, commercial or scientific equipment. Though, the AO has observed that IMEI number is a unique invention to track the mobile equipment and information concerning industrial, commercial or scientific experience, however, we are not convinced. The fact of the matter is, the assessee, as a global administrator has created a database of unique numbers, which in combination with other numbers to be provided by mobile manufacturers can be implanted in the mobile devices to identify and keep track of the device. It is further to be noted that a particular IMEI number can be provided to only one mobile equipment manufacturer and has to be implanted in a single mobile equipment. This fact also proves that there is no transfer of use or right to use of any copyright of literary artistic or scientific work or use or right to use of any commercial or scientific experience or equipment. The database of IMEI number can be compared with the registration numbers granted to identify a particular vehicle, which is nothing but a number allocated by the registering authority from a database of numbers available with them. That does not amount to transfer of any right to use of any copyright etc. Thus, we are of the view that the amount received by the assessee will not fall within the definition of royalty both under section 9(1)(vi) of the Act as well as under Article 12(3) of India-USA DTAA. Accordingly, we direct the AO to delete the additions in both the assessment years under dispute. Short credit of TDS - We direct the Assessing Officer to factually verify assessee s claim and grant credit of TDS as per law.

Summary

Issues Involved:
The judgment involves the taxability of administrative fee received by the assessee as royalty under section 9(1)(vi) of the Income-tax Act, 1961, and under Article 12(3) of India-USA Double Taxation Avoidance Agreement (DTAA).

Taxability of Administrative Fee as Royalty:
The assessee, a non-resident corporate entity from the USA, provides International Mobile Equipment Identification (IMEI) numbers for tracking mobile phones. The dispute arose regarding whether the administrative fee received should be treated as royalty. The Assessing Officer contended that the fee is akin to royalty under section 9(1)(vi) and Article 12(3) due to the use of patented information. However, the assessee argued that it merely facilitates IMEI numbers and does not transfer any technology or copyright. The Tribunal analyzed the agreement between the assessee and MSAI, concluding that the fee received does not constitute royalty under the Act or the DTAA.

Conclusion:
After considering the submissions and agreement details, the Tribunal found that the fee received by the assessee for providing IMEI numbers did not fall within the definition of royalty under section 9(1)(vi) of the Act or Article 12(3) of India-USA DTAA. Consequently, the Assessing Officer was directed to delete the additions made in both assessment years. Additionally, the issue of short credit of TDS was directed to be factually verified and granted as per law, while other grounds raised by the assessee were deemed consequential and pre-mature, not requiring adjudication. As a result, the appeals were allowed in favor of the assessee.

Separate Judgment by Judges:
The judgment was delivered by Shri G.S. Pannu, Vice-President, and Shri Saktijit Dey, Vice-President.