2024 (7) TMI 885 - AT - Income Tax

Royalty receipts/Fee For Technical Services ('FTS') - receipts under Loyalty Programme, Reservation Fee and Marketing Fee - assessee is a private limited company incorporated in Singapore within the meaning of Article 4 of the India-Singapore Double Taxation Avoidance Agreement ('DTAA'/ 'Tax Treaty') - HELD THAT - On perusal of the facts, it is seen that both the AO and the DRP have relied upon their findings/directions for the assessment year 2015-16 for this year also while making the additions for AY 2020-21. On similar facts, the co-ordinate Bench in assessee s own case 2024 (1) TMI 490 - ITAT DELHI for AY 2015-16 held that the amount in dispute cannot be qualified as royalty and directed the AO to delete the addition. Therefore, addition is hereby deleted. Ground No.1 of the appeal is allowed. Computing of gross tax liability at incorrect rates (inclusive of surcharge and education cess) without taking into consideration, the applicable tax rates as per India Singapore DTAA in the computation sheet accompanying the final assessment order u/s 143(3) - AO is directed to verify the above grievance of the assessee and apply the correct tax rate in accordance with law. Ground no.3 is allowed for statistical purposes.

Summary

Issues:
Taxability of receipts for Loyalty Programme, Reservation Fee, and Marketing Fee as royalty income under the Income Tax Act and India-Singapore Double Taxation Avoidance Agreement (DTAA); Charging of interest under section 234A and 234B of the Act; Initiation of penalty proceedings under section 270A of the Act.

Analysis:

Issue 1: Taxability of receipts for Loyalty Programme, Reservation Fee, and Marketing Fee as royalty income
The case involved the taxability of an amount of INR 33,11,70,181/- as royalty income under the Income Tax Act and the India-Singapore DTAA. The assessee contended that the receipts for Loyalty Programme, Reservation Fee, and Marketing Fee were not in the nature of royalty or Fee for Technical Services (FTS). However, the Assessing Officer treated these receipts as royalty income based on the argument that services rendered by the assessee were ancillary to the use of brand names, falling within the scope of royalty. The Dispute Resolution Panel (DRP) upheld the Assessing Officer's view. The Tribunal, considering a similar decision in the assessee's favor for AY 2015-16, held that the disputed amount did not qualify as royalty income and directed the deletion of the addition.

Issue 2: Charging of interest under section 234A and 234B of the Act
The Assessing Officer had charged interest under sections 234A and 234B of the Income Tax Act. However, following the Tribunal's decision to delete the addition related to royalty income, the interest calculation needed to be recalculated in accordance with the revised tax liability.

Issue 3: Initiation of penalty proceedings under section 270A of the Act
The Assessing Officer had initiated penalty proceedings under section 270A of the Income Tax Act. Since the Tribunal's decision on the taxability issue resulted in the deletion of the addition, the penalty issue became academic and was not adjudicated upon.

The Tribunal allowed the appeal of the assessee regarding the taxability of receipts and directed the recalculation of interest under sections 234A and 234B. The issue of penalty proceedings was not addressed due to the decision on the taxability issue. In another related appeal, certain grounds were dismissed, and decisions made in the first appeal were applied mutatis-mutandis. The Tribunal also directed the correct computation of tax liability and verification of TDS claims. Interest calculations were to be revised accordingly. Penalty proceedings were not adjudicated due to the decision on the taxability issue.

In conclusion, the Tribunal allowed one appeal and partly allowed another for statistical purposes, providing detailed reasoning and directions on each issue raised in the appeals.