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TMI Blog2018 (11) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is to be computed on the gross amount including the tax liability undertaken by the appellant ?" 4. In the decision in the case of M/s.TVS Motor Company Ltd. Vs. ITO [TCA.Nos.1509 to 1513 of 2007 dated 24.8.2018], to which, one of us (TSSJ) was a party, this Court decided the substantial question of law against the assessee. The relevant portions of the said judgment read thus : "26. The assessee entered into an agreement with the University of Warwick, UK for providing technical services, as per the agreement, the tax was to be paid by the assessee. The assessee deducted tax at the rate of 15% of the amount paid to the University of Warwick and the TDS made by the assessee was Rs. 19,13,010/-. The Assessing Officer held that since the payment of tax was to be borne by the assessee, the tax should have been deducted on the tax payment by the assessee and therefore, the principle of grossing up should have been applied. The assessee contended that the tax to be deducted at source is governed by the provisions of the DTAA between India and UK and the maximum tax payable is the percentage of gross receipts of fees for technical services or royalty payable. Referring to Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or a political sub-division of that State, and (bb) 20 per cent of the gross amount of such royalties or fees for technical services in all other cases; and (ii) during subsequent years, 15 per cent of the gross amount of such royalties or fees for technical services; and (b) in the case of royalties within paragraph 3(b) of this Article and fees for technical services defined in paragraph 4(b) of this Article, 10 per cent of the gross amount of such royalties and fees for technical services. 3. For the purposes of this Article, the term 'royalties' means: (a) payments of any kin received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work including cinematograph films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that the assessee is entitled to take the provisions of the Act or the DTAA, whichever is more beneficial in the light of the decision in Azadi Bachao Andolan (supra). Thus, the case of the assessee is that the maximum tax required to be borne by them as per the DTAA is only at the rate of 15% of the gross amount of such royalties or fees for technical services. It is the further contention of the assessee that the words "gross amount", which is found in Article 13(2bb) of the India-UK DTAA cannot refer to a different sum other than what has been mentioned in Article 13(1) and (2). This is so because "gross amount", refers to no deduction of expenses incurred towards such royalties or fees for technical services and any other interpretation given to the words "gross amount", would be erroneous. In Azadi Bachao Andolan (supra), the Apex Court while dealing with double taxation treaty, among other issues, held that the agreement provides for allocation of taxing jurisdiction to different contracting parties in respect of different heads of income. 31. The Revenue's contention is that the DTAA is primarily entered into between two countries to reduce the scope of tax or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uties due in India, in connection with the performance of the agreement shall be borne by the assessee and all direct or indirect taxes and import duties in London in connection with the performance of the agreement shall be borne by the British company. In terms of the said clause contained in the agreement, the assessee paid tax in India for the remittances made to the foreign company. The Assessing Officer by applying Section 195A of the Act grossed up the income on the tax component on the remittance and assessed the grossed up amount, as the income earned by the foreign company in India and assessed the same at the hands of the assessee. The dispute raised by the assessee was on the rejection by the Assessing Officer of their claim for exemption on the tax paid on the remittance under Section 10(6A) of the Act, which otherwise would constitute a component of income earned by the foreign company justifying grossing up of net remittance to determine the total income for the assessment. Before the CIT (A), the assessee produced the approval obtained from the Government of India and based on which the CIT(A), upheld the assessee's claim for exemption under Section 10(6A) and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, is also the income of University of Warwick and since such income is covered by the words "gross amount", as mentioned in the treaty, the Revenue was justified in grossing up by applying Section 195A, as the provisions of the treaty do not provide a mechanism for computation of income, it prescribes only the rate of tax. Thus, to apply the correct rate of tax, the first requirement would be to determine the income on which tax is payable. This mechanism having not been provided under the treaty essentially, the assessee has to compute his income on such transaction in terms of the provisions of the Act and on such computation, if the rate of tax as applicable to such transactions under the DTAA is beneficial to the assessee, then the assessee would be entitled to avail such beneficial provision in terms of Section 90 of the Act. Thus, the contentions advanced by the assessee to state that no grossing up is provided for under Article 13 of the DTAA and therefore, they are liable to pay tax at the rate of 15% on the amounts specified in the agreement is a submission, which is liable to be rejected. 34. Section 195A deals with income payable "net of tax", which reads as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X
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