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TMI Blog2024 (1) TMI 1181X X X X Extracts X X X X X X X X Extracts X X X X ..... recipient is the beneficial owner of such royalty and FTS. Undoubtedly, the assessee, being a beneficial owner of royalty and FTS, has offered to tax the royalty and FTS on gross basis by applying rate of 10%. This, in our view, is in compliance with the treaty provisions. Therefore, further levy on account of surcharge exceeds the rate of 10%, hence, cannot be levied on royalty/FTS income, as, it would be in violation of Article 12(2) read with Article 2 of India Germany DTAA. To get over the mandatory condition of Article 12(2) of the Act, learned first appellate authority has made an attempt to link royalty/FTS income to the Supervisory PE. Neither it is the case of the assessee that such income is linked to the PE, nor the depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, the assessee had earned an amount of Rs. 5,61,65,673/- from engineering services rendered to customers in India. For rendering such services, the assessee has set up a supervisory Permanent Establishment (PE) in India. In the return of income filed for the impugned assessment year, the assessee offered the income earned from engineering services at the hands of the PE and applied tax rate of 40% on net basis with surcharge at 2% and cess at 4%, in terms with domestic law. In addition, the assessee had earned an amount of Rs. 4,77,37,428/- from Information Technology (IT) charges, Marketing fee, Repair charges and Testing charges. Claiming that such services were rendered from outside India, the assessee offered them to tax in India by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 2 read with Article 12(2) of India Germany DTAA, tax includes surcharge and has to be taxed at the rate of 10% on gross basis. Therefore, the assessee cannot be called upon to pay more than 10%, insofar as income from royalty and FTS is concerned. The aforesaid submission of the assessee did not find favour with learned first appellate authority. He observed that total income earned by the assessee during the year was to the tune of Rs. 10,39,03,100/-. Therefore, in terms with section 2(d) of Finance Act, 2019, surcharge has to be levied at 5% on the income tax as total income has exceeded the threshold limit of Rs. 10 crores. 6. As regards assessee s contention that as per treaty provision, rate of tax on royalty and FTS cannot excee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It says, income tax includes any surcharge thereon and wealth tax. Therefore, as per the definition of income tax under the treaty provisions, it includes surcharge. Undisputedly, the amount of Rs. 4,77,37,428/- is offered as income from royalty and FTS. The Revenue has not disputed the nature and character of the income. Taxability of royalty and FTS has been dealt under Article 12 of India Germany DTAA. As per Article 12(2) of the treaty, royalty and FTS can be taxed in the source state at a rate not exceeding 10% of the gross amount, if the recipient is the beneficial owner of such royalty and FTS. 9. Undoubtedly, the assessee, being a beneficial owner of royalty and FTS, has offered to tax the royalty and FTS on gross basis by app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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