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2017 (3) TMI 1379 - AT - Income TaxRate of tax to be applied on the royalty received under the royalty agreement - whether the said agreement executed on 01.04.2008 is an extension of earlier agreement dated 08.01.1998? - Held that:- New royalty agreement is not an extension of old agreement but an independent legally enforceable agreement. As per Contract law, the parties are bound by the terms and conditions of new agreement which are at variance with old agreement and hence, it is held that on the expiry of term of old agreement, the rights and obligations between the parties were extinguished and the assessee entered into a fresh agreement with fresh rights and obligations which may also called as revised but the same culminates into execution of new royalty agreement. Even if some of the terms and conditions in earlier agreement continued to govern the parties does not mean that a new agreement has not been executed between the parties. On the expiry of earlier agreement, new understanding has been culminated into a new agreement. Where the terms of new agreement shall now govern the rights and obligations of the parties, then we hold that the said agreement between the parties is a new royalty agreement and not an extension of old agreement. Under section 115A of the Act, it is provided that in case any new royalty agreement is entered into after first day of June, 2005, the applicable tax rates on the royalty income would be 10% plus surcharge and education cess. - Decided in favour of assessee Tax rate to be applied on the amount recovered by the assessee for recharge of supply of SAP software - case of the Revenue was that the same is to be taxed @ 20% in view of DTAA between India and Italy, whereas the case of assessee was that the provisions of section 115A of the Act were to be applied and the same is to be taxed @ 10% plus surcharge plus education cess - Held that:- In the succeeding year, the assessee had entered into an agreement with recipient company. The DRP while passing the order relating to assessment year 2011-12 had held the receipts to be royalty but by an order of rectification under section 154 of the Act, the same is held to be taxable @ 10% plus surcharge plus education cess. Even in assessment year 2012-13, similar receipts have been taxed by the Assessing Officer himself @ 10% plus surcharge plus education cess. The nature of receipts in the year under consideration are admittedly, same and following the same parity of reasoning, we hold that the receipts are to be taxed under the provisions of section 115A @ 10% plus surcharge plus education cess Chargeability of tax @ 20% as royalty under the Indian Italy DTAA, the amounts recovered towards reimbursement of expenses - Held that:- We find merit in the claim of assessee since in the facts of the case, it is a case of reimbursement of expenses incurred by the assessee, which in turn, were allocated to the entities. Such reimbursement of expenses without any mark up does not justify its taxability in the hands of assessee being royalty @ 20%. We reverse the order of Assessing Officer in this regard and allow the ground of appeal No.5 raised by the assessee. Amount received towards consultancy fees - charged by the Assessing Officer to tax @ 20% under India Italy DTAA as against 10.55% offered by the assessee - Held that:- The conditions prescribed under section 115A r.w.s. 9(1)(vii) of the Act are wide enough to include reimbursement of consultancy fees as fees for technical services in the hands of assessee. Accordingly, we hold that the amount received towards consultancy fees is to be taxed @ 10% plus applicable surcharge and education cess. Charging of interest under section 234B - Held that:- addition made in the hands of assessee is deleted, then no further interest is chargeable under section 234B of the Act. The assessee has also pleaded that it is foreign company and it is not liable to levy of interest under section 234B of the Act. We find that the rate of taxes to be applied is being decided in favour of the assessee and consequently, no interest is chargeable under section 234B of the Act.
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