TMI Blog2011 (12) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... not be considered as royalty. In this case, assessee has a business connection in India but does not have any P.E. in India. Since the Indian company who obtained the rights is acting independently, Agency PE provisions are not applicable to the assessee company. Thus, the incomes arising outside Indian Territories cannot be brought to tax Decided against the Revenue - I T Appeal No. 3160 (Mum.) of 2010, C.O. No.17/Mum/2011 (Arising out of ITA No.3160/Mum/2010) - - - Dated:- 30-12-2011 - N.V. Vasudevan, B. Ramakotaiah, JJ. Jitendra Yadav for the Appellant. W. Hasan for the Respondent. ORDER B. Ramakotaiah, Accountant Member The Revenue has raised the present appeal against the order of the CIT (A)-2 Mumbai dated 29.01.2010. The Revenue is aggrieved that the CIT (A) erred in holding that the royalty received by the assessee from WBPIPL is not taxable in India under the Act as it is not hit by the rigors of Explanation 2(v) to Section 9(1)(vi) of the Act. It also filed additional grounds that the CIT (A) erred in holding that the appellant does not have a PE in India. The cross appeal is with reference to contesting the findings of the CIT (A) tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim, the assessee relied on several judgments of the Hon'ble Supreme Court and various High Courts including the judgment of the Hon'ble Bombay High Court in the case of SET Satellite (Singapore) Pte. Ltd. v. Dy. DIT (International Taxation) [2008] 173 Taxman 475 (Bom.). The Assessing Officer passed the impugned assessment order dated 18/12/2008 without making any reference to above submissions of the assessee. The Assessing Officer rejected the claim of refund of the assessee and assessed the royalty of ₹ 3,88,02,093/- @ 15% applying, Article 12(2) of the India-USA Treaty. 5. Before the CIT (A) the claim of the assessee is that this royalty is not taxable in India for the following reasons: In view of section 90(2) of the Act in cases covered by a Tax Treaty, the provisions of the Act or the Tax Treaty whichever is more beneficial to the assessee will apply. In view of Explanation 2(v) to section 9(1)(vi) of the Act the consideration for the sale, distribution or exhibition of cinematographic films is excluded from the definition of royalty. Thus it is not taxable under the Act. The royalty is also not taxable under the DTAA. Assum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the royalty is payable in respect of any right, property or information used or service utilized for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: ** ** ** Explanation 2 - For the purpose of this clause, royalty means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head Capital gains ) for- (i) The transfer of all or any rights including the granting of a license) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property: (ii) The imparting of any information concerning the working of, or the use of a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) The use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) The importing of any information concerning technical, industrial, commercial or scientific knowledge, experience ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y either under the Act or the DTAA whether the same is not liable to tax or it is covered by the general clause (i) of section 9(1). In this regard the learned Counsel reiterated the following submissions which have been referred to earlier in this order: (A) When there is a special provision dealing with a specific type of income such a provision would exclude the general provision. (B) Appellant does not have business connection in India. Hence the appellant has no business income in India. (C) Even if it is held that the royalty is income arising from business connection in India, the same is not taxable as the appellant does not have a PE in India. (D) The royalty received by the appellant is not taxable in India as the appellant does not carry out any business activity in India. (E) Since the royalty is paid at arm's length the income of the appellant is not taxable in India. 3.19 Regarding the submission at (A) the learned Counsel invited my attention to Paragraphs 9 10 of the written submission dated October 31, 2008 filed before the Assessing Officer and argued that when there is a special provision dealing with a specific type of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... domestic law, the same cannot be taxed under the DTAA as the DTAA does not create a charging provision to assessee an income which is not otherwise chargeable to tax under the domestic law. The Apex Court has, in no uncertain terms held in the case of P.V.A.L. Kulandagan Chettiar 267 ITR 654 (SC) that The provisions of such agreement cannot fasten a tax liability where the liability is not imposed by a local Act. Where tax liability is imposed by the Act, the agreement may be resorted to either for reducing the tax liability or altogether avoiding the tax liability [Emphasis supplied]. 3.31 However, the Assessing Officer has held that the definition in the India USA treaty makes the royalty received by the appellant as taxable in India. Assuming this to be the case, the matter still does not end here. The law on this issue is that where a matter is governed by the provisions of the Act and also by a DTAA, the provisions of the DTAA should prevail unless the statutory provision is more beneficial to the assessee. In this regard the reliance placed by the appellant on the CircularNo.333 dated 02/04/1982 137 ITR (St) of CBDT and the two case laws of CIT v. V.R.S.R.M. Firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein the ITAT held that in view of the specific provision of Explanation 2, clause (v) of section 9(1)(vi) of the Act consideration for exhibition of cinematographic films are excluded from the purview of the definition of royalty. It was fairly submitted that the assessee has no rights for broadcasting on Radio and TV and therefore, the principles established in the above decisions would apply to the facts of the case. He then referred to the order of the CIT (A) to submit that on the facts, there is no dispute with reference to the issue that the amounts are not taxable under section 9(2)(vi) and Article 12(3) of the DTAA. He submitted that the assessee has objection with reference to the findings of the CIT (A) that the provisions of section 9(1)(i) which are general provisions would apply which the assessee was objecting to in the cross appeal. He referred to the decision of the Hon'ble Gujarat High Court in the case of Meteor Satellite Ltd. v. ITO [1980] 121 ITR 311/[1979] 2 Taxman 424 (Guj.) to submit that Clause (vi) of section 9(1) deals with a specific type of income, namely, income by way of royalty, whereas cl.(i) of section 9(1) is a more general provision which dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the use of any copyright or literary, artistic or scientific work including cinematographic films or work on films, tape or other means of production for use in connection with Radio or T.V. broadcasting. In view of this specific provisions, the amount received by the assessee cannot be considered as royalty as was done by the Assessing Officer while invoking the Article 12(2) of the DTAA for taxing the amounts. To that extent the findings of the CIT (A) are correct and there is no need to deviate from such findings. In view of this the amount received by the assessee cannot be considered as royalty within the meaning of Indian Income Tax Act or under the DTAA. 10. The issue can be examined in another dimension whether the amount is taxable under the Indian Income Tax Act in India if not as royalty, but as business income. The CIT (A) finding is that assessee has a business connection in India. However, he considered that there is no PE to the assessee, the fact of which was also accepted by the Assessing Officer as he has invoked only Article 12(2) and not considered the amounts business income as per PE proviso. It was the contention of the learned Departmental Representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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