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Issues:
Interpretation of Double Taxation Avoidance Agreement between India and U.K. Taxation rate on royalty income under the agreement dated December 10, 1981. Validity of the agreement dated December 10, 1981, as an independent agreement or an extension. Interpretation of Double Taxation Avoidance Agreement: The High Court of Calcutta addressed the interpretation of the Double Taxation Avoidance Agreement between India and the U.K. The court considered whether the Tribunal was correct in rejecting the assessee's claim for a concessional tax rate of 30% on royalty income received under the agreement signed on December 10, 1981. The court analyzed the provisions of article 13(2) of the agreement and the legal implications of the timing of the agreement in relation to the convention's enforcement. Taxation Rate on Royalty Income: The case involved the taxation rate applicable to royalty income under the agreement dated December 10, 1981. The assessee claimed a tax rate of 30% on the royalty income accrued after the convention's enforcement on November 23, 1981. The Assessing Officer initially taxed the royalty income at 40%, arguing that the agreement was an extension of previous agreements. The court examined the relevant clauses of the agreement and the convention to determine the correct tax rate applicable to the royalty income. Validity of the Agreement as an Independent Contract: Another crucial issue was whether the agreement dated December 10, 1981, should be considered an independent agreement or merely an extension of previous agreements. The court analyzed the terms and conditions of the agreements dated 1971 and 1981 to establish the nature of the agreement signed in 1981. The court concluded that the agreement dated December 10, 1981, was an independent agreement with different terms and conditions, warranting a distinct tax treatment under the convention. The court emphasized that the agreement dated December 10, 1981, signed after the convention's enforcement, entailed a tax rate of 30% on the income accrued post the convention's commencement on November 23, 1981. The court rejected the Tribunal's decision and ruled in favor of the assessee, holding that the Tribunal erred in denying the assessee the benefit of the tax rate specified in article 13 of the convention. Consequently, all questions were answered in favor of the assessee and against the Revenue, providing a significant legal interpretation regarding the taxation of royalty income under international agreements.
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