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2016 (1) TMI 34 - AT - Income TaxAmount received is in the nature of royalty or not - taxability in India - Section 9(1)(xi) - activity of providing access to its internet by which it provides a gateway that will facilitate call centers to incoming and outgoing calls from India to the people of USA, referred as Cincom Gateway - whether the consideration paid for the use of such facility is in the nature of royalty as defined under the DTA between India and USA? - India USA DTAA - Held that:- Undisputedly, the impugned payment falls within the definition of ‘royalty’ as defined under the provisions of 9(1)(vi) of the Act. However, since the assessee company is a resident of United States of America, it is entitled to be governed by the provisions of DTAA between India and USA, the term ‘royalty’ was defined in the Article 12(3) of the DTAA From the facilities provided by the American company to the Indian company, which are of the nature of online, analytical data procession, it would be clear that the payment is received as “consideration for the use of, or the right to use design or model, plan, secret formula or process”. The use by the Indian company of the CPU and the consolidated date network of the American company is not merely “use of or the right to use any industrial, commercial or scientific equipment” as envisaged in article 12(3)(b) of the DTA but more than that. It is the use of embedded secret software (an encryption product) developed by the American company for the purpose of processing raw data transmitted by the Indian company, which would also clearly fall within the ambit of article 12(3)(a) of the DTA between India and the USA. In this case, use of Transponder is involved which is not a self contained operating unit. It is in orbit with footprints all over the world so that its location cannot be attributed with reference to location of its customers. Thus the consideration paid is in the nature of royalty within the meaning article 12(3) of DTA between India and USA. - Decided against assessee.
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