2013 (12) TMI 1737 - AT - Income Tax

Summary

Issues involved:
The judgment involves the interpretation of Article 24 of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore, the determination of whether a payment constitutes Royalty under the DTAA, and whether the Royalty has arisen in India as per the provisions of Article 12(7) of the DTAA.

Interpretation of Article 24 of DTAA:
The Tribunal held that the income, even if construed as Royalty, does not arise in India under Article 12(7) because the payer is a resident of Singapore. Referring to the OECD Commentary on Article 11, it was emphasized that the state of source of royalties is the state where the payer is a resident. The Tribunal also noted that the amount paid was subject to tax in Singapore under its domestic laws, leading to the conclusion that Article 24 of the DTAA does not apply. The Tribunal dismissed the Revenue's appeal on this ground based on the decision of a co-ordinate Bench.

Nature of Payment as Royalty under DTAA:
The Tribunal did not find it necessary to decide whether the payment in question was in the nature of Royalty under the DTAA, as it had already determined that the Royalty did not arise in India as per the provisions of Article 12(7) of the Treaty. This decision was in line with a previous decision of the Tribunal, and accordingly, the appeal filed by the Revenue was dismissed.

Royalty Arising in India u/s Article 12(7) of DTAA:
The Tribunal analyzed the relevant provisions of Article 12(7) of the Indo-Singapore DTAA and referred to a previous decision regarding the necessity of an economic link between the payment of royalties and the Permanent Establishment (PE) in India. It was concluded that since there was no economic link between the payment of royalties and the Indian PE, the Royalty did not arise in India as per the Treaty provisions. The Tribunal dismissed the Revenue's appeal on this ground, following the decision in the assessee's own case.

Separate Judgment by Judges:
The judgment was delivered by Shri N.K. Billaiya, AM, and Shri B.R. Mittal, JM. The issues of interpretation of the DTAA, nature of payment as Royalty, and the Royalty arising in India u/s Article 12(7) of the DTAA were comprehensively addressed and decided in favor of the assessee based on previous Tribunal decisions and legal interpretations.