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2023 (7) TMI 131 - AT - Income TaxRoyalty Receipts - existence of PE and the taxability of the receipts from supply of software - addition under the domestic law as well as India – USA DTAA - assessee is a non-resident corporate entity and a tax resident of USA - DTAA - HELD THAT:- The issue is no more res integra in view of the decision of Engineering Analysis Centre of Excellence Pvt. Ltd. [2021 (3) TMI 138 - SUPREME COURT] that receipts from Reliance Infocomm Ltd. are not taxable as royalty income, either under the domestic law or India – USA DTAA. More so, when the agreement between the parties makes it clear that the ownership rights over the software remains with the licensor. Thus, for the aforestated reasons, we hold that the amount received by the assessee from Reliance Infocomm Ltd. is not taxable as royalty income. Certain other receipts, though, not in the nature of royalty, are business profits and are attributable to the PE - assessee has sold telecommunication equipments along with software to Indian telecommunication companies and telecommunication hardware and software were not supplied by the assessee directly to the Indian customers from outside India - HELD THAT:- It is borne out from record that the head office has directly supplied the hardware and software from outside the territory of India. Neither manufacturing nor any other activities relating to the hardware and software supply has taken place in India. In such a scenario, the profit/income from offshore supply of equipments and software cannot be attributed to the PE, as, only such part of income relating to operation carried out in India can be attributed to the PE and taxed in India. Entire profits from supply of equipments and software cannot be attributed to the PE. The departmental authorities have not demonstrated in any financial terms, what is the exact role of the PE in earning the receipts and to what extent. Only that part of the receipts, which can be linked to the activities of the branch office, can be brought to tax in India by attributing to the PE. Instead of undertaking any such exercises, the departmental authorities have attributed the entire receipts to the PE, which in our view, is unsustainable. Accordingly, we hold that the receipts from Bharti Telenet Services Ltd. and Tata Teleservices Ltd., even though, may be in the nature of business profits, but cannot be attributed to the PE. Disallowance being employees contribution to Provident Fund (PF) and Employees State Insurance (ESI) paid beyond the due date - As we direct the Assessing Officer to verify, whether the amount in dispute was remitted to the Government account within the grace period provided under the PF and ESI Act. If on such verification, the AO funds assessee’s claim to be correct, the addition should be deleted. Levy of interest u/s 234B - HELD THAT:- We accept assessee’s claim and hold that no interest under section 234B of the Act can be charged as the assessee, being a non-resident company was not liable to pay advance tax, since, the payer is under an obligation to withhold tax u/s 195 of the Act while making payment to the assessee. Accordingly, AO is directed to delete the interest charged under section 234B of the Act.
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