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2012 (6) TMI 328 - AT - Income TaxDTAA between India and USA - Royalty income - taxability on gross basis or net basis - assessee opted for the provision contained under article 12 of DTAA contemplating taxation @ 15% of the "gross amounts" of royalties - Held that:- Term "Gross amounts" has not been defined in the treaty. In common parlance, these words mean the amount received alongwith tax deducted etc. at source. Also, section 198, provides that all sums deducted in accordance with the provisions of chapter XVII shall be deemed to be income received for computing the income of an assessee. Thus, expression 'gross amount' includes within its ambit the actual payment and tax deducted at source. Therefore, CIT(A) erred in taxing the net amount @ 15% under the DTAA - Decided in favor of Revenue. Whether, the income by way of royalty is taxable on cash basis or mercantile basis - Held that:- Initial point of taxation is the arising of the royalty in India, but it is finally taxed on the basis of amount of royalty paid to the non-resident. Therefore, irrespective of the system of accounting, royalties are taxable on cash basis. Accordingly it is held that the amount provided by the licensee in its books of account but not paid to the assessee is not taxable. Matter restored to the file of AO to decide about chargeability of interest u/s 234B & 234C.
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