2017 (11) TMI 1846 - AT - Income Tax

Treatment of Business income as Royalty income - no fixed place of business or permanent establishment in India - DRP confirming entire payments received by the Appellant from customers in India during the captioned year are taxable as royalty u/s 9(1)( vi) and under Article 12 of India - Ireland DTAA - HELD THAT - The issue has been decided by this tribunal in assessee s own case against the assessee 2017 (4) TMI 1461 - ITAT MUMBAI as relying on 2014 (1) TMI 1281 - ITAT MUMBAI as held a customer of the present assessee made payment without deduction of tax at source u/s 195 of the Act - the payments made for online use of database was for licence to use said database and hence the consideration was royalty liable for deduction of tax at source u/s 195 - Decided against Assessee. Interest u/s. 234B - HELD THAT - AO erred in charging the interest u/s. 234B as assessee being a non-resident the Indian payers were obliged to withhold Tax at Source u/s. 195 and therefore the question of payment of advance tax and corresponding levy of interest u/s. 234B of the Act does not arise. - Decided in favour of the assessee

Summary

Issues Involved:
1. Erroneous treatment of Business Income as Royalty Income.
2. Erroneous levy of interest under Sections 234B.
3. Initiation of penalty proceedings under section 271(1)(c).

Issue-wise Detailed Analysis:

1. Erroneous treatment of Business Income as Royalty Income:
The primary issue was whether the subscription fees received by the assessee, a company incorporated in Ireland, from Indian clients for accessing research products over the internet should be treated as "royalty" under Section 9(1)(vi) of the Income-tax Act, 1961, and Article 12 of the India-Ireland DTAA, or as "business income" not chargeable to tax in the absence of a Permanent Establishment (PE) in India. The assessee argued that the income from subscriptions should be treated as business income, not royalty, as the subscribers do not get a right to exploit the underlying copyrights. The Assessing Officer (AO) and the Disputes Resolution Panel (DRP) disagreed, relying on the judgment of the Hon'ble Karnataka High Court in the case of M/s. Wipro Ltd and prior ITAT decisions in the assessee's own case, concluding that the subscription fees constituted royalty and were taxable in India. The Tribunal upheld this view, citing consistency with prior decisions and the Karnataka High Court's ruling.

2. Erroneous levy of interest under Sections 234B:
The second issue concerned the levy of interest under Section 234B amounting to Rs. 1,49,59,032. The assessee contended that if the income is treated as business income, no tax would be payable, and thus, no interest should be levied. Additionally, as a non-resident company, the assessee argued that its income was subject to tax deduction at source, and it had no liability to pay advance tax under Section 209(1)(d) of the Act. The Tribunal agreed with the assessee, referencing multiple precedents from the Hon'ble Bombay and Delhi High Courts, which held that non-residents are not liable for interest under Section 234B when Indian payers are obliged to withhold tax at source.

3. Initiation of penalty proceedings under section 271(1)(c):
The third issue was the initiation of penalty proceedings under Section 271(1)(c) of the Act. The Tribunal did not provide a detailed discussion on this issue in the judgment, likely because the primary and secondary grounds were the focal points of the appeal.

Conclusion:
The Tribunal upheld the AO and DRP's decision to treat the subscription fees as royalty, taxable in India, following precedent and the Karnataka High Court's ruling. However, it sided with the assessee on the issue of interest under Section 234B, holding that non-residents are not liable for such interest when tax is to be withheld at source by Indian payers. The appeal was thus partly allowed.