2021 (12) TMI 1418 - AT - Income Tax

Income deemed to accrue or arise in India - receipts of the appellant are in the nature of Royalties within the ambit of Explanation 2 to section 9(i)(vi) and Article 12(3) of the India-USA Double Taxation Avoidance Agreement ( DTAA ) - HELD THAT - We find force in the contention of the ld. counsel for the assessee. A similar quarrel was considered and decided by this Tribunal 2021 (10) TMI 1389 - ITAT DELHI we direct the Assessing Officer to treat the income of the assessee as not liable to tax in India. Appeal of assessee allowed.

Summary

Issues involved:
Assessment of income, applicability of tax laws, interpretation of Double Taxation Avoidance Agreement (DTAA), tax liability of a non-resident, penalty proceedings under section 271(i)(c) of the Income-tax Act.

Analysis:

1. Assessment of Income:
The appeal was against the assessment of the appellant's income at a specific amount. The appellant contested the assessment, arguing that they should not be liable to pay tax in India. The Hon'ble Dispute Resolution Panel and the Assessing Officer (AO) were criticized for their decisions regarding the appellant's tax liability.

2. Interpretation of DTAA:
The issue of whether the appellant, a resident of the USA, could be taxed under the provisions of the Income-tax Act or if they were covered by the beneficial provisions of the DTAA between India and the USA was raised. The appellant argued that they should not be taxed in India based on the DTAA.

3. Definition of "Royalties" and Tax Liability:
The authorities had classified the receipts of the appellant as "Royalties" under specific sections of the Income-tax Act and the India-USA DTAA. The appellant contested this classification, arguing that the expanded definition of "Royalties" as per the Finance Act, 2012, should not automatically impact the interpretation of the DTAA.

4. Tax Liability of Non-Resident Customers:
The authorities had also imposed tax liability on the receipts of the appellant from non-resident customers under certain provisions of the Income-tax Act and the DTAA. The appellant challenged this decision, questioning the basis for categorizing the receipts and the percentage of revenue subjected to tax.

5. Penalty Proceedings:
The AO had initiated penalty proceedings under section 271(i)(c) of the Income-tax Act. The appellant disputed this, claiming that the penalty proceedings were not justified.

In the judgment, the Tribunal noted that similar issues had been decided in favor of the assessee in previous cases. Referring to decisions of the Hon'ble High Court of Delhi, the Tribunal found that the quarrel had been settled in favor of the assessee and against the Revenue. The Tribunal directed the AO to treat the income of the assessee as not liable to tax in India, based on the decisions of the Hon'ble Jurisdictional High Court in the appellant's own case. Consequently, the appeal of the assessee was allowed, and the tax liability in India was negated.