2021 (2) TMI 1370 - AT - Income Tax

Taxability of income in India - Determination of taxability of the payment received as a consideration for data transmission services - royalty receipts - PE in India or not? - whether assessable as business profits in India? - whether AO erred in holding that the payments received by the Appellant as consideration for data transmission services are in the nature of Royalty as defined under section 9(1)(vi) of the Income Tax Act and Article 12(4) of the DTAA. HELD THAT - The matter is in litigation since last many years starting AY 2006-07 and upto AY 2014-15. The AO in his draft order brought out that the department is in appeal before Hon ble Supreme Court against the judgment of Hon ble Delhi High Court in case of the assessee which has been admitted. It has to be borne in mind that the panel is an extension of the assessment process and the AO is now bound by the directions of DRP. Accordingly the matter needs to be kept alive in view of its pendency before the Apex Court. The panel accordingly upholds the adjustment made by the AO in this matter. The objections are rejected. Before us the ld. CIT DR fairly submitted that the additions have been made as the revenue is filed appeal against the order of the Hon ble Jurisdictional High Court and the matter is being agitated before the Hon ble Apex Court. From the above it is clear that the addition made by the AO is due to the fact that the revenue is agitating the issue before the Hon ble Apex Court. Since the matter stands adjudicated in favour of the assessee as on today we hold that the decision of the Hon ble Jurisdictional High Court is applicable to the appeal before us. Appeal of assessee allowed.

Summary

Issues Involved:
1. Taxability of payment received for data transmission services as "Royalty" under IT Act and DTAA.
2. Treatment of payment for data transmission services as "Fee for Technical Services" under IT Act and DTAA.
3. Impact of previous High Court judgments on the current case.
4. Validity of penalty proceedings under section 270A of the IT Act.

Analysis:
1. The appeal addressed the taxability of payments for data transmission services as "Royalty" under section 9(1)(vi) of the Income Tax Act and Article 12(4) of the DTAA. The appellant argued that the payments should not be taxable in India due to the absence of Permanent Establishment under the India-Netherlands DTAA. The issue was previously litigated and settled in favor of the assessee by the Hon'ble High Court judgments for earlier assessment years.

2. Another issue raised was the incorrect treatment of the payments for data transmission services as "Fee for Technical Services" under section 9(1)(vii) of the IT Act and Article 12(5) of the DTAA. The appellant contended that the expanded meaning of "Royalty" under the amended Finance Act, 2012, should not be retroactively applied to interpret the DTAA, as established by legal precedents.

3. The judgment highlighted that the AO's additions were made based on the revenue's appeal to the Hon'ble Apex Court against the High Court's decision. However, since the matter had already been settled in favor of the assessee by the High Court judgments for previous years, the Tribunal held that the High Court's decision applied to the current appeal, leading to the allowance of the assessee's appeal.

4. Lastly, the initiation of penalty proceedings under section 270A of the IT Act was deemed erroneous in light of the settled matters and the favorable judgments for the assessee. The Tribunal's decision to allow the appeal indicated that the penalty proceedings were not justified based on the circumstances of the case.

This comprehensive analysis of the judgment addresses the key issues raised in the appeal, the legal arguments presented by the parties, and the Tribunal's decision based on the facts and legal precedents involved.