TMI Blog2011 (8) TMI 295X X X X Extracts X X X X X X X X Extracts X X X X ..... is neatly defined under Article 13(3) of Indo UK tax treaty, and unless the payment fits into the description set out in Article 13(3), it cannot be termed as 'royalty' for the purposes of examining its taxability under the tax treaty - The impugned remittance is in the nature of business profits in the hands of the UK based recipient, and since the recipient admittedly did not have any permanent establishment in India, the same is not taxable in India - Therefore, the recipient did not have any primary tax liability in India, as a corollary thereto, the assessee did not have tax withholding obligations from this remittance - Decided in favour of assessee. - ITA No. 7164/Mum/2008 - - - Dated:- 26-8-2011 - Pramod Kumar, Vijay Pal Rao, J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the said payment having been made without deduction of tax at source, it was submitted by the assessee that as the recipient of income was not liable to be taxed, in respect of this income in India, no tax was required to be deducted at source by the assessee. It was in effect contended that disallowance under section 40(a)(i) can only be made when taxes are deductible but not deducted. However, this submission did not find any favour from the Assessing Officer. He was of the view that the aforesaid contention of the assessee "is not correct because, as per Section 195 of the Income Tax Act, 1961, tax has to be deducted at source while remitting the monies outside India" . He further observed that "the assessee has not submitted any ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t source from a remittance abroad, it cannot be inferred that the person making the remittance has committed a failure in discharging his tax withholding obligations because such obligations come into existence only when recipient has a tax liability in India. The underlying principle is this. Tax withholding liability of the payee is inherently a vicarious liability, on behalf of the recipient, and, therefore, when recipient does not have the primary liability to be taxable in respect of income embedded in the receipt, the vicarious liability of the payer cannot but be ineffectual. This vicarious tax withholding liability cannot be invoked unless primary tax liability of the recipient is established. Just because the payer has not obtained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claims carefully to make sure they are true, and backed up by reliable scientific evidence". As a result of the accreditation granted by the BDHF, the assessee is allowed to use this fact of BDHF approval in the marketing of its products. The question that we actually need to decide is whether the amount so received by BDHF, in consideration of the accreditation, can be brought to tax in India? 8. It is not even in dispute that BDHF does not have any permanent establishment in India, and the assessee has also filed a certificate to that effect as issued by the BDHF. It is also not in dispute that the provisions of the India United Kingdom Double Taxation Avoidance Agreement (206 ITR Stat 235; 'India UK tax treaty', in short) apply to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. 9. While clause (b) of the definition of clearly inapplicable on the facts of this case as this clause deals with the equipment leasing only, clause (a) also does not deal with a situation in which the accreditation or approval granted by a resident is used, in another country, for promoting the sales. This accreditation does not allow the accredited product to use, or have a right to use, a trademark, nor any information concerning industrial, commercial or scienti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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