Change of opinion and treaty-based receipt taxation barred reassessment, accrual taxation, TDS denial, and interest on royalty income.

Reassessment under section 147 was treated as unsustainable where the assessee had already disclosed royalty receipts, TDS certificates, computation details and year-wise reconciliation in the original scrutiny assessment, leaving no new tangible material and indicating only a change of opinion. For a non-resident assessee following the cash system, royalty income covered by Article 12 of the India-USA treaty was linked to receipt rather than accrual, so taxation on an accrual basis, along with denial of corresponding TDS credit and levy of interest under section 234B, could not be sustained. The royalty was to be taxed on receipt basis in line with the treaty language and accounting method.

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Issues: (i) Whether the reassessment initiated under section 147 was valid when the assessee had disclosed the royalty receipts and related TDS details in the original scrutiny assessment. (ii) Whether royalty income of a non-resident assessee following the cash system of accounting and covered by Article 12 of the India-USA tax treaty could be brought to tax on accrual basis, along with consequential denial of TDS credit and levy of interest under section 234B.

Issue (i): Whether the reassessment initiated under section 147 was valid when the assessee had disclosed the royalty receipts and related TDS details in the original scrutiny assessment.

Analysis: The material on record showed that the assessee had furnished the royalty particulars, TDS certificates, computation note, and year-wise reconciliation during the original scrutiny assessment. The assessing authority had examined the issue earlier and accepted the return under section 143(3). The reopening was thus based on the same material already on record and did not arise from any new tangible material. The earlier acceptance of the assessee's accounting and tax treatment also demonstrated that the subsequent action was only a different view on the same facts.

Conclusion: The reassessment under section 147 was invalid and bad in law.

Issue (ii): Whether royalty income of a non-resident assessee following the cash system of accounting and covered by Article 12 of the India-USA tax treaty could be brought to tax on accrual basis, along with consequential denial of TDS credit and levy of interest under section 234B.

Analysis: The assessee consistently followed the cash system of accounting, which is a recognised method under section 145. Article 12 of the India-USA treaty used the expressions "paid" and "received", supporting taxation on receipt basis in the hands of the non-resident recipient. The record also showed that the royalty amounts were offered in the later year when actually received, while TDS was deducted and remitted at the time of credit by the payers. In these circumstances, taxing the entire amount on accrual basis, while denying corresponding TDS credit and sustaining interest under section 234B, was unsustainable.

Conclusion: The royalty was taxable on receipt basis in the assessee's hands, and the consequential additions, denial of TDS credit, and interest levy could not survive.

Final Conclusion: The reassessment was annulled and the additions made on accrual basis, together with the consequential TDS and interest consequences, were set aside.

Ratio Decidendi: Reassessment cannot be sustained on a mere change of opinion where the relevant primary facts were already disclosed and examined, and a non-resident following the cash system is taxable on royalty income in accordance with the treaty language and actual receipt.

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