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of <h1>AAR rules payment to VIVO for ring back tones taxable as royalties in India</h1> <h3>In Re : On Mobile Global Ltd.</h3> In Re : On Mobile Global Ltd. - [2021] 435 ITR 403 (AAR) Issues Involved:1. Whether the payment of Rs. 12.70 million by the applicant to VIVO is considered to be received or deemed to be received in India.2. Whether the payment would be considered to accrue or arise in India as business income, royalties, or fees for technical services.3. Taxability of the amount under the India-Brazil Tax Treaty as business profits, royalties, or fees for technical services.Detailed Analysis:1. Received or Deemed to be Received in India:The applicant argued that the premium paid to VIVO does not fall under the purview of income received or deemed to be received in India as the payment was made outside India, and VIVO does not carry on any business activities in India. The Authority for Advance Rulings (AAR) concluded that no income has accrued or arisen in India for VIVO, thus section 5 of the Income-tax Act is not applicable here.2. Accrual or Arising in India:The applicant contended that payments to VIVO should not be considered to accrue or arise in India as VIVO does not have a business connection or permanent establishment in India. The Department argued that the payment is chargeable under section 5(2)(b) and section 9(1)(vi) of the Income-tax Act, 1961, as it pertains to royalties for imparting information concerning technical, commercial, industrial, or scientific knowledge, experience, or skill.AAR's Decision:- The AAR held that the payment of Rs. 12.70 million is covered under Explanation 2(iv) and Explanation 5 of section 9(1)(vi) of the Income-tax Act, 1961, as it involves imparting commercial knowledge and experience.- The payment is considered royalty and is not covered under the exclusion clauses of section 9(1)(vi)(b) since the business activities and income-earning activities are located in India.- The source of the income is in India, as all value-added activities related to the ring back tone services are carried out in India.3. Taxability under India-Brazil Tax Treaty:The applicant argued that the payment does not fall under the definition of royalties or fees for technical services under the India-Brazil tax treaty and should not be taxable in India. The Department contended that the payment qualifies as royalties under Article 12 of the India-Brazil Tax Treaty.AAR's Decision:- The AAR concluded that the payment falls under Article 12(3) of the India-Brazil Tax Treaty as it pertains to consideration for information concerning industrial, commercial, or scientific experience.- The payment is taxable in India under the provisions of the India-Brazil tax treaty as royalties.Conclusion:(a) and (b) The payment of Rs. 12.70 million by the applicant to VIVO for the exclusive right to offer ring back tone services to VIVO's customers in Brazil is income deemed to accrue or arise in India in terms of section 9(1)(vi)(b) as royalties.(c) The amount payable by the applicant is taxable in India under the provisions of the India-Brazil tax treaty as royalties.
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