2016 (3) TMI 1473 - AT - Income Tax

Tax Tribunal Orders Reexamination of Assessee's Income Under Indo-US Treaty, Ensuring Fair Assessment and Hearings.

The ITAT partially allowed the appeals, finding that the tax authorities inadequately assessed the taxability of amounts received by the assessee from ... Taxability of income in India - receipts taxable as royalty within the meaning of section 9(1) (vi)of the Act as well as Article-12 of the Indo-US DTAA - amount received from the Indian entities - HELD THAT:- As decided by ITAT A.Y.s 2004- 05 to 2006-07 [2014 (11) TMI 432 - ITAT MUMBAI] expressions “Royalty” and “Fees for included services” have been given distinct meaning in the Indo US treaty. We have already noticed that the tax authorities were not able to come to a conclusion as to whether the consideration received by the assessee company would fall within the meaning of “Royalty” or “Fees for included services”, even though there are plethora of case laws explaining both the terms. Hence, we are of the view that the tax authorities have not examined the impugned issue in proper perspective, i.e., the matter has not been examined in the context of Indo-US treaty by considering the meaning of various terms used therein. As stated earlier, the meaning to be ascribed to various terms used in the treaty has been the bone of contention in various case laws and we notice that the tax authorities have not considered the applicable case laws. Impugned matter requires fresh examination at the end of the assessing officer. We, restore the matter to the file of the AO for fresh adjudication. - Ground Nos. 1 to 3 are allowed in favour of the assessee in part. Issues:Taxability of consideration received by the assessee from Indian entities as royalty or fee for included services under Indo-US DTAA.Analysis:- The assessee, engaged in market research, claimed the amounts received from Indian entities were not taxable. However, the AO considered them taxable as royalty under section 9(1)(vi) of the Income Tax Act and Article 12 of the Indo-US DTAA.- The FAA upheld the taxability as royalty and fee for included services. The Tribunal noted the need to examine taxability under the DTAA but found the authorities had not properly considered the treaty's terms.- The AO initially treated the receipts as royalty but later suggested they could be both royalty and fees for included services. The Tribunal observed the distinct meanings of these terms under the treaty.- Noting the lack of proper examination by tax authorities in the context of the treaty and relevant case laws, the Tribunal set aside the orders and directed fresh examination by the AO.- Following a previous Tribunal order on similar issues, the Tribunal restored the matter to the AO for reevaluation, emphasizing a proper assessment considering the submissions, case laws, and applicable treaty provisions.- The Tribunal allowed the appeals partially, directing the AO to provide a fair hearing to the assessee during the fresh adjudication process.In conclusion, the Tribunal found the tax authorities had not adequately considered the taxability of the amounts received by the assessee from Indian entities under the Indo-US DTAA. The Tribunal set aside the previous orders and directed the AO to reexamine the issue, ensuring a comprehensive evaluation in line with the treaty provisions and relevant case laws. The appeals were partly allowed, with the matter remanded for fresh adjudication.