Treaty royalty rate reduction applies from assessment year 2008-09 under the amended India-Japan protocol.

The amended India-Japan tax treaty reduced the ceiling tax rate on royalty and fees for technical services to 10% where the recipient is the beneficial owner. The protocol's effective-date clause applied that reduced rate in India to income for previous years beginning on or after 1 April 2007, corresponding to assessment year 2008-09. Payments under the technical collaboration agreement were treated as royalty, and the reduced treaty rate applied from assessment year 2008-09 onwards.

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Issues: Whether royalty income arising to the applicant from Japan under the India-Japan tax treaty is taxable at a rate not exceeding 10% from assessment year 2008-09 onwards after the protocol amending Article 12 came into force.

Analysis: The amended Article 12(2) of the treaty substituted the earlier 20% ceiling with a 10% ceiling on royalties and fees for technical services where the recipient is the beneficial owner. The protocol's effective-date clause made the amended rate applicable in India to taxes on income for previous years beginning on or after 1 April 2007, corresponding to assessment year 2008-09. The payments under the technical collaboration agreement were royalty in nature, and the Revenue accepted that the reduced rate applied from assessment year 2008-09 onwards.

Conclusion: The royalty income is chargeable to tax at a rate not exceeding 10% from assessment year 2008-09 onwards.

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