Draft assessment copy defects did not invalidate the final order; subscription revenue was treated as royalty and fully taxable.

A defect in the copy of a draft assessment order forwarded under section 144C did not invalidate the final assessment order where the final order was duly signed and stamped and the omission in the assessee's copy was merely inadvertent. Subscription revenue from Indian customers was held to be royalty under the India-UK treaty and the Act following earlier co-ordinate bench rulings on identical facts. Once characterised as royalty, the alternative plea for limited taxation by reference to a permanent establishment did not survive. The assessee failed on both the procedural challenge and the substantive taxability challenge, and the appeal was dismissed.

---

---

Issues: (i) Whether non-signing of the draft assessment order forwarded to the assessee invalidated the final assessment order; (ii) Whether the subscription revenue received from Indian customers was royalty and, if so, whether the assessee could claim taxation only to the extent attributable to a permanent establishment in India.

Issue (i): Whether non-signing of the draft assessment order forwarded to the assessee invalidated the final assessment order

Analysis: The draft assessment stage under section 144C is only a proposed step and does not itself create an enforceable demand. The final assessment order was duly signed and stamped, and the record also showed that the office copy of the draft order was signed and stamped. The omission in the copy forwarded to the assessee was treated as inadvertent and, in any event, did not affect the legality of the final assessment order. The cases relied upon by the assessee concerned final unsigned assessment orders and were treated as distinguishable.

Conclusion: The objection to validity failed and the final assessment order was held to be valid.

Issue (ii): Whether the subscription revenue received from Indian customers was royalty and, if so, whether the assessee could claim taxation only to the extent attributable to a permanent establishment in India

Analysis: The receipt was held to be royalty under the India-UK treaty and the Act, following earlier co-ordinate bench decisions on identical facts. Once the receipt was characterised as royalty, the alternative plea based on Article 13(6) and alleged permanent establishment attribution did not survive. The Tribunal followed its earlier decisions on the same factual matrix and declined to depart from them.

Conclusion: The subscription revenue was held to be royalty, and the alternative plea for restricted taxation by reference to a permanent establishment was rejected.

Final Conclusion: The assessee succeeded on neither the procedural challenge to the assessment nor the substantive challenge to the taxability of the subscription receipts, and the appeal was dismissed in full.

Ratio Decidendi: A defect in the copy of a draft assessment order forwarded under section 144C does not invalidate the final assessment order where the final order is duly signed and stamped and the draft-stage omission is merely inadvertent; further, where subscription receipts are characterised as royalty on identical facts, the assessee cannot reopen treaty attribution merely by invoking the existence of a permanent establishment.

---