TaxTMI 
TaxTMI 
2011 (12) TMI 195
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....sting that other arguments of the assessee were not adjudicated upon particularly with reference to the fact that the assessee does not carry out any business activity in India and since the royalty is paid at arm's length, the income is not taxable in India. 2. We have heard the learned Departmental Representative Shri Jitendra Yadav and the learned Counsel Shri W. Hasan in detail. Briefly stated, the assessee is a non-resident company having business in production and distribution of films. The assessee entered into an agreement with Warner Bros Pictures (India) Pvt. Ltd (WBPIPL) dated 1st February, 2005. Under this Agreement, the assessee granted exclusive rights of distribution of Cinematographic films on payment of royalty in terms of the said Agreement. During the year under consideration the assessee received Rs. 3,88,02,093/- as royalty. WBPIPL while remitting the said royalty deducted tax at source amounting to Rs. 58,17,227/-. Being advised that the royalty received by the assessee is not a taxable income in India, the assessee filed its return of income for the year under consideration on 29th November, 2006 claiming refund of the tax deducted at source amounting t....
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....not have business connection in India as the Agreement between the assessee and WBPIPL is signed outside India and the payment of royalty is also made outside India. (2) Assuming, though not accepting, that there is a business connection in India, the royalty received by the assessee from WBPIPL is not taxable in India as the assessee does not carry out any business activity in India to earn this income. Reliance is placed on the decision of Ishikawajma-Harima Heavy Industries Ltd v. Director of Income Tax 2007-(158)-TAXMAN 0259-SC. (3) Even if it is held that the royalty is income arising from business connection in India the same is not taxable as the assessee does not have a PE in India. (4) Assuming, though not accepting, that the assessee earns the royalty through a PE, the same cannot be taxed in India as the royalty is paid at arm's length. Reliance is placed on the case of SET Satellite (Singapore) Pte. Ltd. v. Dy. Director of Income Tax (International Taxation) in appeal No.944 of 2007 dated 22nd August, 2008. (5) In view of Article 23 of DTAA royalty is also not taxable as "income from other sources". 6. On the above contentions of the ass....
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....tion with television or tapes for use in connection with radio broadcasting, but no including consideration for the sale, distribution or exhibition of cinematographic films: or (vi) The rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v)" 3.15 A simple analysis of the said definition in clause (v) of the said Explanation would reveal that the consideration for the sale, distribution or exhibition of cinematographic films is kept outside the purview of the definition of royalty unless royalty arises on the transfer of all or any rights (including the granting of license) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with the television or tapes for use in connection with radio broadcasting. ** ** ** 3.17 I have carefully considered the submissions of the learned Counsel. I have also gone through the Agreement. A perusal of the assessment order shows that it is not the case of the Assessing Officer that the said Royalty has arisen on account of transfer of rights of films or video tapes for use in connection with television or t....
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....ITR 688 (SC) (4) CIT Bombay City - III v. Smt. T.P. Sidhwa 133 ITR 840 (Bom.) 3.20 I have carefully considered the submissions of the learned Counsel but do not find force in the same. Once it is held that the royalty is not covered by its definition under the Act, the next question to be considered is whether the said income is taxable under any other provision of the Act. As royalty is not specifically exempted under any provision of the Act I hold that the same is covered by the general provision of clause (i) of section 9(1). This argument of the learned Counsel, is therefore, rejected. ** ** ** 3.27 I have carefully considered the submissions of the learned Counsel. I have also gone through the Agreement. On the basis of the facts mentioned above I am of the opinion that the License (WBPIPL) does not constitute a PE of the appellant. This is also not disputed by the Assessing Officer as he has himself assessed the income of the appellant as royalty. The Assessing Officer has not invoked the provisions of Paragraph 6 of Article 12 of the DTAA which provides that if the beneficial owner of the royalty carries on business through a permanent establishment and....
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....llowing the legal position applicable to the appellant's case, it is held that the royalty amount of Rs. 3,88,02,093/-received by the appellant from WBPIPL is not taxable as Royalty either under the Indian Income Tax Act or the DTAA. Having held so the other submissions of the appellant pertaining to arm's length payments, and service rendered outside India need not require any discussion". 7. Learned Departmental Representative referring to various findings of the CIT (A) submitted that the CIT (A) erred in not considering the provisions of section 5 of the ACT and Article 7 of Treaty while deleting the above as he has held that there is a business connection and accordingly the income is taxable under the Indian Income Tax Act Sec. 9(1)(i) r.w.s Section 5 (2). 8. However, the learned Counsel submitted that by virtue of exclusion under section 9(1)(vi) from the definition of royalty by Explanation 2 of the said provisions and by virtue of Article 12(3) which also excludes the sale, distribution and distribution of cinematograph films from the definition of royalty, income is not taxable either under the Indian Income Tax Act or under the DTAA. He then referred to the fin....
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....ed in this case and once the case falls under clause (vi) and is exempted from the operation of clause (vi) by virtue of the proviso, then we cannot refer to clause (i) which is a general clause. 8.1 Ld. Counsel also relied on the decision of the Hon'ble Madras High Court in the case of CIT v. Copes Vulcan Inc. U.S.A. [1987] 167 ITR 884/30 Taxman 549 (Mad.) wherein with reference to the proviso to section 9(1)(vii) similar view was held and because of application of section 9(1)(vii) receipt was excluded by the proviso, the said payment cannot be automatically fall within the section 9(1)(i) of the I.T. Act. It was the submission that when there is a special provision dealing with special type of incomes accruing or arising out of any business connection, it is not possible to apply the general principles in section 9(1)(i). It was submitted that in view of the proviso and principles established, the amount on royalty received by the assessee Non-Resident Company is not taxable and therefore, the order of the CIT (A) to that extent is to be upheld. 9. We have considered the rival contentions and examined the facts on record. There is no dispute with reference to the fact that....