TaxTMI 
TaxTMI 
2012 (5) TMI 58
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.... under : Income as per Revised Return Rs. 208,01,76,260. Agreements entered into before 1.6.2005 Income : Rs. 113,44,33,077 Tax : Rs. 17,01,64,962 @ 15% as per Article 12 of India-USA DTAA. Agreements entered into after 1.6.2005 Nature of income : Royalty towards ESW from IBM India Pvt. Ltd. Income : Rs. 94,57,43,187. Tax : Rs. 9,88,77,450 @ 10.455% as per section 115A. Nature of Income Royalty from IBM India Pvt. Ltd. Rs. 50,72,32,073. Royalty from third parties Rs. 43,85,11,114. In respect of royalty income of Rs. 50,72,32,073 received from IBM India P. Ltd., it was in respect of 'Marketing Royalty Agreement' between the assessee and IBM India Pvt. Ltd. Dt.1.6.2005. The receipts from sale of software to third parties amounting to Rs. 43,85,11,114 were received pursuant to agreements entered into between the assessee and various parties on or after 1.6.2005. The royalty received towards ESW was in respect of the 'IBM Software Remarketer Agreement' entered into between the assessee and IBM India Pvt. Ltd. on 1.10.2004 which is before 1.6.2005. 2.3 The assessee-company computed tax on royalty of Rs. 50,72,32,070 from IBM India Pvt. Ltd. and royalty on sale of software t....
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....o find out whether the provisions of the Act are beneficial or whether the provisions of the Treaty are beneficial and that the assessee has to either opt for the provisions of the Act or the provisions of the Treaty considering the fact that the Act and Treaty are independent and separate codes. The table of taxes at page 7 of the order of the learned CIT(A) is as under : Amount of Income Rs. Tax liability (including SC & EC) as per the Act Rs. Tax liability as per DTAA. Tax liability as computed by the appellant. 1,13,44,33,077 23,20,48,285 17,01,64,962 17,01,64,962 94,57,43,187 9,88,77,450 14,18,61,478 09,88,77,450 2,08,01,76,260 33,09,25,735 31,20,26,440 26,90,42,412 2.4.1 The assessee computed tax on royalty as per the Act and as per the Treaty in respect of each stream of income and paid tax of Rs. 26,90,42,412. The learned CIT(A) was of the opinion that the tax on income @ 15% as per the Treaty, at the aggregate level, amounting to Rs. 31,20,26,440 was less than the tax on entire income as per rates under section 115A amounting to Rs. 33,09,25,735 and concluded that the provisions of the Treaty are beneficial to the assessee. The judicial decisions and circu....
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....pted the beneficial rates of tax applied by the appellant (at the rate of 10.455 percent and 15 percent), although there was no change in-law during the subject Assessment Year 2007-08. Levy of interest under section 234B of the Act 6. The learned CIT(A) has erred in law and on facts in holding that the appellant is required to pay advance tax under section 209 of the Act and therefore erred in confirming section 234B interest levy. 7. The learned CIT(A) has erred in law and on facts in disregarding the order passed by the Hon'ble Income Tax Appellate Tribunal in the appellant's own case for the Assessment Year 2003-04, Assessment Year 2004-05 and Assessment Year 2005-06." 3.1 The grounds of appeal at S.No.1 is general in nature and no separate adjudication is called for thereon. The grounds of appeal at S.Nos.2 to 5 deal with the correctness or otherwise of the application of blanket rate of tax as per Treaty on the entire income for the relevant period. Grounds at S.Nos.6 and 7 challenge the charging of interest under section 234B of the Act. 4.1 Ground Nos.2 to 5 : The learned Authorised Representative has submitted written submissions and also made ....
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....tely in respect of income from different streams of income. (v) The learned Authorised Representative referred to relevant portion of the income tax return which provides for disclosure of income chargeable to tax at special rates and submitted that stream wise computation of tax is prescribed by the income tax return as well. He placed reliance on the decision of the Hon'ble Apex Court in the case of CIT v. P.K. Kochammu Amma Peroke [1980] 125 ITR 624 in support of his argument that the form prescribed by the Income Tax Department cannot be ignored as the interpretation of law contained therein is a reflection of the executive opinion in the matter. (vi) The learned Authorised Representative further submitted that by providing separate tax for individual streams of income, the Act has created a conscious departure from the traditional concept of income tax representing one tax on total income and not a conglomeration of taxes on different streams of income. (vii) CBDT Circular No.636 dt.31.8.1992 explaining the intention of the legislature in defining the term 'rates in force' was referred to. This circular provides that deduction of tax from payments to non-r....
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....ome from two different countries : Tax Treaties are bilateral agreements between two countries seeking to eliminate double taxation or granting relief there from. If royalty income is received from two different countries, the Treaty applicability will have to be examined individually and separately for each country. The choice (for an assessee) to be governed either by the Act or Treaty will depend upon the rate prescribed under the each of the Treaties for the relevant stream of income. It is possible that the assessee could chose to be governed by the tax rate under the Treaty with one country and the rate in the domestic law in respect of the income from another country. This could be so even though the income pertains to the same time period. If a different choice as above could be exercised for the income of the same period, such choice cannot be denied when incomes are earned in different time periods. B. Royalty income from two different companies from the same country : What is true of the choice when income is received from two countries, would equally be valid when royalty is received from two different companies from the same country. It is possible for an assessee....
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....om the Memorandum relied on by the learned Authorised Representative is as under : "Tax Treaties generally contain a provision to the effect that the laws of the two Contracting States will govern the taxation of income in the respective State except when express provision to the contrary is made in the Treaty. It may so happen that the tax Treaty with a foreign country may contain a provision giving concessional treatment to any income as compared to the position under the India law existing at that point of time. However, the Indian law may subsequently be amended, reducing the incidence of tax to a level lower than what has been provided in the tax Treaty. Since the tax Treaties are intended to grant tax relief and not to put residents of a contracting country at a disadvantage, vis-à-vis, other tax payers, it is proposed to amend section 90 of the Income Tax Act to clarify that any beneficial provision in the law will not be denied to a resident of contracting country merely because the corresponding provision in the tax Treaty is less beneficial." (xiii) The learned Authorised Representative referred to different rates of tax in respect of royalties and fees fo....
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....cisions were relied on in support of his argument/contention. - CIT v. Sridev Enterprises [1991] 192 ITR 165 (Kar) - Hoystead v. Commissioner of Taxation [1926] AC 155, 165 (PC). - Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) 4.2 In respect of the charging of interest under section 234B, the learned Authorised Representative relied on the orders for the earlier years in the assessee's own case in which it was held that the assessee is not liable for interest under section 234B. 4.3 In view of the above arguments, the learned Authorised Representative submitted that the computation of tax as determined by the assessee be accepted and charge of interest under section 234B be deleted thereby allowing the assessee's appeal. 5 The learned Departmental Representative supported the orders passed by the Assessing Officer and the CIT(A). He also filed written submissions explaining in detail as to why the orders passed by the Assessing Officer and CIT(A) in the instant case ought to be confirmed. The learned Departmental Representative referred to the decisions of CIT v. ITC [2002] 82 ITD 239 (Kol), Addl. DIT v. Telecom Int....
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....at since the rate for advance tax at 15% is more than the TDS rate under section 115A which is 10%, the assessee is liable to be charged interest under section 234B. In view of the above arguments, the learned Departmental Representative prayed that the order of the learned CIT(A) be confirmed and the assessee's appeal be dismissed. 6 The learned Authorised Representative, in rejoinder, submitted a note and argued that the decision relied on by the learned Departmental Representative are distinguishable both on facts and in law. It was submitted that the decision in the case of Dresdner Bank AG v. ACIT [2007] (108 ITD 375) (Mum) is distinguishable as in the said case, the assessee accepted the charge of tax and computation of income under the provisions of the Act and argued for the adoption of the rate of tax as per the Treaty. It was contended that there is no selective Treaty benefit in the instant case as was the position in the case before the Mumbai Tribunal. The relevant submissions of the assessee were as under : "The Tribunal in para 78 of the judgment made the aforesaid observation in the context of the same income being offered to tax under 'normal provisions for regu....
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....n be computed and tax determined either under the Treaty or the domestic tax laws. The appellant is not seeking the aspects of charge, computation or rate of tax for the same source being spread over both the Act as well as the Treaties. On the other hand, the appellant's arguments relating to charge, computation and rate for each stream of income are solely confined to either the provisions of the Act or the Treaty. The issue before the Mumbai Tribunal was on the selective Treaty protection. Paragraph 77 of the Tribunal's order reads as follows : "77. Learned Departmental Representative's objection is that since the assessee has specifically given up his option to be assessed to tax as per the provisions of the tax Treaty. It cannot be open to the assessee to seek protection of the tax Treaty for the purposes of levy of Minimum Alternate Tax (MAT, in short) under section 115JA. This kind of selective Treaty protection, according to the learned Departmental Representative, is not permissible in law. It is also contended that the levy of MAT under section 115JA is an integral part of the income computation process, and once the assessee has himself opted that his income be compute....
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....e appellant." 7.1 We have carefully perused and given due consideration to the detailed arguments made and written submissions filed by both the learned Authorised Representative and the learned Departmental Representative. It is a settled position that as per section 90(2), the provisions of the Act or the provisions of the Treaty, whichever is beneficial, apply to the assessee. Even the learned Departmental Representative has agreed that in view of section 90(2), the provision of the tax Treaty override the provisions of the Act except to the extent the latter are more beneficial to the assessee. The question for consideration is at what stage the provisions of the Act and the Treaty should be examined to ascertain the beneficial nature of the provisions. In the instant case, the assessee has compared the provisions of the Act and the Treaty in respect of income arriving from royalty on the basis of agreements entered into before 1.6.2005 and thereafter 1.6.2005. Revenue, on the other hand, has compared the provisions of the Act and Treaty on an aggregate basis disregarding the future of agreements having been entered into before 1.6.2005 and after 1.6.2005. The assessee's argum....
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.... before 1.6.2005 are from one 'source' and royalty income in respect of agreements entered into on or after 1.6.2005 are from a different 'source'. The contracts or agreements being the source of income have been entered into on different dates and the statute recognizes such time differentiation and provides separate tax rates for each such stream. The learned CIT(A) was, therefore, not correct in comparing the tax on royalty income as per the Act and as per the Treaty on an aggregate basis. In view of the above, we are of the considered opinion that the taxability of royalty under sub-clauses (A), (A), (B), (BB) and (C) of section 115A(1)(b) are separate and independent. 7.5 As per the provisions of section 90(2) of the Act OR the provisions of the Treaty, whichever is beneficial, applies to the assessee. It is settled law that the provisions of a Treaty would override the provisions of the Income Tax Act, 1961 and this view has been held in the following cases and circulars. - Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) - CIT v. Visakhapatnam Port Trust [1983] 144 ITR 146 (AP) - CIT v. R.M. Muthaiah ....
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....e assessee submitted that the provisions of section 115JA do not apply to a foreign company. The Tribunal did not accept this contention. The assessee then submitted that assuming the provisions of section 115JA were applicable, it is not liable for MAT under the Treaty. The Tribunal found that the assessee sought to avail the benefit of the Treaty selectively in respect of taxability of book profit u/s. 115JA and held that once the assessee exercises an option to be taxed under the provisions of the Act, Treaty provisions cannot be invoked. The relevant observations of the Tribunal were as follows : "Either an assessee is to be assessed to tax on the basis of the provisions of the tax Treaty or not. In our considered view, the assessment of income cannot be split into several segments and then the applicability of Treaty provisions, vis-à-vis tax law provisions, cannot be separately considered for each segment. Liability for MAT under section 115JA is an integral part of assessee's assessment of income, and, once the assessee chooses to be assessed as per provisions of the Act, in preference over the provisions of the tax Treaty, it cannot be open to the assessee to seek T....
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....be set off in computing the taxable income in India. In the year of profit, relying on Article 7 of the India - Japan DTAA Treaty, the assessee submitted that the profits of the foreign branch would suffer tax only in that country and not in India. The Department objected to this selective Treaty application for different years. The Tribunal held that each year is different and hence the assessee is entitled to such applicability of the Act for one year and Treaty benefits for a different year. In the instant case, the issue in question is not with regard to taxability of royalty income at different rates under the Treaty and the Act. The above decision is not similar or applicable to the facts of the case on hand and is distinguishable both on facts and in law. 7.8 There is merit in the contention of the learned A.R. on the aspect of principle of consistency also. In the instant case, it is seen that the Assessing Officer has accepted the computation of tax based on different rates in the assessment orders passed u/s. 143(3) for Asst. Year 2006-07 whereas the very same officer has concluded differently in respect of the same facts and same issue in the order of assessment passed ....