TaxTMI 
TaxTMI 
TaxTMI 
2022 (2) TMI 481
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....itzerland tax treaty. By considering the submissions of the Appellant, though the said rectification sought by the Appellant was allowed by the ld. DCIT by passing Rectification Order dated 11.01.2021 and assessing the income of Rs. 55,72,38,772/- u/s. 154 r.w.s. 143(3) of the Act., however the Ld. DCIT restricted the credit of TDS at Rs. 5,57,23,879 instead of Rs. 5,66,27,192/- previously allowed to the Appellant vide assessment order dated 28 December 2020 passed u/s. 143(3) r.w.s. 144C(13) of the Act. 3. The Appellant being aggrieved by the said Assessment order and Rectification order, preferred the instant appeal by raising following grounds of appeal. "1. That on the facts and circumstances of the case and in law, the assessment order dated 28 December 2020 ("impugned order") passed by the Learned Deputy Commissioner of Income Tax, Circle 2(2)(2), International Taxation, Delhi (hereinafter referred to as 'the Ld. AO') under section ('u/s.') 143(3) read with section 144C(13) of the Income-tax Act, 1961 ('the Act'), pursuant to the directions of the Learned Dispute Resolution Panel-2, Delhi ("the Ld. DRP"), rectified vide order dated 11 January 2021 p....
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....o. 1 and 2 raised before us are general in nature, hence do not require specific adjudication. 4.1. In support of grounds No. 3 and 4, the Appellant has submitted that the consideration earned by the Appellant from supply of CAS and Middleware products to the Indian customers do not falls within the ambit of 'royalties' as defined u/s. 9(1)(vi) of the Act and Article 12(3) of the India-Swiss Confederation Double Taxation Avoidance Agreement ('India-Swiss tax treaty'). Further, the revenue earned by the Appellant from supply of CAS and Middleware products, though represents business income, however in the absence of Permanent Establishment ('PE') of the Appellant in India, the same is not taxable in India, as per the provisions of the Act as well as Article 5 read with Article 7 of the India-Swiss tax treaty. 4.2. It was also claimed by the Appellant that issues raised in grounds No. 3 and 4, are squarely covered by the order of the Hon'ble Tribunal in Appellant's own case i.e. ITA No. 9130/Del/2019 AY 2016-17 decided on 06-07-2020 and recent Judgment of the Hon'ble Apex Court in Engineering Analysis Centre for Excellence Private Limited Vs. Co....
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....me are being decided together. 30. In view of the above said propositions, we hold that what has been transferred is limited right to use copyrighted material, then the receipts on sale of licensing of software is not Royalty in view of the beneficial provisions of the DTAA between India and Sweden. We further hold that amended definition of 'Royalty' under the domestic law cannot be extended to the definition of 'Royalty' under DTAA, where the term 'Royalty' originally defined has not been amended. As per definition of 'Royalty' under DTAA, it is payment received in consideration for use or right to use any copyright of literary, artistic or scientific work, etc.; thus, purchase of copyrighted article does not fall in realm of 'Royalty'. We also hold that since the provisions of DTAA overrides the provisions of Income Tax Act and are more beneficial and the definition of 'Royalty' having not undergone any amendment in Tax Treaty, the assessee was not liable to be taxed on aforesaid receipts of Licensing software and also on sale of Hardware. Accordingly, we hold so. The Ground of appeal Nos. 3 to 6 are thus allowed. 4.6. For brevi....
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.... the provisions of [the] Act", to a non-resident, shall at the time of credit of such amount to the account of the payee in any mode, deduct tax at source at the rate in force which, under Section 2(37A)(iii) of the Income Tax Act, is the rate in force prescribed by the DTAA. Importantly, such deduction is only to be made if the non-resident is liable to pay tax under the charging provision contained in Section 9 read with Section 4 of the Income Tax Act, read with the DTAA. Thus, it is only when the non-resident is liable to pay income tax in India on income deemed to arise in India and no deduction of TDS is made under Section 195(1) of the Income Tax Act, or such person has, after applying Section 195(2) of the Income Tax Act, not deducted such proportion of tax as is required, that the consequences of a failure to deduct and pay, reflected in Section 201 of the Income Tax Act, follow, by virtue of which the resident-payee is deemed an "Assessee in default", and thus, is made liable to pay tax, interest and penalty thereon. This position is also made amply clear by the referral order in the concerned appeals from the High Court of Karnataka, namely, the judgment of this Court in....
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...., as has been correctly pointed out by the learned counsel for the assesses, is the law declared by this Court in the context of a sales tax statute in Tata Consultancy Services v. State of A.P., 2005 (1) SCC 308 (see paragraph 27). 56. What is made clear by the judgment in GE Technology (supra) is the fact that the "person" spoken of in section 195(1) of the Income Tax Act is liable to make the necessary deductions only if the non-resident is liable to pay tax as an assessee under the Income Tax Act, and not otherwise. This judgment also clarifies, after referring to CBDT Circular No. 728 : dated 30.10.1995, that the tax deductor must take into consideration the effect of the DTAA provisions. The crucial link, therefore, is that a deduction is to be made only if tax is payable by the nonresident assessee, which is underscored by this judgment, stating that the charging and machinery provisions contained in sections 9 and 195 of the Income Tax Act are interlinked. 171. The Revenue, therefore, when referring to "royalties" under the DTAA, makes a distinction between such royalties, no doubt in the context of technical services, and remittances for supply of computer software, wh....