The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the consideration paid by the assessee outside India for the candidate’s report does not fall within the purview of royalty under Article 13 of India-UK DTAA.
The assessee is a private limited company engaged in the business of training pilots and also providing services in relation to the assessment of pilot candidates for its customers. the assessee filed its return declaring income of Rs. 15,03,98,960/-. The case of the assessee was selected for complete scrutiny through Computer-Assisted Scrutiny Selection (CASS).
The Assessing Officer treated the CISCO IP Phones as part of plant and machinery and did not allow the depreciation rate of 60% applicable for computers claimed by the assessee, thereby restricting depreciation on CISCO IP Phones to Rs. 47,713/- computed at 15% as against Rs. 1,90,854/- computed at the rate of 60% claimed by the assessee.
And made disallowance of Rs. 1,03,45,058/- under Section 40(a)(i) of the Income Tax Act, 1961 on account of failure to deduct tax at source under Section 195 of the Income Tax Act out of payments made by the assessee outside India to Symbiotics Ltd., UK holding such payments to be in the nature of royalty under the Act as well as India-UK DTAA.
The Authorized Representative submitted that the assessee has no access to software, equipment, etc. of Symbiotics Ltd. UK; what the assessee gets is just a report via e-mail. It was submitted that the consideration paid by the assessee for candidate reports provided by Symbiotics Ltd. UK cannot by any stretch of imagination fall within the meaning of “royalty” in terms of Article 13 of the India-UK DTAA.
It was further submitted that the assessee merely contains the candidate’s score against the measured attributes and a performance appraisal against the high-level training objectives of the assessee so as to ascertain the ability of the candidates as per the parameters/standards of the assessee.
The Two-member bench comprising of G.S. Pannu (President) and Astha Chandra (Judicial member) held that the assessee only gets a copyrighted article to use the product for its internal business purpose and not any right in any copyright to exploit the same for commercial reasons so as to constitute the payment received in consideration thereof as royalty in terms of Article 13 of the India UK DTAA. Therefore, the consideration paid by the assessee to Symbiotics Ltd. UK for the provision of the candidate’s reports do not fall within the purview of royalty under Article 13 of the India-UK DTAA. And the disallowance of the payment of Rs. 1,03,45,058/- made to Symbiotics Ltd. UK under Section 40(a)(i) of the Income Tax Act for non-deduction of tax at source was deleted. The appeal of the assessee was allowed.
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