Entire receipt of INR received from different entities not taxable as royalty: ITAT [Read Order]

In a major ruling the Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) observed that entire receipt of Indian rupee ( INR ) received from different entities not taxable as royalty.

The assessee company filed its return of income on 28.11.2015 declaring NIL income. The case was selected for complete scrutiny under CASS. The AO completed the assessment under Section  143(3)/144C(3) of the Income Tax Act, 1961, the AO treated the entire receipts of INR 119,88,54,215/- from different India Entities, as ‘royalty’ in terms of Section 9(1)(vi) of the Income Tax Act,  as well as DTAA taxable @ 10% on gross basis.

Ajay Vohra representing the assessee submitted that the short issue involved in this appeal was whether the payment received by the assessee can be characterized as royalty. He took through the Master Service Agreement executed by the assessee and the relevant provisions of India-Sweden DTAA to buttress the contention that the authorities below have erred in characterizing the payment as royalty.

Vizay B. Vasanta, representing the revenue, has elaborately examined the findings of the assessing authority and under the facts of the present case, and he was justified in upholding the finding of the AO.

The tribunal of Dr, B.R.R Kumar ( Accountant member ) and Kul Bharat ( Judicial member ) allowed the assessee’s claim by holding that the receipts in question could not be taxed as “royalty”. For the same reasons herein also we hold that the entire receipt of INR 119, 88, 54,215/- received from different India entities could not be taxed as royalty.

Accordingly, authorities below in taxing the receipts as “royalty” are set aside and the grounds of appeal taken by the assessee are allowed.

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