Case Law Details
The assessee in the present case has used the information, patented technology, etc., from Google Ireland Limited (GIL) which in the opinion of the bench, is royalty and therefore, as per the mandate of Article 12(2), the royalty is to be taxed in the contracting state (India) in accordance with the laws of India. Clause (2) of Article 12 of DTAA clearly provides as under :
12(2) : However, such royalties or fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of that State….
Further the laws of India provide taxability of royalty on the basis of the accrual (mercantile method) and not on receipt (cash basis). Therefore, once field is occupied by clause 2 of Article 12, the royalty paid by the assessee to GIL is taxable as per Indian law.
In our view, the assessee has used the information, patented technology, etc., from GIL which in the opinion of the bench, is royalty and therefore, as per the mandate of Article 12(2), the royalty is to be taxed in the contracting state (India) in accordance with the laws of India. Further the laws of India provide taxability of royalty on the basis of the accrual (mercantile method) and not on receipt (cash basis). In our view once the field is occupied by clause 2 of Article 12, then the same is required to be applied and enforced.
The reliance placed by the Ld. AR on paragraphs 7 and 8 of the decision of the coordinate bench in the matter of Pizza Hut International LLC (supra) is to support its case, is out of place and is therefore required to be rejected. For arriving at the conclusion that the royalty is taxable on cash basis, the coordinate bench neither gone into the method of account nor considered Article 12(2) of DTAA which provides that the royalty is taxable in accordance with the laws of India (contracting state/ source country )
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