Case Law Details
Section 115A; vs DTAA rate; Assessee can choose between treaty rate and 115A for different agreements before and after 1.6.2005
As per the Income Tax Act the tax on royalty income in respect of agreements entered into before 1.6.2005 is 20% and the rate of tax in respect of agreements entered into on or after 1.6.2005 is 10%.
As per Article 12 of the India-USA DTAA Treaty, royalty income is chargeable to tax @ 15%. We have held that the provisions of section 115A, concerning the taxability of royalty income are separate and independent and therefore, consequently, the assessee is justified in comparing the rate of 10% and 20% (as per section 115A) separately and independently with the rate of 15% (as per Article 12 of the India-USA DTAA Treaty). Between the rate of 20% as per section 115A and 15% rate as per Article 12 of the Treaty, the assessee computed tax @ 15% being the rate beneficial to it. Similarly between 10% tax rate as per section 115A and 15% tax rate as per Article 12 of the Treaty, the assessee has computed tax @ 10% which is beneficial to it. The assessee, in our view, is justified in computing the tax at a rate beneficial to it which is in accordance with the provisions of section 90(2) of the Act wherein the expression ‘to the extent’ reinforces the principle that the provisions of the Act or Treaty whichever is beneficial is applicable to the assessee.
Assessee has not invoked or applied the provisions of the Treaty selectively. The assessee has computed the tax on royalty income arising from two different contracts falling under two different limbs of section 115A(1)(b) at two rates : (i) At the rate prescribed under the Treaty and (ii) at the rate prescribed under the I.T. Act. The assessee has invoked the benefit of the Treaty only in respect of royalty income arising from the agreements entered into on or before 1.6.2005. In respect of agreements entered into on or after 1.6.2005, the assessee has offered royalty income @ 10% as per the provision of section 115JA. The concerned contracts are different; the source of income is different and the provisions under which royalty income is taxable is different and the assessee was therefore justified in offering the royalty income arising under two different contracts at two rates – one under the I.T. Act and one under the Treaty. In the instant case, it is not one of selective Treaty benefit as the case before the Mumbai Tribunal in the above referred case. The above decision is therefore, distinguishable from the instant case of the assessee.
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 u/s.143(3) for A.Y. 2007-08. This, in our opinion, it is contrary to the rule of consistency as laid down by the Hon’ble Apex Court in the case of Radhasoami Satsung Vs. CIT (193 ITR 321)
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