Thursday, February 3, 2011

Mumbai ITAT: No advance tax be deducted and no interest u/s 234B payable when TDS equals amount of tax payable

ADIT (International Taxation) v. Universal International Music BV, on 31st January, 2011

ITA No.6063/M/2004; ITA No.9034/M/2004; ITA No.2304/M/2006; ITA No.5064/M/2006

Assessment Year: 2000-01, 2001-02, 2002-03, 2003-04

Question/s before the Hon’ble Tribunal: Whether the benefit of Article 12 of the Indo-Netherlands DTAA is applicable to the assessee?

Whether interest u/s 234B is liable to be charged as no advance tax was paid by the assessee?

Relevant facts: The assessee who was the tax resident of Netherlands within the meaning of Article 4 of Double Taxation Avoidance Agreement (DTAA) signed between India and Netherlands was engaged in Manufacturing of audio and visual recordings, the development, manufacture and exploitation of audio and visual carriers or combinations thereof and earning royalty on exploitation of music rights. The assessee sought benefit of article 12 of the India-Netherlands DTAA and offered to tax the royalty income @10%, while the AO sought to tax the income at 30% being that the assessee was not the beneficial owner of the intellectual property.

Dismissing the appeal of the department, the Hon’ble Tribunal held that:

Para 10.3: “In view of the foregoing decision we see no infirmity in the order of CIT(A) in coming to the conclusion that the assessee was the beneficial owner of the royalty and the same has to be taxed @ 10% for all the years.

Para 11.1: “The dispute is regarding levy of interest under section 234B. There is no dispute that entire income of the assessee was tax deductible at source under the provisions of section 195 and therefore in view of the provisions of section 209(1)(d), the advance tax payable by the assessee will be nil. This view is supported by several judgments including the judgment of Hon’ble jurisdictional High Court (313 ITR 187). We therefore see no infirmity in the order of CIT(A) deleting the interest and the same is therefore upheld.”

The decision is available here.


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