FTS is taxable only in the year of receipt as per the provisions of DTAA: ITAT

The Income Tax Appellate Tribunal Bangalore ruled that FTS is taxable only in the year of receipt as per the provisions of DTAA.

Facts 

At the outset, it is noticed that the assessee was issued a defect notice dated 03.04.2023 by the registry stating that the appeal is time bared by 1,377 days. In this regard, the assessee has made submissions vide letter that the delay of 1,377 days has been computed considering the date of filing of original appeal before the ITAT, Mumbai on 12.09.2019 ending with the date of filing of appeal before the ITAT, Bangalore on 24.03.2023. It is further submitted that M/s ABB Technology Limited was assessed at Bangalore, by the DCIT (International Taxation), Bangalore for AY 2014-15 who passed an assessment order u/s. 143(3) 143(3) r.w.s 92CA of the Income-tax Act, 1961. 

Submissions 

AR reiterated the submissions made before the lower authorities and submitted that the assessee is consistently following a cash system of accounting since AY 2011-12. The company is a tax resident of Switzerland and accordingly eligible to claim the benefit of DTAA provisions between India-Switzerland. 

DR relied on the orders of lower authorities and submitted that as per Article 12 of the DTAA provisions, royalty and fees for technical services arising in India and paid to non-resident should be taxed on accrual basis. Therefore the royalty arises in India in the impugned assessment year and accordingly it should be taxed. 

Decision 

The two member bench of George George K., Vice President And Laxmi Prasad Sahu, Accountant Member the assessee is a NRI and has received royalty from ABB Technology Ltd. of Rs.184,07,46,730 which has been offered to tax @ 10% and the same is reflected in Form 26AS. The assessee has been offering income since AY 2011-12 on a cash basis. From the Form 3CEB the AO found a difference of Rs.1,62,18,833. 

The Tribunal observed that the facts of the decision on fees for technical services in M/s. ABB AG relating to India-Germany DTAA are similar to present case, the only difference is that it relates to royalty under IndiaSwitzerland DTAA, and Article 12 of DTAA defines royalty and fees for technical services in the same manner and also the DTAA provisions of India-Germany and India-Switzerland are similar. 

Case title: ABB Switzerland Ltd. v/s The Deputy Commissioner of Income Tax (International Taxation)

Citation: ITA No.273/Bang/2023