By Geeta Jani, Dhishat B. Mehta; Chartered Accountants
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Article 11, 12, 24 of the India-Singapore DTAA – Benefits under DTAA available to the Taxpayer upon furnishing a valid TRC – Recipient of royalty income from sub-license of know-how to third party will be considered as beneficial owner of the same – As long as income is remitted to Singapore, even if in a different year, conditions under the limitation of relief (LOR) article will be considered as being satisfied
Facts
The Taxpayer, 100% subsidiary of French Company, was a company incorporated in Singapore and tax resident of Singapore. The Taxpayer was set up to act as headquarter for Asia-Pacific region and to render administrative, marketing and sales services to the group and affiliated companies as well as to trade in paper and performance minerals and other related business activities. The Taxpayer entered into an agreement with its affiliate UK Co on principal-to-principal basis for obtaining use of technical know-how. Subsequently, Taxpayer entered into an agreement with its Indian affiliate (I Co.) for sublicensing technical know-how received from UK Co, and received royalty income from I Co. Moreover, Taxpayer contended that it provided services to I Co through its employees, who travelled to India for rendering such services. Additionally, Taxpayer had granted loan to I Co. for which it received interest income.
Taxpayer furnished a valid tax residency certificate and accordingly offered royalty and interest income received from I Co to tax in India at a lower rate provided under the India-Singapore DTAA . However, the A.O. contended that Taxpayer was not the beneficial owner of the income and hence benefit under the DTAA should not be available. It was also argued that as per the Limitation of relief article in the DTAA , since the royalty and interest income was not received in Singapore, such incomes would not be eligible for the lower rates prescribed in the DTAA . Aggrieved, appeal was filed before the Dispute resolution panel (DRP), which confirmed the order of the A.O.
Aggrieved by the order of DRP, Taxpayer appealed to the Tribunal
Held:
Benefits available under the DTAA should be granted to the Taxpayer who furnishes a valid TRC as propounded by SC in UOI Vs. Azadi Bachao Andolan (2003) 263 ITR 706 (SC)
Tribunal noted that the Taxpayer entered into an agreement with UK Co under which UK Co granted right to use certain technology and know-how to Taxpayer in consideration of payment of royalty. Further as per the agreement Taxpayer was allowed to sub-license the know-how to other group companies. Accordingly, Taxpayer sub-licensed the same to I Co. Also, the Taxpayer provided certain services to ICo through its employees in relation to use of such know-how.
Since the taxpayer entered into an agreement with UK Co and received the know-how license in its own right, which it sub-licensed to ICo as well as provided further services to ICo, Taxpayer was the beneficial owner of royalty. Reliance in this regard was placed on decision of AAR in Shaan Marine Services Pvt. Ltd. v. DDIT (2014) 165 TTJ 952 (Pune).
Royalty for the relevant year was paid to Taxpayer not in same year, but in a subsequent year. Limitation of relief article does not require that the income be received in the same financial year for it to qualify for the benefits under the DTAA. Where royalty and interest income is remitted to Singapore and subject to tax therein, benefits of the DTAA should be available.
