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18 ADIT v. Universal International Music BV (Unreported)
ITA No. 6063/M/2004, 2304/M/2006,
5064/M/2006
Article 12, India-Netherlands DTAA,
A.Ys. : 2000-01 to 2003-2004. Dated : 31-1-2011
On facts, TRC issued by Netherlands tax authority was
sufficient proof of beneficial ownership of royalty received by a Netherlands
company from an Indian company. Such royalty was chargeable to tax @10% in terms
of India-Netherlands DTAA.
Facts:
The taxpayer was a Netherlands company (‘DutchCo’). It was a
tax resident of the Netherlands. It was engaged in the following activities :
- Manufacture of audio and video recording.
- Development and exploitation internet activities.
- Acquisition, alienation, exploitation, assignment and managing of copyrights,
production and reproduction rights, licences, patents, trademark, all forms of
Industrial and intellectual property rights, royalty rights as well as
production and publication of sheet music, music scores, etc.
DutchCo had acquired certain rights from another group
company, which had entered into contracts with various artists. The Company
entering into contracts with artists is known as ‘Repertoire Company’. As per
the group policy, in respect of any business outside the home territory of the
Repertoire Company, the commercial exploitation rights were transferred to other
group company (such as DutchCo), which would, on request from any other group
company, licence the exploitation rights to such other group company for
exploitation within the home territory of such other group company. Ultimately
the group companies were licence holders to commercially exploit the rights
around the world.
Thus, DutchCo acquired rights from Repertoire Company and
sub-licensed to a group company, which was an Indian company (‘IndCo’) for
exploitation within India. DutchCo had
received royalty income from IndCo for granting exploitation rights.
In terms of Article 12 of India-Netherlands DTAA, DutchCo
offered tax @ 10% on the royalty received from IndCo. However, as per the AO,
DutchCo could not file copies of the agreement between it and Repertoire
Company. Further, as DutchCo could not file evidence of beneficial ownership of
royalty, the AO concluded that DutchCo was only a collecting agent of Repertoire
Company and therefore, it was not eligible for benefit under Article 12.
Accordingly, the AO charged tax @30% on the royalty as was the applicable rate
under the Income-tax Act.
Before the CIT(A), DutchCo filed various documents to
establish its beneficial ownership together with Tax Residence Certificate (‘TRC’)
issued by Netherlands tax authority. The CIT(A) concluded that DutchCo was
beneficial owner of royalty.
Held:
The Tribunal held as follows:
- In
terms of the Supreme Court’s decision in UOI v. Azadi Bachao Andolan,
(2003) 263 ITR 706 (SC), TRC issued by the tax authority of the contracting
state has to be accepted as sufficient evidence regarding the residential
status and beneficial ownership of DutchCo even if agreement with Repertoire
Company had not been filed.
- The
agreement between DutchCo and IndCo clearly stated that the catalogue of
recording licence by DutchCo to IndCo was owned and controlled by DutchCo. It
was also mentioned that the royalty agreement was approved by the Government
of India. The Government is not expected to approve royalty agreement without
being satisfied that DutchCo was owner of royalty and if the AO had any
doubts, he could have made reference to Netherlands tax authority.
