Income received as royalty from India shall be taxed on receipt basis: ITAT Bangalore
ABB Switzerland Ltd. (ITA No.273/Bang/2023)
Facts of the Case:
- The assessee in this case is ABB Switzerland Ltd, formerly known as ABB Technology Limited. ABB Switzerland Ltd had received royalty income from ABB India Ltd, and the dispute in question pertains to the assessment year 2014-15.
- The issue revolves around whether this royalty income should be taxed on an accrual basis or a receipt basis under the India-Switzerland Double Taxation Avoidance Agreement (DTAA).
- The assessee claimed that the income should be taxed on a receipt basis, as per the provisions of the DTAA, while the tax authorities contended that it should be taxed on an accrual basis as per the Indian Income Tax Act.
ITAT Bangalore held as below:
- Interpretation of Article 12(1) of the India-Switzerland DTAA, suggests that royalties can be taxed on a receipt basis.
- When there’s a conflict between the DTAA and domestic laws regarding the taxation of such income, the DTAA provisions should prevail.
- This means that the income should be taxed upon receipt, not on accrual.
- Regarding the claim that the income had already been offered for taxation in a subsequent year, the ITAT decided to send this issue back to the Assessing Officer (AO) for further examination.
