Commisioner of Income Tax vs. M/s.Kakinada Co-operative Town Bank Limited

Facts leading to filing of the appeal briefly stated are that the assessee is a company based in Singapore and is engaged in the business of marketing and sale of software. The assessee sold software licences to Indian customers and in connection with sale of software also provided certain ancillary services to the Indian customers. The assessee showed turnover on sale of software licences and ancillary services at USD 1,02,15,762/-, out of which 95% of software licences were sold to authorized distributors viz., INGRAM Micro India Pvt. Ltd. and M/s Tech Pacific India Limited. Thus, sales to the tune of 100,52,271$ was made to the

Learned counsel for the revenue submitted that the Notification dated 18.07.2005 issued under Section 90 of the Act came into force with effect from 01.08.2005. With reference to Section 195(1) of the Act, it was contended that the rates in force mean the dates on which credit take place in the account and therefore, the Assessing Officer has rightly applied the rate of tax under the Double Taxation Avoidance Agreement (DTAA). On the other hand, learned counsel for the assessee submitted that from perusal of Article 4 of the Notification dated 18.07.2015, it is evident that paragraph 12 of Article 12 of DTAA has been deleted and has been substituted by the paragraph which provides for levy of tax on the royalties or fees for technical services at the rate not exceeding 10%. Thus, the instant case is a case of substitution by repeal and therefore, the Tribunal has rightly held that new provision which is in existence shall apply for the entire

We have considered the submissions made by learned counsel for the parties and have perused the record. The singular issue which arises for consideration in this appeal is with regard to the rate of tax under the DTAA for Assessment Year 2006-07. Before proceeding further, we may advert to well settled rules of Interpretation with regard to taxing statutes. The substitution of a provision results in repeal of earlier provision and its replacement by new provision. [See: U.P.SUGAR MILLS ASSN. VS. STATE OF U.P.’,

In the backdrop of aforesaid well settled legal position, facts of the case may be seen. In the instant case, relevant extract of Notification dated 18.07.2005 issued under Section 90 of the Act reads as under: “Article 4: Paragraph 2 of Article 12 (Royalties and Fees for Technical Services) of the agreement shall be deleted and replaced by the following paragraph: “2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax charged shall not exceed 10%.”

Thus, it is evident that paragraph 2 of Article 12, which provided for levy of tax on royalties or fees for technical services at the rate not exceeding 12% has been deleted and in its place, the provision which provides for levy of tax on the royalties or fees for technical services at the rate not exceeding 10% has been substituted. Thus, the substitution has the effect of deleting the old rule and making the new rule operative. Therefore, the Tribunal has rightly determined the rate of tax as substituted in Clause 2 of Article 12 of DTAA between India and Singapore applicable for the entire fiscal year as defined in DTAA and is liable to be taxed at 10%. For the aforementioned reasons, the substantial questions of law framed by this court are answered in affirmative and against the revenue.