In ITA no.3145/3146/3147/Mum./2022-ITAT- License fee paid to Israeli communications company by its Indian subsidiary is not taxable in India: ITAT (Mumbai)
Members B.R. Baskaran (Accountant) and Sandeep Singh Karhail (Judicial) [18-04-2023]

Read Order: Asstt. Commissioner of Income Tax Circle–1(2)(1) v. Celltick Mobile (India) Pvt. Ltd

LE Correspondent

Mumbai, April 21, 2023: A two-judge bench of the Income Tax Appellate Tribunal (ITAT), Mumbai, while hearing an appeal filed by the Revenue Department, has held that the license fee paid to M/s. Celltick Technologies Limited (Israel) by its Indian subsidiary would not be taxable in India.

The assessee is a wholly owned subsidiary of Celltick Israel, incorporated in and under the laws of Israel, for marketing and distributing the software solutions of Celltick Israel and providing certain services in the Indian subcontinent. During the assessment proceedings, it was found that the assessee company had paid Rs.26,51,98,008 as a licence fee to Celltick Israel. The AO held that the payment made by the assessee to Celltick Israel is in the nature of Royalty under the provisions of the India Israel tax treaty and the same would be taxable in India at the rate of 10% of the gross amount of the royalties. The said order was set aside by CIT(A).

The Tribunal, following the Coordinate bench’s decision (Celltick Mobile Media (india) Pvt. Ltd v. DCIT [LQ/ITAT/2021/67]), was of the view that the income of the payee [M/s. Celltick Technologies Limited (Israel)] would not be chargeable to tax in India, as the payee had declared the income and claimed the benefit under Indo Israel treaty and income earned by the payee is the income chargeable to tax outside India under the Article 7 of Indo Israel treaty.

Taking note of the judgment of Bombay High Court in the case of Pr. Commissioner of Income Tax -5 v. Perfect Circle India Pvt Ltd. [LQ/BomHC/2019/2990] and Delhi High Court in the case of Commissioner of Income-tax-I v. Ansal Land Mark Township (P.) Ltd [LQ/DelHC/2015/1880], the Tribunal further held that amendment to section 40(a)(i) of Income Tax Act, 1961 would be applicable retrospectively.