Law:

Section:

Section 90 of the Income-tax Act, 1961 read with articles 5 and 12 of the Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion between India and Japan - Double Taxation Relief - Where agreement exists - Applicant, a Japanese company engaged in construction activities, entered into a technical collaboration agreement with an Indian company SMCI to furnish to SMCI technical know-how and technical information for which it has been getting royalty from SMCI - SMCI, while paying royalty, has been deducting tax at rate of 20 per cent which was rate originally prescribed under article 12 of India-Japan DTAA - DTAA had been amended by reducing maximum rate of tax payable on royalty at 10 per cent and protocol was notified by Central Government under section 90 on 19-7-2006 - Whether in view of said amendment, income by way of royalty accruing to applicant is liable to be taxed in terms of article 12 at a rate not exceeding 10 per cent from assessment year 2008-09 onwards - Held, yes FACTS The applicant is a Japanese company engaged in construction activities and provides architectural and civil engineering services. It had entered into a technical collaboration agreement with an Indian construction company SMCI on 10-12-1997. As per the agreement, the applicant had agreed to furnish to SMCI the technical know-how and technical information covering the provision of contract services and assistance for marketing. It had been getting royalty from SMCI towards transfer of know-how and technical information. SMCI, while paying the royalty to the applicant, had been deducting tax at the rate of 20 per cent which was the rate originally prescribed under article 12 of the India-Japan DTAA. The DTAA had been amended by reducing the maximum rate of tax payable on royalty at 10 per cent and the protocol was notified by the Central Government under section 90 on 19-7-2006. The applicant contends that in view of the amendment, the tax liable to be paid on the gross amount should be at the rate of 10 per cent instead of 20 per cent from the assessment year 2007-08 onwards. Accordingly, the applicant has sought advance ruling in respect of its tax liability.…

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