|Rajendra Nayak||Aastha Jain|
The Tribunal observed that under the secondary source rule of the ITL, the onus lies on the tax authority to prove that the royalty payable by the non-resident is for the purpose of business carried on by such non-resident in India or used for making or earning any income from any source in India. For business to be carried out in India there should be some activity in India. In the present case, the licensed IP was used by the OEMs in manufacturing products outside India and sale to India was without any operations being carried out in India which would amount to business with India and not business in India. Hence, the tribunal found that the OEMs did not carry out business in India. Furthermore, the licensed IP was not used by the OEMs for earning income from a source in India. Source is the activity that gives rise to income. The source of income for the OEMs was manufacture of products undertaken outside India and not sale made to the Indian customers. Accordingly, the royalty income of the taxpayer was not taxable in India under the ITL. In view of the above, the tribunal did not consider taxability under the India-US treaty as it would have been an academic exercise.
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