- Arbitral award received by Fujitsu Ltd from the state-owned telecom operator (MTNL) was held by the Delhi Bench of Income Tax Appellate Tribunal (ITAT) to be NOT taxable in India [ITA No. 2607/Del/2022]. The said award has been held to be 'business income' and not income from 'other sources'. Since the taxpayer did not have a Permanent Establishment (PE) in India, the same was held to be not taxable in India as per Art. 7 of the India Japan Double Taxation Avoidance Agreement (DTAA).
- Pertinent to note here that the treatment of the award as business income is premised on the ground that the arbitral award was towards non-payment of dues receivable for supply of CDMA equipment by the taxpayer. However there is no discussion on whether it was in the nature of damages or it simply comprised of unpaid invoice value. There is no discussion on the decision of the Apex Court in All India Reporter Ltd. v. Ramchandra D. Datar, (1961) 41 ITR 446 wherein it was held that decreed amount partakes the character of Judgement Debt and that income tax did not provide for deducting tax (TDS) on such amount.
- Another point of interest in this decision would be the restraint exercised by ITAT (by making a specific mention to this effect) in not going into the aspect of violation of 144(8) of the I.T. Act by DRP on the ground that the tax payer has not challenged it before it. DRP had not adjudicted on the objections of the Taxpayer but remanded the matter to Assessing Officer to examine the contentions and to pass assessment order - which is against provisions of Section 144(8). The restraint of ITAT highlights an important aspect of appeal proceedings - anappellate authority under the Act can ignore the illegality in an order if the same is not challenged by the Parties. The question can become interesting if the taxpayer, in the face of any reversal of its fortunes on merit before the next forum, sets up this ground for the first time. Will the ratio of Apex Court decision in NTPC vs CIT(1998) 229 ITR 383 apply?
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