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2014 (10) TMI 463 - AT - Income TaxValidity of reopening of assessment Change of opinion - TDS deduction on payment to Non-resident companies - Held that:- The returns filed by the assessee company for the AYs 2003-04 and 2005-06 were processed under sec.143(1) - Obviously, there is no question of change of opinion - when the AO has arrived at a finding that the assessee company is in fact paying Royalty to the non-resident companies, he has to apply the same ratio for pending assessments as well as assessments concluded recently, especially, the assessments concluded u/s 143(1) - wherever the time permits, the AO had to reopen the earlier assessments - the reassessments completed by the assessing authority for the four AYs 2003-04, 2004-05, 2005-06 and 2006-07 are valid in law Decided against assessee. TDS deduction on payment Royalty or not - payments made to non-resident companies for supply of standard software products, which in turn, are to be sold in India Held that:- The software transmitted to the assessee company is installed on a server with identifying location and machine No. of the customer - the orders are placed by customers and banks in India with the assessee company on a need based arrangement - The supply of the products are made by the non-resident companies only after approving the technicality of the software module and other necessary particulars - The software products are delivered to the assessee on a CD/any other media specified in the invoices - the assessee does not have ownership in the copyright supplied by the non-resident companies - the assessee does not have any right to make copies of software or use the software anywhere else - The software is carefully marked for that particular customer to whom the assessee has sold the software product - the relationship subsisted between the assessee company and the non-resident companies was on a principal-to-principal basis - The risk of the failure of the software product is borne by the assessee company - The assessee company does not have any right to make changes in the software supplied by ACI Singapore and IRPL Australia - The assessee company is permitted to make only nominal/cosmetic modifications for the purpose of installing the software and running the software product in the system of customers - The software transferred by the non-resident companies is a standard software - there was no requirement on the part of the assessee company to deduct tax at source as provided u/s 195 of the Act - the assessing authority is not justified to invoke sec.40(a)(i) and make disallowance in respect of the amounts paid by the assessee company to ACI Singapore and IRPL Australia - The disallowances is to be set aside. Even if the amendment brought in sec. 9(1)(vi) by Finance Act, 2012, is considered as a milestone, the judgment rendered by the Hon'ble Delhi High Court in the case of Infrasoft Ltd. [2013 (11) TMI 1382 - DELHI HIGH COURT], really supports the argument of the assessee. In the said decision, even after the amendment, the Hon'ble Delhi High Court has held that the amount received by the assessee from a non-resident company for granting license to use copyright software to its own business purposes could not be brought to tax as Royalty under Article 12(3) of Indo-US DTAA. Disallowance u/s 40(a)(i) Held that:- It is very difficult to hold that the assessee is a dependent agent of ACI Singapore and IRPL Australia - The result is that the assessee company does not create a PE in India for ACI Singapore and IRPL Australia - the issue of PE is decided in favour of the assessee by holding that Singapore Company and Australian Company do not maintain any PE in India through the medium of the assessee company. Short fall in credits Held that:- The AO restricted the grant of credit on the ground that the credit as per Form 26AS is reflected to that extent alone - Once difference is reconciled, it is to be seen that the assessee is entitled for the credit on full amount of TDS - there is difference between the amount of TDS as per the return of income filed by the assessee and the credit reflected in Form 26AS - the assessee has relied on instruction No.5/2013 dated 8th July, 2013 issued by the CBDT stating that when an assessee approaches the assessing authority with requisite details and particulars in the form of withholding tax certificate as evidence for any mismatched amount, the AO should verify whether or not the deductor has made payment of the withholding tax to the Government account and if the payment has been made, credit of the same should be given to the assessee the AO is directed to give the appropriate withholding tax credit to the assessee company on the basis of withholding tax certificate produced by the assessee Decided in favour of assessee. Computation of relief u/s 10A/10B Held that:- Following the decision in ITO v. Sak Soft Ltd. [2009 (3) TMI 243 - ITAT MADRAS-D] - such deductions made from the export turnover should be correspondingly made from the total turnover so as to maintain the parity of the turnover segments - the AO is directed to reduce the expenses also from the total turnover of the respective AYs the AO is directed has excluded the unrealized foreign exchange from the export turnover without making corresponding deduction in the total turnover of the assessee company - when the foreign exchange is not realized and corresponding export turnover is already reduced, it is a corollary that the total turnover is reduced to that extent for the reason that the total turnover includes export turnover as well Decided partly in favour of assessee.
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