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2021 (8) TMI 1414
Depreciation attributable to capitalization of exchange rate fluctuations loss in respect of indigenous assets purchased in India - fixed assets as acquired in India out of foreign currency loan - HELD THAT:- The facts in the present Assessment Year i.e. 2012-13 [2021 (6) TMI 609 - ITAT DELHI] are identical and no distinguishing facts were pointed out by the Ld. DR. The assessee has attributed the liability in the present Assessment Year to the fixed assets which were acquired in India out of foreign currency loan.
Since the fixed asset was acquired by utilizing foreign currency loan and on account of currency fluctuation, the loan liability was added to the fixed assets. Thus, the assessee is entitled to depreciation on exchange loss. Therefore, we direct the AO to allow the depreciation attributable to capitalization of exchange rate fluctuation loss. Thus, the appeal of the assessee is allowed.
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2021 (8) TMI 1411
Appeal against appropriate party - Revised appeal substituting the name of the parties or grounds of appeal - assessee originally had filed appeal against the ITO, Ward-11(4), Kolkata passed u/s 144 r.w.s 263 and assessee subsequently filed revised form of appeal whereby the name of the respondent has been changed as PCIT-4, Kolkata - DR pointed out that the assessee even revised Form No.36 through grounds of appeal has only assailed the assessment order and the assessee by way of revised appeal form cannot change the nature of the appeal in toto by not only substituting the name of the parties but also grounds of appeal - HELD THAT:- Appeal of the assessee is dismissed as withdrawn with liberty to file afresh against the appropriate party. The time consumed in prosecuting the present appeal i.e. from the date of filing of the present appeal till receiving of the copy of this order will not be taken into consideration for the purpose of limitation period. However, the assessee will be liable to explain about the delay period, if any, in filing the appeal minus time period consumed in prosecuting the present appeal as observed above. Appeal of the assessee is dismissed as withdrawn.
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2021 (8) TMI 1408
Certificate u/s 197(1) of the Act at Nil rate - petitioner’s Form 13 application for Nil/lower withholding tax certificate was rejected - As now in the writ petition the petitioner has clarified that the provision creating slow and ageing inventory in relation to the relevant AY has not been claimed as a deduction in the said year, the matter can be sent back to the AO for re-examination - HELD THAT:- Though in rejoinder, learned senior counsel for the petitioner disputes the contention advanced by learned counsel for the respondent, yet he has no objection to the matter being remanded back to the AO.
Accordingly, in view of the statement made by learned counsel for the respondent, the impugned order under Section 197(1) of the Act for the Assessment Year 202122 is set aside and the matter is remanded back to the AO to determine the said application afresh in accordance with law. Respondent no. 2 shall pass a reasoned order in accordance with law after giving an opportunity of hearing to the authorised representative of the petitioner within four weeks.
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2021 (8) TMI 1407
Reopening of assessment against non existent company - notice issued to company amalgamated - HELD THAT:- As decided in TAKSHASHILA REALTIES PVT LTD VERSUS DY COMMISSIONER OF INCOME TAX CIRCLE 4 (1) (2) [2016 (12) TMI 872 - GUJARAT HIGH COURT] as per the scheme of amalgamation sanctioned by the Court, the transferor Company shall not be in existence, and therefore, the impugned notices against the transferor Company (non-existent Company) shall not be permissible.
Writ petition is allowed and the impugned notice is quashed solely on the ground that the impugned notice was issued in the name of non- existing company in spite of revenue having notice and knowledge of non-existence of such Company. Decided in favour of assessee.
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2021 (8) TMI 1405
Accrual of income in India - sale of Novell Software Products as 'Royalties' on substantive basis both under the Income-tax Act, 1961 as well as the India-USA DTAA - PE in India or not? - AO held that Novell Software Development India Private Limited ('NSDIPL') is a Dependent Agency Permanent Establishment ('DAPE') of Appellant in India - whether there is "Principal to Principal" arrangement between Novell Inc. and NSDIPL under the Distribution Agreement - HELD THAT:- So far as taxability of software sale by the US entity to Indian entities is concerned learned representatives fairly agree that the said issue is now covered by Hon’ble Supreme Court’s judgement in the case of Engineering Analysis Centre of Excellence (P.) Ltd[2021 (3) TMI 138 - SUPREME COURT]
Existence of the dependent agency permanent establishment [DAPE] or not? - In the light of Hon'ble jurisdictional High Court's judgment in the case of Set Satellite (2008 (8) TMI 96 - BOMBAY HIGH COURT), so far as profit attribution of a DAPE is concerned, the legal position is that as long as an agent is paid an arm's length remuneration for the services rendered, nothing survives for taxation in the hands of the dependent agency permanent establishment. Viewed thus, the existence of a dependent agency permanent establishment is wholly tax neutral.
As transactions in question were at arm’s length price, no taxability survives in the hands of the assessee. Once basic taxability under the DAPE itself comes to an end, all other issues raised in the appeal are rendered academic and infructuous.
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2021 (8) TMI 1404
Deduction u/s 43B - issue of debentures in lieu of interest accrued and payable to financial institutions - AO rejected the Appellant’s contention by holding that the issuance of debentures was not as per the original terms and conditions on which the loans were granted, and that interest was payable, holding that a subsequent change in the terms of the agreement, as they then stood, would be contrary to Section 43B(d), and would render such amount ineligible for deduction - CIT(A) allowed assessee appeal - question recorded by HC - “Whether the funding of the interest amount by way of a term loan amounts to actual payment as contemplated by Section 43B of the Income-tax Act, 1961?”
HELD THAT:- The object of Section 43B, as originally enacted, is to allow certain deductions only on actual payment. This is made clear by the non-obstante clause contained in the beginning of the provision, coupled with the deduction being allowed irrespective of the previous years in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by it. In short, a mercantile system of accounting cannot be looked at when a deduction is claimed under this Section, making it clear that incurring of liability cannot allow for a deduction, but only “actual payment”, as contrasted with incurring of a liability, can allow for a deduction. Interestingly, the ‘sum payable’ referred to in Section 43B(d), with which we are concerned, does not refer to the mode of payment, unlike Proviso 2 to the said Section, which was omitted by the Finance Act, 2003 w.e.f. 1st April, 2004.
This being the case, it is important to advert to the facts found in the present case. Both the CIT and the ITAT found, as a matter of fact, that as per a rehabilitation plan agreed to between the lender and the borrower, debentures were accepted by the financial institution in discharge of the debt on account of outstanding interest. This is also clear from the expression “in lieu of” used in the judgment of the learned CIT. That this is so is clear not only from the accounts produced by the assessee, but equally clear from the fact that in the assessment of ICICI Bank, for the assessment year in question, the accounts of the bank reflect the amount received by way of debentures as its business income. This being the fact-situation in the present case, it is clear that interest was “actually paid” by means of issuance of debentures, which extinguished the liability to pay interest.
Explanation 3C, which was introduced for the “removal of doubts”, only made it clear that interest that remained unpaid and has been converted into a loan or borrowing shall not be deemed to have been actually paid. As has been seen by us hereinabove, particularly with regard to the Circular explaining Explanation 3C, at the heart of the introduction of Explanation 3C is misuse of the provisions of Section 43B by not actually paying interest, but converting such interest into a fresh loan.
On the facts found in the present case, the issue of debentures by the assessee was, under a rehabilitation plan, to extinguish the liability of interest altogether. No misuse of the provision of Section 43B was found as a matter of fact by either the CIT or the ITAT. Explanation 3C, which was meant to plug a loophole, cannot therefore be brought to the aid of Revenue on the facts of this case. Indeed, if there be any ambiguity in the retrospectively added Explanation 3C, at least three well established canons of interpretation come to the rescue of the assessee in this case. First, since Explanation 3C was added in 2006 with the object of plugging a loophole – i.e. misusing Section 43B by not actually paying interest but converting interest into a fresh loan, bona fide transactions of actual payments are not meant to be affected.
In similar circumstances, in K.P. Varghese v. ITO, (1981 (9) TMI 1 - SUPREME COURT) this Court construed Section 52 of the Income Tax Act as applying only to cases where ‘understatement’ is be found – an ‘understatement’ is not to be found in the literal language of Section 52, but was introduced by this Court to streamline the provision in the light of the object sought to be achieved by the said provision.
Second, a retrospective provision in a tax act which is “for the removal of doubts” cannot be presumed to be retrospective, even where such language is used, if it alters or changes the law as it earlier stood. This being the case, Explanation 3C is clarificatory – it explains Section 43B(d) as it originally stood and does not purport to add a new condition retrospectively, as has wrongly been held by the High Court.
The question decided in this case is far removed from the question to be decided in the facts of the present case and has no application to these facts whatsoever. The question in the present case does not depend upon what can, in law, be stated to be a debenture and/or whether it is convertible or non-convertible or payable immediately or in the future. The question in the present case is only whether interest can be said to have been actually paid by the mode of issuing debentures.
The impugned judgments of the High Court are set aside and the judgment and order of the ITAT is restored. These appeals are allowed in the aforesaid terms.
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2021 (8) TMI 1399
Validity of faceless assessment passed u/s 144B - Denial of natural justice - Petitioner submits that the impugned assessment order has been passed without observing the principles of natural justice, inasmuch as, due to launch of new income tax e-filing portal, the existing portal was discontinued from 01st June, 2021 and the new income tax e-filing portal did not work after the launch and, therefore, compliance till 07th June, 2021 could not be made and the impugned assessment order was passed on 11th June, 2021 - On 26th July, 2021, this Court had issued notice to the Respondents who sought time to obtain instructions, and till today - HELD THAT:- We are of the view that the Respondents have had more than sufficient time to obtain instructions. Consequently, the request for adjournment of respondents is declined.
Having perused the paperbook, we are of the view that the impugned assessment order has been passed without providing adequate opportunity to submit reply in response to the show cause-cum-draft assessment order dated 23rd May, 2021.
We also feel that as the timeframe set out in the show cause notice dated 23rd May, 2021 was extremely narrow and since the e-filing portal was allegedly dysfunctional, there are good enough reasons to set aside the impugned assessment order, with liberty to the Assessing Officer to continue the assessment proceedings from the stage at which they were positioned when the show cause notice dated 23rd May, 2021 was issued.
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2021 (8) TMI 1396
Validity of Revision u/s 263 - CIT noted difference of sale consideration and value determined by Stamp Valuation Authority in respect of 12 such persons and that the AO failed to verify and applying the correct law - PCIT set aside the assessment order and directed to verify the sale deed for the year under consideration and pass the assessment order afresh by giving adequate opportunity to the assessee - assessee argued No fair and proper opportunity was given by CIT - HELD THAT:- It is an admitted fact that ld. PCIT issued show-cause notice u/s 263 dated 13/03/2021 for fixing the date of hearing on 31/03/2021. PCIT passed the order on 31/03/2021 itself.
We find that assessee filed copy of reply dated 31/03/2021 before the ld. PCIT.
We find that ld. PCIT has not recorded the contents of reply filed by the assessee. We, instead of going on the merit and demerit of the issues identified by ld. PCIT for revision find that the ld. PCIT passed the order in a hasty manner and without giving fair and proper opportunity. Therefore we deem it appropriate to restore the case back to the file of ld. PCIT to decide the issues identified by him afresh after giving opportunity of hearing to the assessee.
Appeals filed by the assessee are allowed for statistical purpose.
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2021 (8) TMI 1395
Revision u/s 263 - As per CIT there is failure on the part of the AO to assess the income of the assessee u/s. 144/147 of the Act and found it erroneous as it is prejudicial to the interest of the revenue - HELD THAT:- The impugned order has been passed by the Ld. PCIT without affording proper opportunity of being heard to the assessee. Though the three (3) notices were issued by the Revenue fixing the date of hearing, but finally, the adjournment application as part of the record before us, though suggests the request for adjournment on behalf of the assessee before the ld. PCIT made, the same is not reflecting in the order passed by the ld. PCIT dt. 13-03-2020, issued after four(4) days from the date of making such request.
In that event, we find that the principle of natural justice has not been properly adhered to. Therefore, for the ends of justice, we find it fit and proper to set aside the issue to the file of the PCIT with a further direction upon him to adjudicate the matter on merits positively upon granting an opportunity of being heard to the assessee and upon taking into consideration the evidences. Appeal of the assessee is allowed for statistical purpose.
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2021 (8) TMI 1391
Rectification of mistake - mistake being apparent on the face of record - Ground 11 to 13 - Transfer pricing adjustment on account of payment of service fees to Cadbury Holding Limited - method followed by TPO for making adjustment was not a method prescribed under the Act.
HELD THAT:- We find that the related facts and circumstances of the issue raised by the assessee in the grounds no.11 to 13 of the present appeal is materially identical to the issue decided by us vide grounds no.8 to 11, in Para–14, 15 and 16, wherein we have allowed the issue while following the decision of the Co–ordinate Bench of the Tribunal rendered in Kodak India Pvt. Ltd. [2013 (11) TMI 667 - ITAT MUMBAI]. Since the issue raised in these grounds no.11 to 13, are identical to the issue decided by us in grounds no.8 to 11 vide Para–14, 15 and 16, as aforesaid, consistent with the view taken therein, we set aside the impugned order passed by the learned CIT(A) and allow these grounds.
Corporate tax adjustment on account of alleged excess deduction u/s 80-IC of the Act - We notice that the Co–ordinate Bench has accepted the method of allocation with regard to interest, VRS decrease in stock, direct expenses, direct marketing cost and selling & distribution expenses, royalty and technical fees. The bench has remitted back to AO only the other overhead for verification. Now before us, it is brought to our notice that all operational and establishment expenses were uniformly allocated and there is no separate category of “Other Overheads”. Accordingly, we also deem it fit to remit only for limited purpose of verification of aspect of allocation method adopted to the file of the Assessing Officer. Accordingly, the ground raised by the assessee is allowed for statistical purposes.
Misc. application is allowed.
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2021 (8) TMI 1390
Addition u/s 14A r.w.r. 8D - exempt income necessarily be earned in the AY in question for the applicability of the said provision - HELD THAT:- Issue notice.
Tag with M/S IL AND FS ENERGY DEVELOPMENT COMPANY LTD. [2018 (5) TMI 2126 - SC ORDER]
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2021 (8) TMI 1387
Exemption u/s 11 - AO examined the activity of the assessee and held that it falls under General Public Utility and is charging fees from customers and has obtained Intellectual Property Rights (IPR) from Belgium and transferring through license agreement use of such IPR and un-species, thus covered by the proviso to Section 2(15) - whether assessee’s activities are not within the purview of the section 2(15)? - CIT(A) allowed deduction - HELD THAT:- Revenue could not show us that the above order of the co-ordinate bench has been reversed by the Hon’ble High Court. In view of this the order of the co-ordinate bench in assessee’s own case for earlier year binds - Accordingly, we hold that the assessee is entitled to the benefit of Section 11 and 12 of the Act and there is no infirmity in the order of the ld. CIT (Appeals). Accordingly, ground No. 1 of both the appeals are dismissed.
Claim of the depreciation, despite the assessee has claimed the whole cost of the assets as application of the income at the time of purchase of those assets has been allowed by the ld. CIT (Appeals) following the decision of Indraprastha Cancer Society [2014 (11) TMI 733 - DELHI HIGH COURT] - We do not find any infirmity in the order of the ld. CIT (Appeals) in allowing the claim of depreciation to the assessee for both the years.
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2021 (8) TMI 1386
Validity of faceless assessment u/s 144B - notice of demand, issued u/s 156 and the notice issued for initiating penalty proceedings u/s 270A - HELD THAT:- As per sub-clauses (b) and (c) of clause (xvi) of Section 5(1) of the 2019 Scheme, read with Section 144B(7)(vii) oblige the revenue, to follow the principles of natural justice, where there is a variation made in the taxable income to the prejudice of the assessee. [See Ritnand Balved Education Foundation vs. National Faceless Assessment Centre [2021 (6) TMI 17 - DELHI HIGH COURT]].
A perusal of the impugned assessment order would show that, variation has been made in the taxable income to the prejudice of the assessee.The record shows that, the assessee had claimed exemptions under Section 11/12 of the Act, and thus, declared its income in the relevant AY i.e., 2018-2019, as “Nil”.
AO via the impugned assessment order has made an addition to the taxable income of the assessee.
In view of this, it is evident that variation was made to declared taxable income of the assessee which, as noticed above, was Nil, albeit, without issuance of a show cause notice-cum-draft assessment order. Admittedly, the assessee had no opportunity to respond to the additions made.
Given these admitted circumstances, the impugned assessment order as also the consequential notices, issued under Section 156 and 270A would have to be set aside.
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2021 (8) TMI 1380
Deemed dividend - Partnership firm - purchase of shares in the name of partners - HC [2011 (7) TMI 288 - DELHI HIGH COURT] held that appellant company being beneficial share holder hence loans accepted is added as deemed divided - HELD THAT:- Interlocutory Application is an application for withdrawal of the appeals in light of the Direct Tax Vivad se Vishwas Act, 2020. Application is allowed.
Consequently, Appeals stand dismissed as withdrawn.
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2021 (8) TMI 1379
Depreciation on computers disallowed u/s 40(a)(ia) - HELD THAT:- Issue decided in favour of assessee as relying on Tally Solutions Pvt. Ltd case [2020 (12) TMI 1160 - KARNATAKA HIGH COURT] Section 40(a)(i) and (ia) provides for disallowance only in respect of expenditure, which is revenue in nature, therefore, the provision does not apply to a case of the assessee whose claim is for depreciation, which is not in the nature of expenditure but an allowance. The depreciation is not an outgoing expenditure and therefore, provisions of section 40(a)(i) and (ia) are not applicable.
In the absence of any requirement of law for making deduction of tax out of expenditure, which has been capitalized and no amount was claimed as revenue expenditure, no disallowance under section 40(a)(i) and (ia) would be made.
Depreciation is a statutory deduction available to the assessee on a asset, which is wholly or partly owned by the assessee and used for business or profession. Depreciation is an allowance and not an expenditure, loss or trading liability. Commissioner (Appeals) has held that the payment has been made by the assessee for an outright purchase of Intellectual Property Rights and not towards royalty and therefore, the provision of section 40(a)(i) is not attracted in respect of a claim for depreciation. Decided in favour of the assessee.
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2021 (8) TMI 1375
TDS u/s 195 - Royalty payments as defined under Explanation II to Section 9(1)(vi) - amounts paid by the concerned persons resident in India to non-resident, foreign software suppliers - HELD THAT:- This issue involved in the present case is no longer res integra as in the case of Engineering Analysis Centre of Excellence[2021 (3) TMI 138 - SUPREME COURT] has decided the issue amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 were not liable to deduct any TDS u/s 195 - Appeal is allowed.
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2021 (8) TMI 1374
TP Adjustment - determination of Arm’s Length Price of SDT - proceedings commenced under the omitted provision under clause (i) of Section 92BA - HELD THAT:- The Finance Act 2017 has omitted SDT whereby any expenditure in respect of which payment has been made or has to be made to a person referred to in clause (b) of sub-Section (ii) of Section 40. It has been omitted w.e.f. 01.04.2017. This precise issue had come up for consideration before the Hon’ble Karnataka High Court in Textport Overseas Pvt. Ltd [2019 (12) TMI 1312 - KARNATAKA HIGH COURT] wherein held that when clause (i) of Section 92BA have been omitted by the Finance Act, 2017 w.e.f. 01.04.2017 from the statute, the resultant effect is that, it had never been passed and to be considered as a law never been existed and therefore order of TPO u/s.92BA could be invalid and bad in law, While coming to this conclusion the Hon’ble High Court has referred and relied upon the judgment in the case of Kolhapur Canesugar Works Ltd. & Anr. v. Union of India & Ors.[2000 (2) TMI 823 - SUPREME COURT]
Rule of interpretation of statutes that where a provision of an Act is omitted by an Act and the said Act simultaneously re-enacts a new provision which substantially covers the field occupied by the repealed provision with certain modification, in that event such re-enactment is regarded having force continuously and the modification or changes are treated as amendment coming into force with effect from the date enforcement of the re-enacted provision.
The issue for consideration before us is clause (i) of Section 92BA which has been omitted from 01.04.2017 and there is no re-enactment with modification or any Saving Clause in any other Sections of the Act. Thus, without any Saving Clause or similar enactment, then it has to be held that Clause (i) of Section 92BA did not come into operation whenever any action has been taken especially after such omission. Accordingly, we hold that no Transfer Pricing Adjustment can be made on a domestic transaction which has been referred to by the Assessing Officer after the omission of the said clause by the Finance Act, 2017 even though transaction has undertaken in the Assessment Year 2016-17.
Our decision is equally fortified by the judgment of M/s. Raipur Steel Casting India (P) Ltd. [2020 (6) TMI 629 - ITAT KOLKATA] which pertained to the Assessment Year 2014-15, and catena of other judgments as relied upon by the Ld. Counsel of the assessee cited extenso in the foregoing paragraphs. Appeal of the assessee is allowed.
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2021 (8) TMI 1373
MAT application u/s 115JB on Banking companies - assessee bank eligibility for deduction u/s 36(1)(vii) when the assessee has not debited any bad debts write off in the profit and loss account and only the provision for bad debts (prudential write off) has been claimed as deduction in the computation of income as bad debt write off - as per HC [2020 (12) TMI 402 - KARNATAKA HIGH COURT] for the reasons assigned in the judgment [2020 (11) TMI 486 - KARNATAKA HIGH COURT], the substantial questions of law involved in this appeal are answered against the revenue and in favour of the assessee - HELD THAT:- Leave granted.
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2021 (8) TMI 1371
Depreciation at the rate of 60% on computer based equipment, which was restricted to 15% by the AO - HELD THAT:- CIT(A) has allowed the claim of assessee in full after following the order of First Appellate Authority for AY 2011-12. It is further observed that the AO has himself allowed assessee’s claim of depreciation @ 60% on computer based equipment in AY 2014-15
From perusal of the impugned order it is gathered that the issue is perennial. In AY 2005-06, 2007-08 and AYs 2009-10 to 2011-12 the CIT(A) had allowed assessee’s similar claim of depreciation on computer based equipments. In appeal by the Revenue, the Tribunal confirmed the order of First Appellate Authority. No infirmity in the impugned order, the same is upheld and the appeal of Revenue is dismissed, sans merit.
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2021 (8) TMI 1370
Income deemed to accrue or arise in India - sale value of software and provision of ancillary support services as royalty receipts/FTS income - assessee is a company incorporated in the United States of America as engaged in the business of developing, manufacturing and distribution of software products from outside India and also providing ancillary support services from outside India - HELD THAT:- As following the decision rendered in the case of Engineering Analysis Centre for Excellence Pvt. Ltd. [2021 (3) TMI 138 - SUPREME COURT] and also following the decision rendered by the co-ordinate bench in AY 2016-17 [2021 (7) TMI 615 - ITAT BANGALORE] we hold that receipts by way of sale of software licenses and provision of ancillary support services connected with the sale of software products cannot be assessed as royalty/FTS income in the hands of the assessee. Accordingly, we set aside the order passed by the AO on this issue. Appeal filed by the assessee is allowed.
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