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2016 (6) TMI 96 - ITAT MUMBAIRoyalty - Existence of Permanent Establishment in India - TDS liability - software purchase - DTAA - payment made to M/s. Paradigm Geophysical Pty.Ltd., Australia (Paradigm) for supply of certain Geological and Seismic Data Interpretation Software - Held that:- The purchase orders were made by the assessee for the softwares as mentioned in column No.5, prior to the bringing of amendment vide Finance Act, 2012, though the amendment has been made with retrospective effect from 01.06.1976 By the introduction of the said Explanation 4, computer software has been specifically included in the definition of ‘right, property or information‘ which was never assumed to have been included by any court of law prior to the insertion of Explanation 4 vide amendment of Act of 2012. The Hon‘ble Supreme Court in the case of “Sedco Forex International Drill INC. & Others vs. Commissioner of Income Tax & another” (2005 (11) TMI 25 - SUPREME Court ) has held that if an explanation added to a provision changes the law, then it is not to be presumed to be retrospective irrespective of the fact that the phrase used are ‘it is declared‘ or ‘for the removal of doubts‘. As it is an admitted position that in the earlier years, not only the various High Courts but also the Tribunal in the cases of the assessee has taken a view that the consideration paid for the purchase of the software cannot be treated as royalty; the assessee was, thus, under the bonafide belief that no TDS/withholding of tax was required to be done in respect to said purchases. The assessee had no reason to believe or to foresee a subsequent event vide which the definition of royalty has been extended to include the consideration for the use of or right to use the software has been included in the definition of royalty under the Act. As per the existing law which was in operation at the time of purchase of software, the assessee was under the bonafide belief that there was no liability to deduct tax in respect of the consideration paid for the said purchase of software. It may be further observed that as the definition as was in existence before the insertion of Explanation 4, there was a remote possibility to give a broad interpretation to the definition of ‘right, property or information‘ so as to include the right to use or right for use of the software in the said definition. The Explanation 4 has brought and added a further meaning to the provision which was not supposed to be foreseen by the assessee The co-ordinate bench of the Tribunal in the case of “Rich Graviss Products (P.) Ltd. vs. ACIT” (2014 (9) TMI 165 - ITAT MUMBAI ), while relying upon various other decisions of the Tribunal, has held that the disallowance cannot be made under section 40(a)(ia) on the basis of a subsequent amendment brought into the Act with retrospective effect. In view of this, even otherwise, the Explanation 4 inserted vide Finance Act, 2012 cannot be applied retrospectively to the case of the assessee as the said Explanation 4 has the effect of change in law and the assessee was not expected to foresee such change at the time of making the remittance in consideration of purchase of the software in question. Hence, under such circumstances, even otherwise, the assessee was not supposed to deduct TDS on such purchases. In the light of the law laid down by the Hon‘ble Supreme Court in the case of “Sedco Forex International Drill INC. & Others vs. Commissioner of Income Tax & another” (supra) and in view of the observations made above, we hold that the assessee during the relevant period prior to the insertion of explanation 4 to section 9(1)(vi) of the I.T. Act, was not liable to deduct TDS - Decided in favour of assessee
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