TMI Blog2013 (4) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal of the assessee and accordingly dismiss the same. - Decided against the assessee. Deletion of nterest levied u/s 234B - Held that - This view has also been upheld by the Honorable Delhi High Court in the case of DIT vs. Jacabs Civil Incorporated [2010 (8) TMI 37 - Delhi High Court] Respectfully following the above judicial pronouncements, the Assessing Officer is directed to delete the interest charged u/s 234B of the Income tax Act. we do not find any infirmity in the order of the first appellate authority and as such we uphold the same for the reasons stated therein. The grounds of appeal of the revenue are dismissed. In the result, both the appeal of the assessee and the appeal of the revenue are dismissed. - ITA No.802/Bang/2011 & ITA No.804/Bang/2011 - - - Dated:- 12-6-2012 - SHRI N. BARATHVAJA SANKAR, AND SHRI GEORGE GEORGE K, JJ. Assessee by: Shri Gaurav Bazoria, CA. Revenue by : Shri S.K.Anbastha, CIT. O R D E R Per N. BARATHVAJA SANKAR, VP: These cross appeals by the assessee-M/s. M/s.BEA Systems Inc. Bangalore, and the Revenue are for the assessment year 2008-09 and against the appellate order dated 21-7-2011 of the CIT(A)-IV, Bangal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucts in its territory. The assessee had sold the software against the end users order to M/s.BEA Systems India, who in turn, finally sold it to the end users. The AO held that the payment towards Shrink wrapped software constituted royalty payment. It was also held that for charging royalty, whether the assessee had a PE in India or not was not relevant. Hence, the AO charged tax at the rate of 10.56% (including SC EC) on such royalty payments. 3.2. Aggrieved, the assessee moved the matter in appeal before the first appellate authority and made elaborate submissions. The CIT(A) after considering the assessee s submissions observed that the Hon ble Supreme Court in the case of GE India Technology Centre vs. CIT (327 ITR 456) has referred the matter back to the Hon ble Karnataka High Court to decide on the chargeability before concluding that all the payments made to the non-resident require deduction u/s 195 of the Act. The CIT(A) further observed that still in the case of M/s Samsung it was held that payment made towards shrink-wrapped software is liable for withholding tax. The CIT(A) further observed that still in the case of M/s.Samsung Electronics Ltd. Others it was h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 and the relevant findings are given in paras 7 8 of the aforesaid referred to order dated 22.03.2012 which read as under: 7. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is not in dispute that in assessee s own case, identicle issue has been decided by the Hon ble jurisdictional High Curt and Their Lordships in the judgment dated 15.10.011 while deciding the ITA No.2808/2005 Ors.,observed in paras 20 to 25 as under: 20. Having regard to the above said definition of 'royalty', we have to consider the contents of software license agreement entered into by non-resident with Samsung Electronics and also respondents in the case represented by Sri Ganesh, learned senior counsel and Sri Aravind Dattar, wherein it is a case of purchase, sale or distribution or otherwise of the off-the-shelf software. It is described as a 'software license agreement', wherein it is averred that customer accepts an individual, non-transferable and non-exclusive license to use the licensed software program(s) program(s) on the terms and conditions enumerated in the agreement. It is further averred that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d distribute such copies. Actuate represents that it has the right to enter into the Agreement and grant the licenses provided therein and confidentiality is protected. Therefore, on reading the contents of the respective agreement entered into by the respondents with the nonresident, it is clear that under the agreement, what is transferred is only a license to use the copyright belonging to the non-resident subject to the terms and conditions of the agreement as referred to above and the non-resident supplier continues to be the owner of the copyright and all other intellectual property rights. It is well settled that copyright is a negative right. It is an umbrella of many rights and license is granted for making use of the copyright in respect of shrink wrapped software/off-the-shelf software under the respective agreement, which authorizes the end user i.e., the customer to make use of the copyright software contained in the said software, which is purchased off the shelf or imported as shrink wrapped software and the same would amount to transfer of part of the Copyright and transfer of right to use the copyright for internal business as per the terms and conditions of the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other hand the issue in the present case is as to whether the payment would amount to 'royalty' within the meaning of Income Tax Act and DTTA. In the said TCS's case, it has been held that copyright in computer program may remain with the originator of the program, but, the moment copies are made and marketed, if becomes goods, which are susceptible to tax. The contention of the assessee that the consideration received by the non-resident supplier towards the software products would amount to 'royalty' within the meaning of DTAA with respective country was not at all considered in the said case. Therefore, the said decision in TCS's case is not helpful to the respondents in the present cases. It is well settled that the intent of the legislature in imposing Sales Tax and Income Tax are entirely different as Income Tax is a direct tax and Sales Tax is an Indirect Tax and wherefore, mere finding that the computer software would be included within the term 'Sales Tax' would not preclude this Court from holding that the said payments made by the respondents to the non-resident Company in the present cases would amount to 'royalty' unless the respondents are able to prove that the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental. (c) in the ease of an artistic work,- (i) to reproduce the work in any material form including depiction in three dimensions of a two dimensional work or in two dimensions of a threedimensional work; (ii) to communicate the work to the public: (iii) to issue copies of the work to the public not being copies already in circulation; (iv) to include the work in any cinematograph film; (v) to make any adaptation of the work; (vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in subclauses (i) to (iv); (d) in the case of a cinematograph film,- (i) to make a copy of the film, including a photograph of any image forming part thereof; (ii) to sell or give on hire, or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions; (iii) to communicate the film to the public; (e) in the case of a sound recording,- (i) to make any other sound recording embodying it; (ii) to sell or give on hire, on offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y itself is a part of the copyright. Therefore, when license to make use of the software by making copy of the same and to store it in the hard disk of the designated computer and to take back up copy of the software, it is clear that what is transferred is right to use the software, an exclusive right, which the owner of the copyright i.e., the respondent-supplier owns and what is transferred is only right to use copy of the software for the Internal business as per the terms and conditions of the agreement. The decision of the Delhi High Court in Dynamic Vertical Software India (P.) Ltd.'s case (supra) relied upon by Sri Aravind Dattar, learned senior counsel appearing for the respondents in some of the cases in support of his contention that by no stretch of imagination, payment made by the respondents to the non-resident suppliers can be treated as 'royalty' is not helpful to the respondents in the present cases as in the said case, Delhi High Court was considering the provisions of Section 40(a)(i) of the Act and the order of the High Court reads as follows:- "What is found, as a matter of fact, is that the assessee has been purchasing the software from Microsoft and sold it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot confer any right upon the end user and the purpose of the C.D. is only to enable the end user to take a copy of the software and to store it in the hard disk of the designated computer if license is granted in that behalf and in the absence of license, the same would amount to infringement of copyright, which is exclusively owned by non-resident suppliers, who would continue to be the proprietor of copyright. Therefore, there is no similarity between the transaction of purchase of the book or prerecorded music C.D. or the C.D. containing software and in view of the same, the Legislature in its wisdom, has treated the literary work like books and other articles separately from 'computer' software within the meaning of the 'Copyright' as referred to above under Section 14 of the Copyright Act. 25. It is also clear from the above said analysis of the DTAA Income Tax Act, Copyright Act that the payment would constitute 'royalty' within the meaning of Article 12(3) of the DTAA and even as per the provisions of 9(1)(vi) of the Act as the definition of 'royalty' under clause 9(1)(vi) of the Act is broader than the definition of 'royalty' under the DTAA as the right that is transferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmity in the order of the ld. CIT(A), as such we do not find any merit in this appeal of the assessee. Since facts in the present case are same with that of the earlier assessment year, following the decision of the Tribunal in ITA No.543/Bang/2011 dated 13-4-2012, we do not see any merit in the grounds of appeal of the assessee and accordingly dismiss the same. 4. The assessee has taken another ground that the AO erred in initiating penalty proceedings u/s 271(1)(c) of the of the Incometax Act, 1961 [hereinafter referred to as "the Act"]. 4.1. While dealing with this issue, the CIT(A) has stated that this ground taken by the assessee was pre-mature as no prejudice has been caused to the assessee merely by virtue of initiation of penalty u/s 271(1)(c) of the Act and further, as per the provisions of sec.246A of the Act, no appeal shall lie against the initiation of penalty proceedings u/s 271(1)(c) of the Act. Hence, he dismissed this ground of appeal. 4.2. We have heard both the parties and considered the facts and materials on record. We do not find any infirmity in the order of the first appellate authority as there cannot be an appeal against the initiation of penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have heard both sides and considered the facts and material on record. The CIT(A), while giving direction to the AO to delete the interest u/s 234B of the Act observed as under: 2.3.2. On perusal of the assessment order, it is evident that the Assessing Officer had determined the tax payable at Rs.3,43,32,481/-. It also undisputed fact that out of the tax payable determined by the Assessing officer, the tax was deducted to the extent of Rs.3,25,13,820/- and thus, as per Explanation 1 to sub-section (1) of section 234B of Income-tax Act, assessed tax has been computed by the Assessing Officer at Rs.18,18,661/-. According to sub-section (1) of 234B, the appellant was supposed to pay atleast 90% of such assessed tax if it is liable to pay advance tax u/s 208 of the Income tax Act. In this regard, the various decisions relied by the appellant support the argument of the appellant, that if the tax was deductible at source on the income, then the appellant cannot be held liable for default u/s 234B of the Income tax Act. The Hon ble Bombay High Court in the case of Director of Income Tax (International Taxation) v. Ngc Network Asia LIc 222 CTR (Bom) 86 after analysing the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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