TMI Blog2016 (4) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... esponsible for deducting at source. In the present case, though no taxes have been paid by the payee on the amount, it serves no purpose to enforce demand from the tax deductor as the assessment in the hands of the payee is completed, the demand, if any, can be recovered from the payee under due process of law. - Decided in favour of assessee - IT Appeal Nos. 1624 to 1627 (Bang.) of 2012 - - - Dated:- 24-2-2016 - VIJAYPAL RAO, JUDICIAL MEMBER AND Inturi Rama Rao, ACCOUNTANT MEMBER For the Appellant : Chand Khincha, CA For the Respondent : Sunil Kumar Agarwala, JCIT(DR) ORDER 1. These are the appeals remanded back to the file of the Tribunal by the Hon'ble High Court of Karnataka vide order dated 14/11/2014 in ITA No.562 of 2013 and 546, 560 545 of 2013 by holding in paras. 5 6 as under: 5. In view of the aforesaid facts and submissions, we are of the view that the order passed by the Tribunal is not proper. It violates principles of natural justice. The Tribunal has a jurisdiction to decide the appeals on the ground which is not urged by both the parties. But the parties should be given an opportunity to have their say. 6. In that view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r indirectly or alone or in associate with others or with any other entity. This clause does not provide for any fee for this covenant. However, clause XIV of the agreement provided for right of first refusal to the assessee-company and WHPL in respect of future business initiatives of Shri Mohan Raju in specified business areas. The same clause provided that Shri Mohan Raju should offer 74% of the economic interest to the assessee-company in the new business initiative which he may promote either as a shareholder or as a partner in the field of telecommunication, digital media and convergence other than those specified in clause 2(b) of the agreement. The said clause reads as under: XIV. Right of first refusal to the Company and WHPL in respect of future business initiatives of MR in specified areas: (a) Any new business initiative of MR in the fields of telecommunication, digital media and convergence, other than those provided under Article lIb) hereinabove, shall be considered as 'specified business' for the purpose of this Article; (b) During subsistence of this Agreement, if MR is intending to promote any 'specified business' or intends to asso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Supreme Court in the case of Tata Consultancy Services v. State of AP [2004] 271 ITR 401/141 Taxman 132 in support of the contention that intellectual property rights are only in the nature of goods. Therefore, the provisions of TDS are not applicable. The TDS officer, rejecting the explanation filed by the assessee-company, held that the payments are in the nature of royalty within the meaning of the definition of 'royalty' in Explanation 2 to sec. 9(1)(vi) of the Act. Therefore, the TDS officer held the assessee-company in default within the meaning of section 201 of the Act and demanded tax of ₹ 11,02,600/- and interest u/s 201(1A) of ₹ 7,21,810/- for the financial year 2005-06, tax of ₹ 44,08,000/- and interest of ₹ 26,08,433/- aggregating to ₹ 70,16,433/- for the financial year 2006-07. 6. Being aggrieved by this order, appeals were preferred before the ld.CIT(A). It was contended before the ld.CIT(A) that the payments in question are not in the nature of royalty. As lump sum payment was made to acquire a future right to participate up to 75% of the economic interest in any business initiative of said Shri Mohan Raju, paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the facts discussed above, the action of the AO in raising demand u/s 201(1) and charging interest u/s 201(1A) of the Act on the appellant-company for the two assessment years in question is upheld. 7. Being aggrieved by this order of the ld.CIT(A), appeals were filed before this Tribunal. This Tribunal, after considering the rival submissions, had allowed the appeals filed by the assessee-company vide order dated 21/6/2013 by holding that the provisions of sec.l94J were not applicable to the payments in question as the term 'royalty' was inserted under the provisions of sec.l94J only w.e.f. 13/07/2006 and since the amounts in question were already credited on 1/2/2006 in the books of account of the assessee-company, the provisions introduced subsequently w.e.f. 13/7/2006 cannot be applied to the credits or payments made prior to that date. 8. Against this order of this Tribunal, the revenue contested the matter before the Hon'ble High Court of Karnataka on the ground that the Tribunal had allowed the appeals of the assessee- company on the grounds which were not urged before the Tribunal without giving an opportunity of hearing to the parties to the case. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crore, (ii) on or before 30/9/2006 ₹ 2 crores (iii) on or before 31/3/2007 2 crores. In terms of the above agreement, the assessee-company paid the sum of Rs. l crore during the financial year 2005-06 and the remaining ₹ 4 crores was paid during the financial year 2006-07. The above payment was considered by the TDS Officer as royalty and therefore, held that the assessee-company to be in default for non deduction of tax at source under provisions of section 194J. Therefore, we are called upon to examine whether the impugned payments are in the nature of 'royalty'. The whole case of the TDS officer is that MR has granted the intellectual property rights in respect of software of which he is the owner and transferred certain rights for use of such software in favour of the assessee-company and therefore held that consideration was paid only for the use of intellectual copy rights in software which is nothing but a royalty. The ld.CIT(A) also upheld the action of the TDS officer by holding that by grant of right of first refusal Shri Mohan Raju had parted with his commercial and scientific knowledge and experience, skill in the field of networking i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities referred to in sub-clauses (i') to (iv), (iva) and (v).' 11. The Finance Act, 2012 has expanded the scope of the term 'royalty' by insertion of Explanations 4, 5 and 6 with retrospective effect from l/6/1976. Those Explanations are as under: Explanation 4.-For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred. Explanation 5.-For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not- (a) the possession or control of such right, property or information is with the payer; (b) such right, property or information is used directly by the payer; (c) the location of such right, property or information is in India. Explanation 6.-For the removal of doubts, it is hereby clarified that the expression process includes and shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Raju cannot be treated as royalty. Hence, the question of deducting tax at source under the provisions of 194J does not arise. 13. Since we held that the consideration paid was not in the nature of royalty, the issue relating to the time of accrual of consideration is irrelevant. Hence, we do not deem it necessary to adjudicate upon this ground. 14. Be that as it may, it is worth mentioning here that in the hands of the payee i.e. MR, the impugned payments were already considered as non-compete fee by the AO but on appeal, the appellate authorities quashed the assessment on technical grounds. But the moot point to be noted here is that the amounts were already subjected to assessment in the hands of the payee. The Hon'ble Apex Court, in the case of Hindustan Coca Cola Bewerages (P.) Ltd. v. CIT [2007] 293 ITR 226/163 Taxman 355, after referring to circular No.275/201/95-IT(B) dated 29/1/1997 which declares that no demand visualized u/s 201 of the Act should be enforced after the tax deductor had satisfied the officer in-charge of TDS that tax due have been paid by the deductee, held that once taxes have already been paid by the payee, there was no need to recover the same ..... X X X X Extracts X X X X X X X X Extracts X X X X
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