TMI Blog2016 (6) TMI 889X X X X Extracts X X X X X X X X Extracts X X X X ..... r For the Appellant : Shri. Sriram Seshadri, C.A. Shri M. Ashik Shah, C. A. For the Respondent : Shri. P. Radhakrishnan, IRS, JCIT ORDER Per G. Pavan Kumar, Judicial Member The appeals filed by the assessee are directed against different orders of the Commissioner of Income-tax (Appeals)-16, Chennai, dated 25.01.2016 for the above assessment years passed u/s. 201(1) 201(1A) and 250 of the Income Tax Act, 1961 dated 29.01.2016 (herein after referred to as the Act ). Since the issue in these three appeals are common in nature, hence these appeals are combined, heard together, and disposed of by a common order for the sake of convenience, we consider the facts as narrated in ITA No.882/Mds/2016 of assessment year 2008-09 for adjudication. 2. The grounds of appeal raised by the assessee are under:- 1. The order passed by the Commissioner of Income-tax Appeals [ CIT(A) ] under section 250(6) of the Income-tax Act, 1961 ( Act ) confirming the order of the Assessing Officer ( AO ) passed under section 201(1)/201(lA) is not in accordance with law, contrary to the facts and circumstances of the present case and is in violation of principles of equity and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee company is engaged in providing software and related services in Banking and Financial Service Sector further provides services in electronic payment transactions under different modules. The assessee company renders a wide range of solutions for ATM/Point of sales and delivers services relating to driving, switching, mobile banking, internet commerce gateway etc., In the normal course of business, the assessee company made payments to ACI Worldwide Singapore (Pte) Limited and M/s.Integrated Research Pvt. Ltd being two non-resident entities towards procurement of software products. The assessee company operates under a distribution model, were software products are procured from M/s. ACI Worldwide Singapore (Pte) Limited and M/s.Integrated Research Pvt. Ltd and in turn supplied these software products to various customers in India. The assessee company case was selected under scrutiny and assessment was completed/sec. 143(3) of the Act by disallowing payments to non-resident company towards purchase of software products u/s.40(a) (i) of the Act. The ld. Assessing Officer disallowed expenditure treated as royalty payments to non-resident companies and the ld. Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld. Assessing Officer relied on the provisions of sec.201 and concluded that the assessee company has defaulted and come within provisions applicable for the said assessment year and also relied on the provisions applicable to foreign remittances u/s.195 of the Act. The ld. Assessing Officer observed that it is mandatory for the payer to deduct tax at source on any sum payable or paid to any non-resident and the said amount is chargeable to tax under provisions of Income Tax Act and the deductee shall obtain non deduction certificate of TDS from jurisdictional Assessing Officer. Further, the circular No.4/2009 of CBDT, dated 29.06.2009 reflects the procedure mandated for non deduction of tax without insisting of no objection certificate from Department. The assessee company shall file an undertaking addressed to the ld. Assessing Officer on remittances accompanied by a certificate issued by the Chartered Accountant. The ld. Assessing Officer dealt on the provisions of law and the form No. 15CA and 15CB to be obtained from Chartered Accountant alongwith undertaking to be submitted electronically. The ld. Assessing Officer examined in detail the remittances and purchase of softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t aggregating ₹ 2,99,80,498/-. Aggrieved by the order, the assessee filed an appeal before Commissioner of Income Tax (Appeals). 4. In the appellate proceedings, ld. Authorised Representative argued the grounds and reiterated the submissions made before ld. Assessing Officer in the quantum appeal and before Commissioner of Income Tax (Appeals) in the earlier year proceedings. The ld. Commissioner of Income Tax (Appeals) considered the submissions and the grounds raised against the order of u/sec. 201(1) and 201(1A) of the Act and categorically dealt on the grounds. Considering the background and applicability of provisions of TDS and DTAA provisions. The ld. Commissioner of Income Tax (Appeals) referred to the ledger accounts of license fees. The ld. Authorised Representative also relied on the provisions of DTAA and explained that purchase of software does not come within the purview of Royalty and Tribunal in the assessee s own case for the assessment years 2003-04 to 2010- 2011 in ITA Nos.2190 to 2196 2199/Mds/2013 dated 5.06.2014 has decided the issue of disallowance u/s.40(a)(i) of the Act in favour of the assessee and is binding on the appellate authority, but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of the Tribunal has held that procuring of software product and consideration paid does not fit in the nature of Royalty and allowed the appeal of the assessee. Now, the ld. Assessing Officer and ld. Commissioner of Income Tax (Appeals) having knowledge of the Tribunal order has distinguished the decision considering provisions of u/sec. 40(a)(i) and sec.201 201(1A) of the Act are different and calculated TDS payable alongwith interest u/s.201(1A) aggregating to ₹ 2,99,80,498/-. The question arises when there is no disallowance u/s.40(a)(i) of the Act whether, the ld. Assessing Officer can apply the provisions of Sec. 201(1) and Sec. 201(1A) of the Act. We are of the opinion that Sec. 40(a)(i) of the Act is charging provision on larger aspects and not applicable to the assessee. Due to fiction of both provisions, the provisions of sec. 40(a)(i) of the Act overrule the contemporary TDS provisions u/s. 201(1) 201(1A) of the Act. The Co-ordinate Bench of this Tribunal has treated the payments not in the nature of Royalty in ITA Nos.2190 to 2196 2199/Mds/2013, dated 5th June, 2014 at page 35, para 47 to 60 of his order observed as under:- 47. We heard the detailed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferred by the non-resident companies is a standard software. 49. The services rendered by the assessee in installing the software products in the system of its customers are in the nature of making the software compatible to the environment of the individual customers. The assessee company never becomes the owner of the software. The intellectual property in the software products always remains with the ACI Singapore and IRPL Australia. 50. The decisions cited by the learned counsel appearing for the assessee support the above stated position of the case. In the decisions of Dassault Systems KK, 322 ITR 125(AAR), CIT vs. Dynamic Vertical Software India (P) Ltd., 332 ITR 222, DIT vs. Ericsson AB, 343 ITR 470, the courts have held that where the assessee is purchasing software from the vendor and selling the same further in Indian market, the consideration paid for such purchase could not be termed as Royalty . It is held that in order to constitute Royalty, what is contemplated, is a payment that is depending on user of copyright and not a lump sum paid for the acquisition of copyrighted article 51. In the present appeals also, what has been purchased by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the same that the transfer of all or any rights of something. The only clarification made by the amendment is that such all or any rights included transfer of all or any rights in respect of a computer software also. It means the clarification has included the software products also in the ambit of other items like literary, artistic or scientific work including films etc. It is easily seen that the clarification has been brought only to include computer software also in the ambit of transfer of all or any rights so as to determine the nature of payment. Therefore, there is no change in the concept of Royalty either before or after the amendment. 54. Anyhow, 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., 264 CTR 329, 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 assesse 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 Articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee to foresee any amendment that would be brought in the future. The amendment in sec. 9(1)(vi) was brought by Finance Act, 2012, whereas the latest previous year in the present case ended on 31.3.2010. The amendment has been brought clearly after two years from the end of the previous year of the last assessment year involved in these appeals. For this proposition, the learned counsel has relied on the decision of ITAT, Mumbai Bench, rendered in the case of Channel Guide India Ltd. vs. ACIT, 139 ITD 49. On similar facts, it was held in the said decision that an assessee could not be held liable to deduct tax at source relying on subsequent amendment in the Act with retrospective effect. The Tribunal observed that the assessee cannot foresee future change of law and therefore, there is an impossibility of performance on the part of the assessee as on the date of incurring such expenditure. 58. We find much force in the above contention advanced by the learned counsel appearing for the assessee. Here also, it is a subsequent amendment with retrospective effect. As held by ITAT, Mumbai Bench, in such cases, the assessee is constrained by impossibility of performan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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