GST Helpdesk   Subscription   Demo   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (6) TMI 889 - ITAT CHENNAI

2016 (6) TMI 889 - ITAT CHENNAI - TMI - TDS u/s 195 - applicability of provisions of Sec. 201(1) and 201(1A) - assessee purchased software from two nonresidents companies being in Singapore and Australia and made payments on acquisition of software - AA disallowed the said amount u/s.40(a)(i) of the Act for non deduction of TDS as the transaction is in the nature of Royalty payments - Indo-US DTAA - Held that:- Purchase of software is not in the nature of Royalty and no disallowance u/s.40(a)(i) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hri Chandra Poojari, Accountant Member And Shri G. Pavan Kumar, Judicial Member 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, 19 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 natural justice. 2. The learned CIT(A) erred in law and on facts by not considering the favorable decision of the Honorable Chennai Tribunal in the assessee's own case for the same assessment year wherein the Hon .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e provisions of the Act and under the applicable tax treaties. Further, the Hon'ble ITAT in the assessee's own case held that the payments cannot be treated as Royalty even under the provisions of the Act. 4. The CIT(A) and the AO failed to appreciate the fact the provisions of the section 201(1) of the Act itself would not be applicable if the there is no obligation to withhold tax under section 195 of the Act. 5. The learned CIT(A) and AO have erred in re-classifying the payments made .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er section 201(lA) of the Act. 8. Without prejudice to the above, the learned AO has erred in taking into consideration an amount of ₹ 16,91,22,981 for the purpose of proceedings under section 201 of the Act without appreciating the fact that taxes have already been deducted on ₹ 9,33,67,964 being payment towards services. 9. Without prejudice to the above, the learned AO ought to have appreciated the fact that interest under section 201(IA) is to be computed only from the date on wh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 asses .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ear 2014. The present proceedings arise out of order u/s.201(1) and 201(1A) of the Act. The ld. Assessing Officer found that the assessee company purchased software license from M/s. ACI Worldwide Singapore (Pte) Limited, Singapore and M/s.Integrated Research Pvt (Australia) and distributes to various banks in India and received foreign remittances of ₹ 35.78 crores during the financial years 2002-03 to 2009-2010. On examination of the form 15CA, it was found that the assessee company has .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y and is pending before the appellant forums. The ld. Assessing Officer called for furnishing of documents, agreements, bills, invoice of foreign remittance in the financial year 2006-07 and 2007-08. In compliance, the assessee company filed explanations and the ld. Assessing Officer based on the documents collected during survey operations, issued show cause notice u/s.201(1)/201(1A) of the Act. In compliance, the assessee company objected to the proceedings initiated u/s.201(1) /201(1A) of the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lt of any person who is liable to deduct tax but fails to deduct tax on payments which are chargeable to tax under Act and disallowance u/s.40(a)(i) of the Act cannot be a reason for initiating proceedings u/s.201 of the Act. 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sessee 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 software licence from M/s. ACI Worldwide Asia Pte. Ltd Singapore ₹ 14,50,3 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and referred to the DTAA between India and Australia in respect of Royalty under Article 12 and also DTAA between India and Singapore for royalty and fees from technical services and as per the wordings of DTTA of both the countries, even consideration received for simple use of copy right without acquiring a right to exploit is termed as Royalty. The DTAAs does not say use or right to use. The ld. Assessing Officer verified to the clauses of agreements entered between assessee company and Non .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

565, 566 & 727/2013-14, dated 30.08.2013 was dismissed by confirming the order of ld. Assessing Officer. The ld. Assessing Officer made a distinction that the provisions of Sec. 40(a)(i) (a) and Sec. 201(1)/ 201(1A) of the Act proceedings are distinct and also relied on the submissions of the assessee company in quantum appeal before Commissioner of Income Tax (Appeals)-II and observation of the ld. Commissioner of Income Tax (Appeals) at page 17 to 21 of the order and judicial decisions. T .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. 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 l .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e appellate authority, but the ld. Commissioner of Income Tax (Appeals) deferred on the decision and observe that the provisions of Sec. 40(a)(i) and Sec. 201(1) and 201(1A) of the Act are independent. The ld. Commissioner of Income Tax (Appeals) observed that the payments of Royalty is taxable in the hands of recipient and referred to the provisions of Sec. 9 and Explanations and the assessee is required to deduct TDS u/s.195 of the Act while making foreign remittance for software license which .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

m appeal and also submissions in the appellate proceedings u/s. 201(1) and 201(1A)of the Act. The ld. Commissioner of Income Tax (Appeals) has not followed the provisions of Sec.9 of the Act and DTAA agreements and ITAT order in assessee s own case in ITA Nos.2190 to 2196 & 2199/Mds/2013, were the Co-ordinate Bench of the Tribunal has considered that purchase of software is not in the nature of Royalty and therefore disallowance u/s.40(a)(i) of the Act are not applicable. Since the charging .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ability of provisions of Sec. 201(1) and 201(1A) of the Act. The assessee company has purchased software from two nonresidents companies being in Singapore and Australia and made payments on acquisition of software. The Assessing authority in original assessment disallowed the said amount u/s.40(a)(i) of the Act for non deduction of TDS as the transaction is in the nature of Royalty payments. On appeal, the Co-ordinate Bench of the Tribunal has held that procuring of software product and conside .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hether, 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

are to be sold in India to the customers of the assessee company mainly, Banks and Financial Institutions. The software transmitted to the assessee company is installed on a server with identifying location and machine No. of the customer. As per the terms of agreements, the assessee company do not have any exclusive right to distribute the software products. It obtains orders on its own account for customers in India and thereafter places orders with non-resident companies. When the products a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

particulars. The software products are delivered to the assessee on a CD/any other media specified in the invoices. It is seen that the assessee does not have ownership in the copyright supplied by the non-resident companies. It is also to be seen that the assessee does not have any right to make copies of software or use the software anywhere else. The software is carefully marked for that particular customer to whom the assessee has sold the software product. From the above features, it is cle .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

system of customers. The software 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 ci .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 assessee from ACI Singapore and IRPL Australia was only copyrighted articles and not copyright, proper. Within the meaning of Indian Copyright Act, 1957, a copyright is an exclusive right to reproduce software including storage of the same in electronic machines with exclusive right t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ar relevant to the assessment years under appeal to non-resident companies are only purchase consideration for procuring copyrighted software products. They were not in the nature of Royalty . 52. The learned Commissioner, in the course of his arguments, has stated that all the above judgments relied on by the assessee were rendered before the retrospective amendment brought in sec.9(1)(vi) by Finance Act, 2012. Before the amendment brought in by Finance Act, 2012, Royalty has been defined as co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ration for the 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, constitutes Royalty. 53. On a comparative reading of the expression Royalty , before and after the amendment made by the Finance Act, 2012, we are not able to find any paradigm shift in the meaning of term Royalty , from the old one to new one. In both the expressions, Royalty means basically the consideratio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

oyalty in the hands of vendees. The judgment of the Hon ble Delhi high court in the case of infrasoft Ltd. itself supports the view that no change has been brought in sec. 9(1)(vi) by Finance Act, 2012, in the concept of Royalty. 55. The learned Commissioner relied on a recent decision of ITAT, Mumbai Bench, rendered in the case of Reliance Infocom Ltd., 98 DTR (Mumbai)(Trib) 66, wherein the Tribunal has held that the payments made to suppliers for the software can be said to be payments for the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

g for the assessee and the Tribunal decision relied on by the learned Commissioner. We, therefore, find that the decision of ITAT, Mumbai Bench, in the case of Reliance Infocom Ltd. stands on a different footing and does not apply to the present case. 56. As we have already reached a conclusion that the assessee has procured copyrighted articles from the nonresident companies, ACI Singapore and IRPL Australia and payments made by the assessee company to those companies were not in the nature of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ive amendment could be made, as the assesse was transacting business in the relevant previous year period. In the light of the law, as it stood at that time, it was not possible 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 asse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ility 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 performance. The dictum impossibiliun nulla obligation est, states that there is no obligation to do impossible things. It is to be seen .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version