TMI Blog2016 (8) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case the learned Income Officer has erred in holding the Assessee Company liable for deduction of Tax at source for Rs.I0,70,755/- and raised demand for ₹ 12,95,614/- (including interest ₹ 2,24,859) on payment of ₹ 53,53,776/- for purchase of shrink wrapped readymade software from salesforce.com, Singapore as Royalty Income chargeable to tax U/S 195 which is totally bad in law on the following reasons: i) That treating the payment for shrink wrapped readymade software (which is available in the market for lacks of customers in the world as goods) purchased from salesforce.com, Singapore on furnishing Form No. 15 CA or 15 CB as Royalty income taxable in India u/s 9(1 )(vi) of the Act is totally bad in law in view of the following judgments: (a) Tata Consultancy Services Vs. State Andhra Pradesh 271 ITR 401 (05.11.2004) (S.C.) (b) Ericsson A.B. and others ( Delhi High Court) (c) Infrasoft Ltd. (ITA 1034/2009) (Delhi High Court) (d) Adit (International Taxation) Hyderabad Vs Batronics India Ltd. ITAT Hyderabad 'A' Bench ITA n 9181 Hyd. 2010 announced on 27.01.2014 (e) Larsen Tourbo Ltd.- IT AT 'B&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of TDS. 2.2 Aggrieved by the order of the Assessing Officer, assessee preferred appeal before Ld. CIT(A). 2.3 It was submitted before Ld. CIT(A) that the amount remitted complied with the requirement under Rule 37BB of Form 15CA and certificate in Form 15CB was submitted therein. The assessee contended that no tax was deductible in view of the treaty with Singapore, as the supplier of software does not have PE in India as defined in DTAA between India and Singapore (Treaty). He further observed that the assessee had purchased software called shrink-wrapped readymade software package used for carrying on business activities of the assessee. The assessee had submitted that it was standard software which was available in the open market for the customers in the world and it was not a package specifically designed for the assessee. Thus, the assessee had submitted that the payment is covered under Article 12 of the Treaty which clearly exempts the assessee form the liability to deduct tax at source (TDS). Ld. CIT(A) upheld the addition made by the Assessing Officer by relying upon the judgement dated 24.09.2009 of Hon'ble Karnataka High Court in the case of CIT Vs Samsun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not so assessable, there is no question of TAS being deducted. [See : Vijay Ship Breaking Corporation and Others Vs. CIT 314 ITR 309] 9. One more aspect needs to be highlighted. Section 195 falls in Chapter XVII which deals with collection and 10 recovery. Chapter XVII-B deals with deduction at source by the payer. On analysis of various provisions of Chapter XVII one finds use of different expressions, however, the expression sum chargeable under the provisions of the Act is used only in Section 195. For example, Section 194C casts an obligation to deduct TAS in respect of any sum paid to any resident . Similarly, Sections 194EE and 194F inter alia provide for deduction of tax in respect of any amount referred to in the specified provisions. In none of the provisions we find the expression sum chargeable under the provisions of the Act , which as stated above, is an expression used only in Section 195(1). Therefore, this Court is required to give meaning and effect to the said expression. It follows, therefore, that the obligation to deduct TAS arises only when there is a sum chargeable under the Act. Section 195(2) is not merely a provision to provide information t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act constitutes one single integral inseparable Code. Hence, the provisions relating to TDS 13 applies only to those sums which are chargeable to tax under the I.T. Act. If the contention of the Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department would be entitled to appropriate the moneys deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the I.T. Act by which a payer can obtain refund. Section 237 read with Section 199 implies that only the recipient of the sum, i.e., the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments. The payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words chargeable under the provisions of the Act to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision ensures effective compliance of Section 195 of the I.T. Act relating to tax deduction at source in respect of payments outside India in respect of royalties, fees or other sums chargeable under the I.T. Act. In a given case where the payer is an assessee he will definitely claim deduction under the I.T. Act for such remittance and on inquiry if the AO finds that the sums remitted outside India comes within the definition of royalty or fees for technical service or other sums chargeable under the I.T. Act then it would be open to the AO to disallow such claim for deduction. Similarly, vide Finance Act, 2008, w.e.f. 1.4.2008 sub-Section (6) has been inserted in Section 195 which requires the payer to furnish information relating to payment of any sum in such form and manner as may be prescribed by the Board. This provision is brought into force only from 1.4.2008. It will not apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage. Applicability of the judgment in the case of Transmission Corporation (supra) In Transmission Corporation case (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt which is exigible to tax in India. In our view, the above observations of this Court in Transmission Corporation case (supra) which is put in italics has been completely, with respect, misunderstood by the Karnataka High Court to mean that it is not open for the payer to contend that if the amount paid by him to the non-resident is not at all chargeable to tax in India , then no TAS is required to be deducted from such payment. This interpretation of the High Court completely loses sight of the plain words of Section 195(1) which in clear terms lays down that tax at source is deductible only from sums chargeable under the provisions of the I.T. Act, i.e., chargeable under Sections 4, 5 and 9 of the I.T. Act. 5. On perusal of the facts before us, it is observed that the assessee has made payment on 09.01.2012 for purchase of software. Admittedly, the assessee had purchased the software for the purpose of its business and the money paid to salesforce.com Singapore PTE Ltd. was the purchase price. Further, it is observed that salesforce.com Singapore PTE Ltd. and assessee are separate independent entities and there has been no evidence brought on record by the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X
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