TMI Blog2019 (4) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be made. It show that the assessee had made minor investments out of surplus funds, while in the instant case the assessee has not shown that it had surplus funds and further investments made by it could be regarded as minor in nature. Hence, in our view, the assessee cannot take support of the above said decision. The assessee has made investment in Mutual Funds units which does not involve use of much of administrative capabilities. Provisions of Rule 8D(2)(iii) should not be applied to the facts of the present case. Since the assessee has received exempt income, some disallowance is called for to meet the requirements of sec.14A of the Act. Accordingly, we direct the A.O. to make lump sum disallowance of ₹ 25,000/- towards administrative expenses and, in our view, the same would meet the requirements of sec.14A of the Act. TDS u/s 194J - Disallowance of purchase cost of software u/s 40(a)(ia) - TDS liability fastened upon the assessee retrospectively - whether payment made towards purchase of software is in the nature of Royalty attracting TDS provisions? - HELD THAT:- The assessee cannot be fastened with the liability to deduct tax at source retrospectively an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying Rule 8D of the Income-tax Rules at ₹ 26.35 lakhs and disallowed the same. In the appellate proceedings, the learned CIT(A) confirmed the same. 4. We heard parties on this issue and perused the record. The learned AR submitted that the assessee had sold its vacant piece of land to M/s.ITC Limited and received a sum of ₹ 21.40 crores as sale proceeds. The assessee has invested a sum of ₹ 14 crore in the schemes of Mutual Fund, which has generated dividend income of ₹ 14.79 lakh. The learned AR further submitted that the assessee has not used any loan funds for making the impugned investment. Further the own funds available with the assessee is also in excess of value of investment. Accordingly, by placing reliance on the decision rendered by the Hon ble High Court of Karnataka in the case of CIT v. Karnataka State Industrial Infrastructure Development Corporation Limited [(2016) 65 taxmann.com 295 (Kar.)] , the learned AR contended that no disallowance could be made out of interest expenditure. The learned AR also placed reliance on the decision rendered by the Hon ble Supreme Court in the case of Pr.CIT v. Sintex Industries Ltd. [(2018) 93 taxm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents made by it could be regarded as minor in nature. Hence, in our view, the assessee cannot take support of the above said decision. 8. However, we noticed that the assessee has made investment in Mutual Funds units which does not involve use of much of administrative capabilities. Accordingly, we are of the view that the provisions of Rule 8D(2)(iii) should not be applied to the facts of the present case. Since the assessee has received exempt income, some disallowance is called for to meet the requirements of sec.14A of the Act. Accordingly, we direct the A.O. to make lump sum disallowance of ₹ 25,000/- towards administrative expenses and, in our view, the same would meet the requirements of sec.14A of the Act. 9. The next issue contested by the assessee relates to disallowance of expenditure claimed towards software purchase. The assessee had purchased a software named AutoCAD version 2011 at a cost of ₹ 1,10,775 and claimed the same as revenue expenditure. The A.O., however, held the same to be capital in nature. The A.O. also noticed that the assessee has not deducted tax at source u/s 194J of the Act. Accordingly, he proceeded to disallow the depreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order passed by the co-ordinate bench:- 4. Ground Nos.2 to 5 are regarding disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 (in short 'the Act') of payment towards software licenses treated by the Assessing Officer as royalty for want of TDS. The assessee has also raised additional grounds which are as under : Corporate tax matters 21. Without prejudice to the grounds 2 to 4, the Learned CIT(A) has failed to appreciate that during the Financial Year 2008-09 relevant to the Assessment Year 2009-10, the Appellant was not liable to withhold tax on the payments made as there was no provision under the Act mandating the deduction of tax at source on the payments made on purchase of computer software and there were many favorable judicial precedence including the jurisdictional tribunal rulings. 22. Without prejudice to the grounds 2 to 4, the learned CIT(A) erred in not appreciating the fact that explanation 5 to Section 9(1)(vi) was inserted vide Finance Act, 2012 with effect from 1 June 1976 and was hit by the doctrine of impossibility of performance . The additional grounds raised by the assessee are not new issues but an additiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of CIT Vs. Samsung Electronics Co. Ltd. (supra) was passed on 15.10.2011 much later than the time of transaction carried out by the assessee. It is also not in dispute that this issue of considering the payment for purchase of software as royalty is a highly debatable issue and various High Courts have taken divergent views on this issue. The co-ordinate Bench of this Tribunal in the case of ACIT Vs. Aurigene Discovery Technologies (P) Ltd. (supra) has considered an identical issue in paras 3 to 5 as under : 03. We heard the rival submissions and gone through the relevant orders. The assessee resubmitted the plea taken before the lower authorities and placed on the ruling of the Hon'ble Bangalore ITAT in Sonata Information Technology Ltd v. ACIT (103 ITD 324) which had held that payments for software licenses do not constitute royalty under the provisions of the Act and hence disallowance under section40(a) (ia) of the Act would not be applicable. The change in the legal position on taxation of computer software was on account of the ruling of the Karnataka High Court in CIT v. Samsung Electronics Co. Ltd. (320 ITR 209), which was pronounced on 15.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Kerala Vision Ltd and Agra Tribunal in the case of Virola International, wherein it was held that The law amended was undoubtedly retrospective in nature but so far as tax withholding liability is concerned, it depends on the law as it existed at the point of time when payments, from which taxes ought to have been withheld, were made. The tax-deductor cannot be expected to have clairvoyance of knowing how the law will change in future. Further, software payment was included in definition of royalty only vide Explanation to section 9(1)(vi)inserted retrospectively vide Finance Act, 2012 and when the purchase was made, the appellant did not have the benefit of clarification brought by the retrospective amendment. It is impossible to fasten liability for deducting tax at source retrospectively as tax is to be deducted at source at the time when the payment is credited or made. This view has been upheld by the Bangalore Tribunal in the case of DCIT vs M/s WS Atkins India Pvt Ltd (ITA No 14671Bang12014 and the Mumbai Tribunal in the case of Channel Guide India Ltd. vs ACIT ([2012] 25 taxmann.com 25). 5.2 The ITAT 'C' Bench in the case M/s WS Atk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting tax at source at the time when the payment is credited or made. When purchase of software was made the assessee did not have the benefit of the clarification brought about by the retrospective amendment. The contention of the appellant is correct that the software payment disallowed by the AO did not warrant withholding of the tax u/s 40(a)(ia) and 40(a)(ia) (by an order of corrigendum dt 20.11.2015) of the Act. Therefore idsallowance made by the AO on account of software payment want of withholding of tax is hereby deldted. 05. The CIT(A) followed the decision of this Tribunal in M/s WS Atkins India Pvt. Ltd, supra, which referred the decisions of Hyderabad Bench of the Tribunal in Infotech Enterprises Ltd in ITA 115/HYD/2011 wherein it has been held that section 40(a)(ia) would not apply to disallow payments when TDS was not done and subsequently become taxable on account of a restrospective legislation. It has also referred to the decisions of the Delhi Mumbai Tribunal in SMS Demag Pvt Ltd , 132 ITJ 498 Sonic Biochem Extractions Pvt. Ltd. 23 ITR (Trib) 447, respectively. We uphold the decision of the CIT(A) and dismiss the grounds raised by the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We heard the parties on this issue and perused the record. A perusal of provisions of Rule 37BA read with sec.199 of the Act would show that, as per Rule 37BA(3)(i), the credit for tax deducted at source and paid to the Central Government shall be given for the assessment year for which such income is assessable. Hence, the AO was justified in restricting the TDS credit to the extent that related to the income offered by the assessee during the year under consideration. 18. However, the provisions of Rule 37BA(3)(ii) also states as under:- Where tax has been deducted at source and paid to the Central Government and the income is assessable over a number of years, credit for tax deducted at source shall be allowed across those years in the same proportion in which the income is assessable to tax. This provision mandates the AO to allow the credit for TDS in the same proportion in which the income is assessable to tax. Before us, the Ld A.R prayed that the benefit of above provision may be given to the assessee. When questioned as to whether the assessee has moved any petition before the AO for allowing TDS credit in other years, the Ld A.R replied in negative. 19. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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