TMI Blog2019 (8) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... tions made towards disallowance u/s 40(a)(ia) of the Act. Short credit of TDS - HELD THAT:- Assessee submitted that the issue may be setaside to the file of the Assessing Officer to verify the facts to ascertain whether is there any credit for TDS and also to grant credit, therefore, we set-aside the issue to the file of the AO and directed the Assessing Officer to call necessary enquiries in light of evidence filed by the assessee including TDS certificate if, any and grant relief accordingly. Levy of interest u/s 234B and 234C is mandatory and consequential in nature, therefore, we direct the AO to verify the facts in light of provisions of section 234B and compute interest as applicable on the basis of total income computed for the year under consideration. We further direct the Assessing Officer to compute 234C interest on returned income. - ITA No.2176/Mum/2018 - - - Dated:- 26-7-2019 - SHRI SAKTIJIT DEY, JM And SHRI G. MANJUNATHA, AM Assessee by: Nitesh Joshi Shivani Kotadia Revenue by: Dr. Narendra Kumar ORDER PER G. MANJUNATHA (A.M): This appeal filed by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4C of the Act 6.1. On the facts and circumstances of the case, the Hon'ble CU(A) and the learned AO have erred in levying excess interest amounting to ₹ 27,624 under Section 234C of the Act, 7. Initiating penalty proceedings 7.1. On the facts and circumstances of the case, the Hon'ble CIT(A} and the learned AO have erred in initiating penalty proceedings under Section 271(1)(c) of the Act. 3. The brief facts of the case are that the assessee company is engaged in the business of rendering consultancy and other software development related services etc, filed its return of income for AY 2011-12 on 30/11/2011, declaring total income at ₹ 5,81,20,670/-. The case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Income Tax Act, 1961 (hereinafter the Act) were issued. In response to notices, the Ld. Authorized Representative of the assessee appeared from time to time and filed various details as called for. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has entered into distribution agreement with M/s Aveva Solutions Ltd. England, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note of agreement between the assessee and its parent company Aveva, England, he came to the conclusion that payment of license fee to its parent company covered under the definition of royalty as defined u/s 9(1)(vi), therefore, the assessee ought to have deduct TDS as required u/s 195 of the Act. Since, the assessee has failed to deduct tax at source, total payment made to its parent company had been disallowed u/s 40(a)(ia) of the Act. 4. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has filed elaborate written submission along with certain judicial precedents which has been reproduced at para-2.3.1 on pages 4 to 34 of the Ld. CIT(A) s order. The assessee has reiterated its submissions made before the Assessing Officer to argue that distribution of copyrighted software products in India for end users and payment for such products does not come under the definition of royalty as defined u/s 9(1)(vi) of the Act, consequently, requirement of deduction of tax at source u/s 195 of the Act, does not arise, therefore, the Assessing Officer was incorrect in disallowing payment made to Aveva, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was not liable to deduct tax at source on payment made to Aveva England and also it cannot be treated that assessee is in default within the provisions of section 201(1) and 201(1A) of the Act. The Ld. AR further submitted that even though the Assessing Officer has relied upon the decision of the Hon ble Karnataka High Court in the case of CIT vs Samsung Electronics Ltd. Ors.(supra) while deciding the issue of payment made for copyrighted products to come to the conclusion that said payments are covered u/s 9(1)(vi) of the Act, but Hon ble jurisdictional High Court of Bombay had an occasion to consider an identical issue in the case of DCIT vs M/s Reliance Jio Infocomm Ltd. in ITA No.1395 of 2016 and by following the decision of the Hon ble Delhi High Court in the case of CIT. Vs. Siemens Aktiongesellschaft. (2009) 310 ITR 320 held that mere amendment in the Act, would not override provisions of double tax avoidance agreement, unless such amendment is brought out in the agreement, as said payments covered under DTAA cannot be taxed under the provisions of Income Tax Act, 1961. 9. The Ld. DR, on the other hand, fairly accepted that this issue is covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.1.3 provide training and First Line Support to End Users and AVEVA End Users; and 2.1.4 copy the Products for the purposes only of fulfilling its obligations under this Agreement. Delivery of Products 3.1. AVEVA shall provide to the Company within 10 business days of the Commencement Date copies (in such number as AVEVA shall determine) of the latest version of each of the Products in object code only. 3.2. Upon receipt of an executed Sub-licence the Company shall deliver a copy of the relevant Product or Products to the End User. 3.3. AVEVA may provide New Versions to the Company from time to time. Any New Version made available to the Company shall form part of the relevant Product and shall be subject to this Agreement. The Company shall, promptly upon receipt of a New Version, provide a copy of the same to each End User of the relevant Product and ensure that all relevant marketing and promotional materials and all demonstrations of the relevant Product include such New Version. Some of the other useful clauses of the agreement are reproduced, as same would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing provisions: 11.4.1 in relation to Initial Fees paid or payable by an End User during each Quarter, the Royalty shall be calculated in accordance with Schedule D on the remainder of such Initial Fees less any relevant Third Party Royalties; 11.4.2 in relation to Annual Fees paid or payable by an End User during each Quarter, the Royalty shall be calculated in accordance with Schedule D on the remainder of such Annual Fees less any relevant Third Party Royalties; and 11.4.3 in relation to any other forms of Sub-licence Fees paid or payable by an End User during each Quarter, such Sub-licence Fees shall be treated as follows for the purposes of calculating the relevant Royalty: (i) a proportion of such Sub-licence Fees shall be deemed to be Initial Fees and Royalty shall be payable thereon in accordance with clause 11.4.1; and (ii) the remainder of such Sub-licence Fees shall be deemed to be Annual Fees and Royalty shall be payable thereon in accordance with clause 11.4.2, and the proportions in which such Sub-licence Fees shall be deemed to be Initial Fees and Annual Fees shall be as set o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the payments made by it to ASL for the distribution of software products would qualify as royalty in the hands of ASL, as per the Expl.2 to section 9(1)(vi) of the Act as well as the provisions of Article-13 of the India UK tax treaty. On the other hand, the assessee claimed that payment made by it could not be treated as royalty. 5.1.1.Before deciding the issue of Roylaty, we want to hold that ASL did not have any PE in India in terms of Article 5 of the treaty.Article-13 of the treaty defines the term royalty as under :- (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) .. From the above it is clear that consideration paid for the use of/ the right to use the copy right of any scientific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films. The Finance Act 2012 inserted Explanation 4 to the Section 9(1)(vi) of the Act with retrospective effect from 1/06/1976. The same is reproduced below: 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 license) irrespective of the medium through which such right is transferred. From the amendment it is clear that it covers the transfer of all or any right for use/right to use of computer software including grant of license. The amendment has been made to the section i.e., to domestic law. But, there is no corresponding change in Tax Treaty. It is also to be remembered that the assessee had already made the payment before the amendment was introduced. At the point of making payment to ASL, the assessee was not lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of the opinion that payment by the assessee to ASL for procuring and distributing copyrighted software on principal to principal basis could not be treated as payment towards royalty. ASL was not having a PE in India, therefore, the assessee was not liable to deduct tax at source as per the provision of section 195 of the Act, hence, for its failure it cannot be treated as A-I-D u/s. 201.Reversing the order of the FAA we decide effective First effective Ground of appeal(Gs.OA-1to3)in favorz of the assessee. 11. We, further noted that the Tribunal had also considered the issue of non-deduction of TDS at source on payment made to its parent company Aveva Solutions Ltd., England, in light of provisions of section 201(1) and 201(1A) of the Act, and held that the assessee was not liable to deduct tax at source and also it cannot be treated as assessee in default for the impugned year in respect of payment made for purchase of copyrighted software. Therefore, considering the facts and circumstances of the case and also consistent with view taken by the Co-ordinate Bench in assessee s owns case, we are of the considered view that payment made by the assessee to its par ..... X X X X Extracts X X X X X X X X Extracts X X X X
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