TMI Blog2021 (8) TMI 996X X X X Extracts X X X X X X X X Extracts X X X X ..... yable by it. In view of the above, we are of the view that no interference in the order passed by Ld. CIT(A) on this issue is called for. - ITA No.3229/Bang/2018, ITA No.3060/Bang/2018 - - - Dated:- 23-8-2021 - Shri B. R. Baskaran, Accountant Member And Smt. Beena Pillai, Judicial Member For the Appellant : Shri Sharath Rao, A.R. For the Respondent : Shri Pradeep Kumar, D.R. ORDER PER BENCH: These cross appeals are directed against the order dated 28.9.2018 passed by Ld. CIT(A)-12, Bangalore and they relate to the assessment year 2014-15. 2. At the time of hearing, the Ld A.R did not press grounds 2.1 to 2.10 relating to assessment of amount received as reimbursement of expenses treating the same as Fee for technical services . Accordingly, those grounds are dismissed as not pressed. Ground No.1 is general in nature. Ground Nos.3.2 to 3.15 relate to the assessment of sale proceeds received on sale of software licenses as Royalty income . 3. The revenue is contesting the decision of Ld CIT(A) in granting relief in respect of interest charged u/s 234B of the Act. 4. The assessee is a Singapore based company engaged in the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd as per the provisions of DTAA, the sale receipts of software licenses cannot be taxed as royalty . For all these propositions, the Ld A.R placed his reliance on the decision rendered by Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (2021) 125 Taxmann.com 42. 7. The Ld A.R submitted that the tax authorities have placed their reliance on the decisions rendered by Hon ble Karnataka High Court in the case of Samsung Electronics Co Ltd (supra) and Synopsis International Old Ltd (supra). However, both the decisions have been reversed by the Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence P Ltd (supra). 8. The Ld A.R further submitted that the Hon ble Supreme Court has delivered its decision holding that the software licenses cannot be taxed as royalty under the provisions of DTAA unless copy rights are parted with. The Hon ble Supreme Court has examined some agreements entered by software suppliers with the Distributors/ end users on sample basis in this regard. It included the agreements entered by the assessee with its distributors (referred as re-marketeers )/ End users and also the End User s Lic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the issue whether the payments received by non-resident suppliers for selling software licenses are royalty or not in the case of Engineering Analysis Centre of Excellence (P) Ltd (supra). The Hon'ble Supreme Court examined this question considering four types of situations, which has been narrated as under:- 4. The appeals before us may be grouped into four categories: (i) The first category deals with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer. (ii) The second category of cases deals with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, non-resident suppliers or manufacturers and then reselling the same to resident Indian end-users. (iii) Third category concerns cases wherein the distributor happens to be a foreign, resident vendor, who, after purchasing software from a foreign, non-resident seller, resells the same to resident Indian distributors or end-users. (iv) The fourth category includes cases wherein computer software is affixed onto hardware and is sold as an integra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest to reproduce the computer software. In point of fact, such reproduction is expressly interdicted, and it is also expressly stated that no vestige of copyright is at all transferred, either to the distributor or to the end-user. A simple illustration to explain the aforesaid position will suffice. If an English publisher sells 2000 copies of a particular book to an Indian distributor, who then resells the same at a profit, no copyright in the aforesaid book is transferred to the Indian distributor, either by way of license or otherwise, inasmuch as the Indian distributor only makes a profit on the sale of each book. Importantly, there is no right in the Indian distributor to reproduce the aforesaid book and then sell copies of the same. On the other hand, if an English publisher were to sell the same book to an Indian publisher, this time with the right to reproduce and make copies of the aforesaid book with the permission of the author, it can be said that copyright in the book has been transferred by way of license or otherwise, and what the Indian publisher will pay for, is the right to reproduce the book, which can then be characterised as royalty for the exclusive righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gineering Analysis Centre of Excellence Pvt. Ltd. (supra), sale proceeds received by the assessee on sale of software licenses cannot be categorized as Royalty within the meaning of provisions of DTAA. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to delete the addition made as royalty income. 15. In the appeal filed by the revenue, following grounds have been urged: 1. The Hon'ble CIT(A) has erred in holding that the assessee is entitled to adopt provision of Section 115A(1)(b)( ) of the Income Tax for computing the tax payable on royalty income received in pursuance of agreements entered into after 1.6.2005 and provisions of Article 12 of the Indo-US DTAA for computing the tax payable on royalty income received in pursuance of agreements entered into after 1.6.2005. 2. The Hon'ble CIT(A) has erred in holding that the assessee can avail the benefits of Sec. 90(2), when it is not legally permissible for the assessee to have a mix of both DTAA and a portion of the Income Tax Act in order to minimize that tax 3. The Hon'ble CIT(A) has erred in holding that the assessee being non-resident is not liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to pay advance tax at all and the amount received by the nonresident is subject to 100 percent tax deduction at source. The assessee filed its return and tax liability of ₹ 10.94 crores was determined u/s 115A of the Act. The liability was fully discharged by way of TDS credit of ₹ 10.94 crores. Hence in absence of any rulings in favour of the revenue on the point, the view expressed by various High Courts necessarily has to be followed in the instant case. The issue being similar, the levy of interest u/s. 234 B by the AO is struck down. Respectfully following the decision of Hon ble ITAT Bangalore, this ground is allowed. 18. We heard the parties on this issue. The Ld. A.R. submitted that the Ld. CIT(A) has followed the decision rendered by the coordinate bench on the issue of chargeability of interest u/s 234B of the Act. In any case, if the Tribunal deletes the addition made by A.O. treating sale proceeds as royalty income, then the quantum of interest chargeable u/s 234B of the Act will come down drastically. He further submitted that the TDS credit available with the assessee will be more than the tax, if any, payable by the assessee and hence ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
