M/s. Dimple Creation Pvt. Ltd., New Delhi V. ITO (International Taxation), New Delhi

ITA 1035/DEL/2016

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5941 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: misc
• Appeal Filed On: 29-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST DATED PASSED
• Keywords: Transfer pricing; Double taxation relief; International transaction; TDS
• Section: 133(6); 195; 264; 9(1); 9(1); 9(1)

Judgement Text

1 ITA NO. 1035/DEL/2016 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI R. K. PANDA ACCOUNTANT MEM BER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 1035/DEL/2016 (A.Y 2013-14) (THROUGH VIDEO CONFER ENCING) DIMPLE CREATION PVT. LTD. C-64, OKHLA INDUSTRIAL AREA, PHASE-II NEW DELHI AAACD2155Q (APPELLANT) VS ITO (INTERNATIONAL TAXATION) WARD-1(2) NEW DELHI (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 21/12/2015 PASSED BY CIT(A)-42, NEW DELHI FOR ASSESSMENT YEAR 2013-14. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THE LD.CIT(A) HAS GROSSLY EARNED ON THE FACTS OF T HE CASE AND IN LAW UPHOLDING THE ACTION OF THE A.O IN COMING TO THE CO NCLUSION THAT ON THE REMITTANCES OF RS. 3185523/- MADE BY THE ASSESSEE T DS U/S 195 SHOULD HAVE BEEN DEDUCTED. AS ACCORDING TO HIM THE REMITT ANCES TO M/S TUKATECH INC, E. SLAUSON, AVENUE U.S.A, LOS ANGLES, CA 90040 , U.S.A FOR SUPPLY OF SOFTWARE WHICH IS HIS INCOME AS PER BOTH SECTION 9(1)(VI) AND AS PER ARTICLE 12(3) OF INDIA WITH U.S.A DTAA. 3. THE ASSESSEE IS A PRIVATE LIMITED COMPANY. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF EXPORT OF READYMAD E GARMENTS AND DURING APPELLANT BY SH. ASHOK MANIK, CA RESPONDENT BY SH. E. V. BHASKAR, SR. DR DATE OF HEARING 10.08.2021 DATE OF PRONOUNCEMENT 16.09.2021 2 ITA NO. 1035/DEL/2016 THE YEAR, THE ASSESSEE REMITTED $59650 EQUIVALENT T O RS.31,85,523/- TO M/S TUKATECH INC, E. SLAUSON, AVENUE USA, LOS ANGELES, CA 90040, U.S.A FOR THE PURPOSE OF SOFTWARE VIDE INVOICE NUMBER 208364 AND THE AMOUNT WAS REMITTED THROUGH NORMAL BANKING CHANNELS AFTER OBTAINING CER TIFICATE FROM CHARTERED ACCOUNTANTS AND NO TAX WAS DEDUCTED WHILE REMITTING THE AMOUNT ON THE PURCHASE OF SOFTWARE. TO VERIFY THE REMITTANCE AFTE R APPROVAL FROM DIT (INTERNATIONAL TRANSACTION) ON 9/10/2013, NOTICE U/ S 133(6) UNDER INCOME TAX ACT, 1961 WAS ISSUED THEREBY CALLING FOR CERTAIN IN FORMATION WHICH WAS SUPPLIED BY THE ASSESSEE VIDE LETTER DATED 22/10/20 13. THEREAFTER, A QUERY WAS RAISED AS TO WHY WITHHOLDING TAX WAS NOT DEDUCT ED WHEN THE REMITTANCE MADE IS FOR PAYMENT OF ROYALTY COVERED U/S 9(1) (VI ) OF THE INCOME TAX ACT. THE SUBMISSION OF THE ASSESSEE DATED 24/10/2013 WAS NOT ACCEPTED BY THE ASSESSING OFFICER WHO VIDE ORDER DATED 21/2/2104 P ASSED U/S 201(1)/201(1A) READ WITH SECTION 195 OF THE ACT HELD THAT THE TDS ON THE REMITTANCE SHOULD HAVE BEEN DEDUCTED AND DEMAND OF RS.7,64,542/- WAS CREATED AGAINST THE ASSESSEE WHICH INCLUDES INTEREST ON ACCOUNT OF DELA Y IN DEDUCTION. 4. BEING AGGRIEVED BY THE ORDER U/S 201(1), 201(1A) READ WITH SECTION 195 OF THE ACT. THE ASSESSEE FILED APPEAL BEFORE THE C IT(A). THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD PURCH ASED SOFTWARE PROGRAMMES FROM M/S TUKATECH INC L. A. U.S,A AS PER ASSESSEES SPECIFIC REQUIREMENTS AND THEY SUPPLIED THE SAME TO THE ASSE SSEE VIDE 4 INVOICES WHICH WAS REFERED BY THE LD. AR FROM PAGES 7TO 10 OF THE PAPER BOOK. THE ASSESSEE MADE THE REMITTANCE WITHOUT DEDUCTING ANY TAX UNDER SECTION195(1) OF THE INCOME TAX ACT, 1961, BUT THE ASSESSING OFFICER HEL D THAT THE RECEIPT OF M/S TUKATECH INC FROM SUPPLY OF SOFTWARE ARE TAXABLE IN INDIA AS ROYALTY INCOME BOTH UNDER SECTION 9(1)(VI) OF THE ACT AND UNDER AR TICLE 12(3) OF INDIA-USA DTAA AND THUS TAXED UNDER SECTION 195(1) WHICH WAS REQUIRED TO BE DEDUCTED. THUS, THE ASSESSING OFFICER CREATED DEMAND WITH INT EREST AMOUNTING TO RS. 3 ITA NO. 1035/DEL/2016 7,64,542. THE CIT (A) UPHELD THE ORDER OF ASSESSING OFFICER AND HELD THAT THROUGH PURCHASE OF SOFTWARE, THE ASSESSEE HAD ACQU IRED COPY RIGHT. THEREFORE, THE CIT(A) RELIED UPON THE DECISION OF HONBLE HIGH COURT OF KARNATAKA IN CASE OF CIT VS SAMSUNG ELECTRONICS CO. LTD. 345 ITR 494, WHEREIN IT IS HELD THAT ROYALTY IS TAXABLE BOTH UNDER THE DOMESTIC LAW AS W ELL UNDER ARTICLE 12(3) OF THE INFO-USA DTAA. THE LD. AR FURTHER SUBMITTED THAT TH E HONBLE APEX COURT RECENTLY IN MARCH 2021 IN THE CASE OF M/S ENGINEERI NG ANALYSIS CENTRE OF EXCELLENCE (P) LTD CIVIL APPEAL NOS. 8733-8734 OF H ELD THAT PAYMENTS MADE TO NON-RESIDENT COMPUTER SOFTWARE MANUFACTURER /SUPPLI ERS FOR THE USE/ RESALE OF THE SOFTWARE IS NOT TAXABLE AS ROYALTY, THEREBY OVE RRULING THE DECISION OF THE HONBLE KARNATAKA HIGH COURT GIVEN IN THE CASE OF S AMSUNG ELECTRONICS CO. LTD. ON THE BASIS OF WHICH CIT (A) HAD UPHELD THE ORDER OF ASSESSING OFFICER. THE LD. AR SUBMITTED THAT THE HONBLE APEX COURT HAD FU RTHER UPHELD THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF DIRECTOR OF INCOME TAX VS INFRASOFT LTD. 264 CTR 329 WHERE IT WAS HELD THAT PAYMENT MAD E TO FOREIGN BUYER UNDER LICENCE AGREEMENT FOR ALLOWING THE USE OF SOFTWARE IS NOT ROYALTY. 6. THE LD. DR SUBMITTED THAT THE CIT(A) HAS RIGHTLY DISMISSED THE APPEAL OF THE ASSESSEE AS THE ASSESSEE HAS NOT MADE COPIES OF THE SOFTWARE NOR RESTRAINED FROM ALLOWING USE OF LICENSE BY OTHER PA RTIES. THE LD. DR FURTHER SUBMITTED THAT THE DECISION OF THE HON'BLE SUPREME COURT IN CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PVT. LTD. VS. CIT (SUPRA) IS NOT APPLICABLE IN THE PRESENT CASE AS THE FACTUAL MATRI X OF THE ASSESSEES CASE ARE DIFFERENT AS IT WAS A RE-SALE OF SOFTWARE. 7. IN REJOINDER, THE LD. AR SUBMITTED THAT THE REVE NUE AT NO POINT OF TIME HAS DENIED THE FACT THAT THE RECEIPT OF M/S TUKATEC H INC, E. SLAUSON, AVENUE USA, LOS ANGELES, CA 90040, U.S.A FROM SUPPLY OF S OFTWARE COMING UNDER THE PURVIEW OF ARTICLE 12(3) OF THE INDIA USA DTAA AND IT IS A SUPPLY OF SOFTWARE AND NOT THAT OF RE-SALE WHICH IS EMERGED IN PARA 34 OF THE ORDER OF THE ITO, TDS PASSED U/S 201(1), 201(1A) OF THE ACT. 4 ITA NO. 1035/DEL/2016 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT PARA 4 OF THE HONBLE APEX COURT DECISION IN CASE OF ENGINEERING ANALYSIS (SUPRA) HAS CATEGOR ICALLY GIVEN THE FINDINGS THEREBY OBSERVING THAT THE COMPUTER SOFTWARE CANNOT BE HELD AS ROYALTY AS SET OUT IN PARAGRAPH 169 OF THE SAID DECISION. THE LD. DRS CONTENTION THAT THE FACTUAL MATRIX IS DIFFERENT IS NOT SUSTAINABLE AS T HE RATIO RELATED TO ROYALTY IS VERY MUCH DEALT BY THE APEX COURT THEREBY OBSERVING THAT THE SAME IS APPLICABLE TO COMPUTER SOFTWARE CASES IN DIFFERENT TYPES OF SERIES WHICH HAS BEEN ALREADY DEFINED. THE HON'BLE SUPREME COURT CLE ARLY HELD THAT THERE IS NO ELEMENT OF ROYALTY IN THESE TYPE OF TRANSACTIONS. THUS, THE APPEAL OF THE ASSESSEE IS ALLOWED. 8. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16TH DAY OF SEPTEMBER, 2021. SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED : 16/09/2021 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 5 ITA NO. 1035/DEL/2016