Joint Commissioner of Income-tax, V. Sungard Solution India Pvt. Ltd., Pune

ITA 1080/PUN/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5473 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-02-2019
• Assessment Year: 2007-2008
• Appeal Filed On: 06-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV GHEI
• Assessee Lawyers: SAUBHAGYA AGARWAL
• Keywords: Double taxation relief; Retrospective amendment
• Section: 273B; 201(1); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 1440 /P U N/20 1 4 / ASSESSMENT YEAR : 20 07 - 08 FIS SOLUTIONS (INDIA) PVT. LTD., UPPER GROUND FLOOR TO 7 TH FLOOR WESTEND CENTRE ONE SURVEY NO.169/1, SECTOR II, PUNE 41100 7 . / APPELLANT PAN: AA CCA7484M VS. THE DY. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) - I , PUNE . / RESPONDENT . / ITA NO. 1080 /P U N/20 1 5 / ASSESSMENT YEAR : 20 07 - 08 THE JT . COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), PUNE . / APPELLANT VS. FIS SOLUTIONS (INDIA) PVT. LTD., UPPER GROUND FLOOR TO 7 TH FLOOR WESTEND CENTRE ONE SURVEY NO.169/1, SECTOR II, PUNE 411007 . / RESPONDENT PAN: AACCA7484M ASSESSEE BY : SHRI SAUBHAGYA AGARWAL REVENUE BY : SHRI SANJEEV GHEI / DATE OF HEARING : 25 . 04 .201 9 / DATE OF PRONOUNCEMENT: 1 7 . 0 5 .201 9 ITA NO. 1440 /P U N/20 1 4 ITA NO. 1080 /PUN/201 5 2 / ORDER PER SUSHMA CHOWLA, J M : TH E APPEAL S FILED BY ASSESSEE AND REVENUE ARE AGAINST SEPARATE ORDER S OF CIT (A) - IT/TP , PUNE , DATED 0 8 . 05 .20 1 4 AND CIT(A) - 13, PUNE, DATED 20.05.2015 RELATING TO SAME ASSESSMENT YEAR 20 07 - 08 AGAINST RESPECTIVE ORDER S PASSED UNDER SECTION 201(1) & 201(1A) AND 271C OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2. BOTH THE APPEALS FILED BY ASSES SEE AND REVENUE RELATING TO SAME ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE IN ITA NO. 1440 /PUN/201 4 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ON TH E FACTS AND CIR C U MSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - IT / TP [ 'THE LEARNED CIT(A)'] ERRED IN TREATING THE PAYMENTS FOR SOFTWARE LICENSES FEES (AS 'ROYALTY' AS PER SECTION 9( 1 )(VI) OF THE INCOME - TAX ACT, 1961 ('THE ACT') A . ON T HE FAC T S AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT COMPUTER SOFTWARE CAN BE CONSIDERED AS LITERARY WORK UNDER THE COPYRIGHT ACT, 1957. B . ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) H AS ERRED IN HOLDING THAT COMPUTER SOFTWARE CAN ALSO BE TERMED AS SCIENTIFIC WORK. C . ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE LICENSED SOFTWARE QUALIFIES AS SECRET FORMULA OR PROCESS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED TO APPRECIATE THAT THE SOFTWARE PAYMENT MADE BY THE APPELLANT DOES NOT FALL WITHIN THE MEANING OF THE TERM 'ROYALTY' AS PER RESPECTIVE DOUBLE TAXATION AVOIDANCE AGREEMENTS ('DTAA'). ITA NO. 1440 /P U N/20 1 4 ITA NO. 1080 /PUN/201 5 3 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN NOT PROVIDING RELIEF UNDER THE BENEFICIAL PROVISIONS OF INDIA - USA AND INDIA - SINGAPORE DTAA UNDER SECTION 90(2) OF THE ACT FOR DETERMINING THE SCOPE OF INCOME CHAR GEABLE UNDER THE HEAD 'ROYALTIES' AND TAX RATE AT WHICH INCOME IS TAXABLE IN INDIA. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) FAILED TO APPRECIATE THE DIFFERENCE BETWEEN RIGHT TO USE A COPYRIGHT IN SOFTWARE AND SALE OF C OPYRIGHTED ARTICLE (VIZ. SOFTWARE) AND ERRED IN CONCLUDING THAT PAYMENT MADE FOR PURCHASE OF SOFTWARE FOR TRADING PURPOSES IS 'RIGHT TO USE' AND HENCE TAXABLE AS 'ROYALTY'. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS E RRED IN TREATING THE RETROSPECTIVE AMENDMENT TO SECTION 9( 1 )(VI) VIDE FINANCE ACT 2012 AS CLARIFICATORY IN NATURE AND THAT THE AMENDMENT HAS NOT CREATED A NEW CHARGE OF WITHHOLDING TAX WITH A RETROSPECTIVE EFFECT. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THE APPELLANT AS 'ASSESSEE IN DEFAULT' UNDER SECTION 201(1) OF THE ACT FOR NOT DEDUCTING THE TAX UNDER SECTION 195 OF THE ACT ON THE PAYMENTS MADE FOR PURCHASE OF SOFTWARE AND DETERMINING THE TOTAL T AX LIABILITY OF RS.2,264,484 (INCLUDING INTEREST OF RS.974,224) UNDER SECTION 201(1A) OF THE ACT. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUNDS OF APPEAL ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. 4. THE ASSESSEE HAS ALSO FILED ADDITIO NAL GROUNDS OF APPEAL, WHICH READ AS UNDER: - 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED DEPUTY DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) - I, PUNE [THE LEARNED AO'] ERRED IN INITIATING PROCEEDINGS UNDER SECTION 201(1) READ WITH SECTION 201(1A) OF THE ACT BEYOND THE REASONABLE PERIOD OF FOUR YEARS. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN APPLYING THE TAX RATE OF 15% UNDER INDIA USA TAX TREATY INSTEAD OF THE APPLICABLE BENEFICIAL RA TE OF 10% (PLUS APPLICABLE SURCHARGE AND CESS) UNDER THE ACT WHILE COMPUTING THE TAX DEMAND PURSUANT TO THE ORDER PASSED UNDER SECTION 201(1) READ WITH SECTION 201(1A). THE APPELLANT SUBMITS THAT EACH OF THE ABOVE ADDITIONAL GROUNDS OF APPEAL ARE INDEPEN DENT OF AND WITHOUT PREJUDICE TO ONE ANOTHER. 5 . THE REVENUE IN ITA NO. 1080 /PUN/201 5 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - ITA NO. 1440 /P U N/20 1 4 ITA NO. 1080 /PUN/201 5 4 1. ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, THE LD. CIT(A) ERRED IN HOLDING THAT NO PENALTY U/S 271C IS LEVIABLE. 2. ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, THE LD. CIT(A) ERRED IN HOLDING THAT NO PENALTY U/S 271C IS LEVIABLE DESPITE HOLDING THAT TAX AND INTEREST U/S 201(1) AND 201(1A) WAS CORRECTLY LEVIED BY THE AO. 3. ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, THE LD. CIT(A) ERRED IN APPLYING THE PROVISIONS OF SECTION 273B DESPITE THE FACT THAT THE RECOURSE WAS AVAILABLE TO THE ASSESSEE U/S 248 OF THE ACT. 6. FIRST, WE TAKE UP THE APPEAL IN ITA NO.1440/PUN/2014. THE ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST O RDERS OF AUTHORITIES BELOW IN TREATING THE PAYMENT FOR SOFTWARE LICENSE FEES AS ROYALTY AS PER SECTION 9(1)(VI) OF THE ACT AND ALSO AS PER DTAA AGREEMENT. 7. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT ADDITIONAL GROUNDS OF APPEAL ARE NOT PRESSED AND HENCE, THE SAME ARE DISMISSED AS NOT PRESSED. 8. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE HAD ENTERED INTO AN END - USER AGREEMENT WITH THE SUPPLIERS AND THE ASSESSING OFFICER WAS OF THE VIEW THAT IT IS CASE OF PAYMENT OF ROYALTY SINCE THE USE OF SOFTWARE WAS IN SECRET PROCESS. THE ASSESSING OFFICER HELD THE CASE OF ASSESSEE TO BE COVERED UNDER INCOME TAX ACT AND ALSO UNDER DTAA, IN TURN, RELYING ON THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA IN CIT VS. M/S. SAMSUNG ELECTRONICS CO. LTD. IN ITA NO.2808 OF 2005 , DATED 15.10.2011 . HE TOOK US THROUGH VARIOUS PARAS OF ASSESSMENT ORDER. HE FURTHER POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS SQUARELY CO VERED BY THE ORDER OF TRIBUNAL IN JOHN DEERE INDIA PVT. LTD. VS. DDIT (IT) (2019) 70 ITR (TRIB) 73 (PUNE) . ITA NO. 1440 /P U N/20 1 4 ITA NO. 1080 /PUN/201 5 5 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 10. WE HAVE HEARD THE RIVAL CONTENTIO NS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS AGAINST NON - DEDUCTION OF TAX AT SOURCE OUT OF PAYMENT S MADE FOR SOFTWARE PURCHASED BY ASSESSEE. THE CASE OF ASSESSEE IS THAT IT IS ACROSS COUNTER PURCHASE, WHEREIN THE ASSESSEE DO ES NOT ACQUIRE ANY COPYRIGHT BUT IT PURCHASED COPYRIGHTED ARTICLE FOR ITS APPLICATION PURPOSES. THE PLEA OF ASSESSEE THAT IT HAD ONLY ACQUIRED LICENSE FOR USE OF SHRINK WRAPPED SOFTWARE OR OFF - SHELF SOFTWARE, WAS NOT ACCEPTED BY THE ASSESSING OFFICER. TH E ASSESSING OFFICER RELIED ON VARIOUS DECISIONS OF AARS AND THE HONBLE HIGH COURT OF KARNATAKA IN CIT VS. M/S. SAMSUNG ELECTRONICS CO. LTD. (SUPRA) AND CIT VS. SYNOPSIS INTERNATIONAL OLD LTD. IN ITA NOS.11 TO 15/2008 & 17/2008, DATED 03.08.2010 AND HELD T HAT PAYMENT MADE FOR SUPPLY OF SOFTWARE WAS TAXABLE AS ROYALTY BOTH UNDER THE INCOME TAX ACT AND DTAA. THE CIT(A) IN TURN, RELIED ON THE RATIO LAID DOWN BY PUNE BENCH OF TRIBUNAL IN THE CASE OF CUMMINS INC FOR ASSESSMENT YEARS 2004 - 05 AND 2006 - 07 IN ITA N OS.73 & 74/PN/2011, ORDER DATED 08.08.2013 AND THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN DDIT VS. RELIANCE INFOCOM / LUSCENT TECHNOLOGIES (TS - 433 - ITAT - 2013(MUM) AND HELD THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX OUT OF SUCH PAYMENTS MADE FOR ACQUIRING SOFTWARE. 11. WE FIND THAT THE SAID ISSUE HAS BEEN ELABORATELY CONSIDERED BY US IN THE RECENT DECISION OF PUNE BENCH OF TRIBUNAL IN JOHN DEERE INDIA PVT. LTD. VS. DDIT (IT) (SUPRA) , WHEREIN IT WAS HELD AS UNDER: - ITA NO. 1440 /P U N/20 1 4 ITA NO. 1080 /PUN/201 5 6 90. IN CONCLUSION, WE HOLD THAT PURCHASE OF SOFTWARE BY THE ASSESSEE BEING COPYRIGHTED ARTICLE IS NOT COVERED BY THE TERM ROYALTY UNDER SECTION 9(1)(VI) OF THE ACT. WHERE THE ASSESSEE DID NOT ACQUIRE ANY COPYRIGHT IN THE SOFTWARE, IS NOT COVERED UNDER EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT. WE FURTHER HOLD THAT AMENDED DEFINITION OF ROYALTY UNDER THE DOMESTIC LAW CANNOT BE EXTENDED TO THE DEFINITION OF ROYALTY UNDER DTAA, WHERE THE TERM ROYALTY ORIGINALLY DEFINED HAS NOT BEEN AMENDED. AS PER DEFINITION OF ROYALTY UNDER DTAA, IT IS PAYMENT RECEIVED IN CONSIDERATION FOR USE OR RIGHT TO USE ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK, ETC.; THUS, PURCHASE OF COPYRIGHTED ARTICLE DOES NOT FALL IN REALM OF ROYALTY. WE ALSO HOLD THAT SINCE THE PROVISIONS OF DTAA OVERRIDES THE PROVISIONS OF INCOME TAX ACT AND ARE MORE BENEFICIAL AND THE DEFINITION OF ROYALTY HAVING NOT UNDERGONE ANY AMENDMENT IN DTAA, THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX FOR PAYMENTS MADE FOR PURCHASE OF SOFTWARE. IN SUCH SCENARIO, THE ASSESSEE CANN OT BE HELD TO BE IN DEFAULT AND THE DEMAND CREATED UNDER SECTION 201(1) AND INTEREST CHARGED UNDER SECTION 201(1A) OF THE ACT IS THUS, CANCELLED. 12. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THERE IS NO MERIT IN THE ORDERS OF AUTHORITIES BELO W WHERE THE ASSESSEE HAS PURCHASED SHRINK WRAP SOFTWARE OR OFF - SHELF SOFTWARE, WHICH IS COPYRIGHTED ARTICLE AND NOT PURCHASED ANY COPYRIGHT AND HENCE THE SAME IS NOT LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 197 OF THE ACT. HENCE, THE ASSESSEE CANNOT BE HELD TO BE LIABLE FOR NON DEDUCTION OF TAX UNDER SECTION 201(1) OF THE ACT AND INTEREST CHARGED UNDER SECTION 201(1A) OF THE ACT. WE THUS, DIRECT THE ASSESSING OFFICER TO DELETE DEMAND CREATED UNDER SECTION 201(1) OF THE ACT AND INTEREST CHARGED UNDER SE CTION 201(1A) OF THE ACT. THE GROUNDS OF APPEAL RAISED BY ASSESSEE ARE THUS, ALLOWED. 1 3 . NOW, COMING TO ITA NO.1080/PUN/2015, WHEREIN PENALTY UNDER SECTION 271C OF THE ACT FOR SUCH NON DEDUCTION OF TAX AT SOURCE OUT OF PAYMENT MADE FOR PURCHASE OF ROYAL TY , WAS DELETED BY THE CIT(A), AGAINST WHICH THE REVENUE IS IN APPEAL . ITA NO. 1440 /P U N/20 1 4 ITA NO. 1080 /PUN/201 5 7 1 4 . WE HAVE ALREADY HELD THAT THE ASSESSEE HAS NOT DEFAULTED IN NON DEDUCTION OF TAX AT SOURCE IN THE PARAS HEREINABOVE AND HENCE, THE ASSESSEE IS NOT LIABLE FOR ANY PENALTY UNDER SECTION 271C OF THE ACT. THE GROUNDS OF APPEAL RAISED BY REVENUE ARE THUS, DISMISSED. 1 5 . IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED AND APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 17 TH DAY OF MAY , 201 9 . SD / - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 17 TH MAY , 201 9 . G G C C V V S S R R / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLA NT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - IT/TP , PUNE ; 4. THE D IT ( TP / I T ), PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE. / BY ORD ER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE