ADIT (IT) 2(1), MUMBAI V. SIEMNS AKTIENGESELLESCHAFF, MUMBAI

ITA 1174/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78933 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 27-01-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 12-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDER KUMAR
• Assessee Lawyers: P J PARDIWALLA
• Keywords: Double taxation relief
• Section: 234B

Judgement Text

L IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI .. , , BEFORE SHRI P.M. JAGTAP, AM AND SHRI. SHRI AMIT SHU KA, JM ./ I.T.A. NO. 1174 /MUM/2010 ( / ASSESSMENT YEAR : 2005-2006 ADIT (IT) 2(1), R.NO. 120, IST FLOOR, SCINDIA HOUSE, BALLARD ESTATE, N.M. ROAD, MUMBAI 400 038. / VS. M/S SIEMENS AKTIENGESELLSCHAFT, C/O B S R & CO., LODHA EXCELUS, IST FLOOR, APOLLO MILLS COMPOUND, N.M. JOSHI MARG, MAHALAXMI MUMBAI 400 011. ./ PAN : AABCA8516K ( # / APPELLANT ) .. ( $%# / RESPONDENT ) A PPELLANT BY SHRI NARENDER KUMAR R E SPO NDENT BY : SHRI P.J. PARDIWALLA ) * / DATE OF HEARING : 22-4-14 ) * / DATE OF PRONOUNCEMENT : 30-5-2014 [ / O R D E R PER P.M. JAGTAP, A.M . : .. , THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) - 11, MUMBAI DTD. 30-11-2009. 2. GROUND NO. 1 RAISED BY THE REVENUE IN THIS APPEA L READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) ERRED IN HOLDING THAT THE INCOME OF THE ASSESSEE ARISING ON ACCOUNT OF ROYALTY AND FEES FOR TECHNICAL SERVI CES IS TAXABLE ON RECEIPT BASIS AND NOT ON ACCRUAL BASIS AS HELD BY T HE ASSESSING OFFICER IN THE ASSESSMENT ORDER. ITA 1174/M/10 2 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS THE TAX RESIDENT FEDERAL REPUBLIC OF GERMANY. IT DERIVED INCOME BY W AY OF ROYALTY AND FEES FOR TECHNICAL SERVICES UNDER VARIOUS AGREEMENTS/CONTRAC TS ENTERED INTO WITH DIFFERENT COMPANIES IN INDIA. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 31-10-2005 SHOWING TOTAL INCOME OF RS. 28,82,12,290/-. IN THE SAID RETURN, INCOME FROM RO YALTY AND FEES FOR TECHNICAL SERVICES WAS OFFERED BY THE ASSESSEE TO T AX ON RECEIPT BASIS AS DONE CONSISTENTLY IN THE EARLIER YEARS. ALTHOUGH, IT WA S BROUGHT TO THE NOTICE OF THE A.O. BY THE ASSESSEE DURING THE COURSE OF ASSESSMEN T PROCEEDINGS THAT THE STAND OF THE ASSESSEE ON THIS ISSUE WAS CONSISTENTL Y ACCEPTED BY THE TRIBUNAL IN THE EARLIER YEARS, THE A.O. NOTED THAT THE DECIS ION OF THE TRIBUNAL ON THIS ISSUE WAS NOT ACCEPTED BY THE DEPARTMENT AND APPEAL S WERE PREFERRED BEFORE THE HONBLE HIGH COURT AGAINST THE ORDERS OF THE TR IBUNAL. HE THEREFORE FOLLOWED THE STAND TAKEN BY THE REVENUE CONSISTENTL Y IN ASSESSEES OWN CASE ON THE SIMILAR ISSUE IN THE EARLIER YEARS AND TAXED THE INCOME OF THE ASSESSEE FROM ROYALTY AND FEES FOR TECHNICAL SERVICES ON ACC RUAL BASIS IN THE YEAR UNDER CONSIDERATION. ON APPEAL, THE LD. CIT(A) DIRECTED T HE A.O. TO TAX THE INCOME OF THE ASSESSEE ON ACCOUNT OF ROYALTY AND FEES FOR TEC HNICAL SERVICES ON RECEIPT BASIS FOLLOWING THE ORDERS OF THE TRIBUNAL IN ASSES SEES OWN CASE ON THE SIMILAR ISSUE FOR THE EARLIER YEARS. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. AS AGREED BY T HE LD. REPRESENTATIVES OF BOTH THE SIDES, THE ISSUE INVOLVED IN GROUND NO. 1 OF THE REVENUES APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR THE EARLIER YEA RS WHICH HAS BEEN SUBSEQUENTLY UPHELD BY THE HONBLE BOMBAY HIGH COUR T. THE COPIES OF THE RELEVANT ORDERS PASSED BY THE TRIBUNAL FOR THE EARL IER YEARS ARE PLACED ON RECORD BEFORE US AND A PERUSAL OF THE SAME SHOWS TH AT THE STAND OF THE ASSESSEE ON THIS ISSUE WAS ACCEPTED BY THE TRIBUNAL KEEPING IN VIEW PARA NO. ITA 1174/M/10 3 1 TO 3 OF ARTICLE VIII-A OF THE DTAA BETWEEN INDIA AND FEDERAL REPUBLIC OF GERMANY WHICH CLEARLY PROVIDED FOR ASSESSMENT OF RO YALTY AND FEES FOR TECHNICAL SERVICES ONLY ON RECEIPT BASIS AND NOT OT HERWISE. THIS DECISION OF THE TRIBUNAL HAS BEEN SUBSEQUENTLY UPHELD BY THE HONBL E BOMBAY HIGH COURT CONSISTENTLY UP TO ASSESSMENT YEAR 2003-04 AFTER TA KING NOTE OF PARA NO. 1 TO 3 OF ARTICLE VIII-A OF THE RELEVANT DTAA WHICH SPEC IFICALLY PROVIDED THAT THE ASSESSMENT OF ROYALTY OR ANY OTHER FEES FOR TECHNIC AL SERVICES SHOULD BE MADE IN THE YEAR IN WHICH THE AMOUNTS ARE ACTUALLY RECEI VED AND NOT OTHERWISE. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL AS WELL AS THAT OF HONBLE BOMBAY HIGH COURT IN ASSESSEES OWN CASE RENDERED I N THE EARLIER YEARS, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) DIRECTI NG THE A.O. TO TAX THE INCOME ON ACCOUNT OF ROYALTY AND FEES FOR TECHNICAL SERVICES ON RECEIPT BASIS AND DISMISS GROUND NO. 1 OF THE REVENUES APPEAL. 5. GROUND NO. 2 RAISED BY THE REVENUE IN THIS APPEA L READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) ERRED IN HOLDING THAT VALUE OF THE S OFTWARE SUPPLIED BY THE ASSESSEE TO M/S. SIEMENS LTD. CANNOT BE TREATED AS ROYALTY IN THE HANDS OF THE ASSESSEE. 6. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAD SUPPLIED EQUIPMENT TO THE VARIOUS PARTIES IN INDIA. THE SOF TWARE REQUIRED FOR THE SAID EQUIPMENT WAS ALSO SUPPLIED BY THE ASSESSEE TO ITS INDIAN CUSTOMERS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. VERI FIED THE RELEVANT INVOICES AND FOUND ON SUCH VERIFICATION THAT THE SOFTWARE IN SOME CASES WAS SUPPLIED BY THE ASSESSEE INDEPENDENTLY WITHOUT ANY REFERENCE TO THE SUPPLY OF CORRESPONDING EQUIPMENT. HE THEREFORE TREATED THE INCOME EARNED BY THE ASSESSEE FROM THE SUPPLY OF SOFTWARE AS IN THE NATU RE OF ROYALTY AND THE SAME WAS BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE AS INCOME FROM ROYALTY. ON APPEAL, THE LD. CIT(A) HELD THAT THE VALUE OF SOFTW ARE COULD NOT BE TAXED AS ROYALTY IN THE HANDS OF THE ASSESSEE FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE ON SIMILAR ISSUE FOR THE EARLIE R YEARS I.E 2001-02 & 2002- ITA 1174/M/10 4 03. HE ALSO TOOK NOTE OF THE FACT THAT A SIMILAR I SSUE WAS DECIDED BY HIS PREDECESSOR IN FAVOUR OF THE ASSESSEE IN ASSESSMENT YEARS 2003-04 & 2004- 05. 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. THE LD. REPRESE NTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE INVOLVED IN GROUND NO. 2 OF THE REVENUES APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY TH E DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS. THE COPIES O F THE RELEVANT ORDERS OF THE TRIBUNAL ARE PLACED ON RECORD BEFORE US AND A PERUS AL OF THE SAME SHOWS THAT THE SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN FA VOUR OF THE ASSESSEE IN ASSESSMENT YEAR 2001-02 VIDE PARA NO. 6 OF ITS ORDE R DTD. 8-12-2008 PASSED IN ITA NO.1957/MUM/2007 WHICH READS AS UNDER:- WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ON THE FACT THAT THE ASSESSEE HAD NOT SEPARATELY SOLD SOFTWARE BUT IT WAS PART AN D PARCEL OF THE EQUIPMENT SUPPLIES TO M/S SIEMENS LIMITED. THE CASE OF THE ASSESSEE IS THAT IT SHOULD BE TAKEN AT BUSINESS PROFITS AS PER ARTICLE 7 TO DTAA BETWEEN INDIA AND GERMANY. ON THE OTHER HAND THE DE PARTMENT WANTS AT TO BE CONSIDERED AS FALLING UNDER ARTICLE 13, BE ING THE ROYALTY. WE HAVE TO DECIDE WHETHER THE SUM OF RS.5.29 CRORES IS TO BE CONSIDERED AS BUSINESS PROFITS OR ROYALTY. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MOTOROLA INC. VS. DCIT(2005) 95 ITD 269 (DE LHI)(SB) HAS CONSIDERED THIS ASPECT AND HELD THAT THE PAYMENT M ADE TO THE ASSESSEE FOR USE OF SOFTWARE IN THE EQUIPMENT DID N OT AMOUNT TO ROYALTY EITHER UNDER THE INCOME-TAX ACT OR THE DTAA. THE F ACTS INVOLVED IN THE INSTANT CASE ARE AKIN TO THOSE CONSIDERED BY THE SP ECIAL BENCH IN THE AFORNOTED CASE. THE LEARNED DEPARTMENT REPRESENTATI VE COULD NOT POINT OUT ANY DISTINGUISHING FEATURE IN THE FACTS OF THE INSTANT CASE VIS--VIS THAT DECIDED BY THE SPECIAL BENCH. RESPECTFULLY FOL LOWING THE VIEW TAKEN BY THE SPECIAL BENCH IN THIS ASPECT OF THE MA TTER, WE ARE OF THE CONSIDERED OPINION THAT THE AMOUNT RECEIVED BY THE ASSESSE TOWARDS SUPPLY OF SOFTWARE CANNOT BE SEGREGATED FROM THE SU PPLY OF EQUIPMENT AND HENCE THAT PORTION CANNOT BE CONSIDERED AS ROY ALTY. WE, THEREFORE, APPROVE THE VIEW TAKEN BY THE LEARNED CI T(A) ON THIS ISSUE. ITA 1174/M/10 5 8. IT IS ALSO NOTED THAT THE ABOVE DECISION RENDERE D BY THE TRIBUNAL IN A.Y. 2001-02 HAS BEEN SUBSEQUENTLY FOLLOWED BY THE TRIBU NAL IN ASSESSMENT YEARS 2002-03, 2003-04 & 2004-05 TO DECIDE A SIMILAR ISSU E IN FAVOUR OF THE ASSESSEE. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO A.Y. 2001-02 TO 2004-05, WE RESPECTFULLY FOLLOW THE DECISION OF THE TRIBUNAL RE NDERED IN THE SAID YEARS AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) HOLDING THAT THE VALUE OF SOFTWARE SUPPLIED BY THE ASSESSEE COULD NOT BE TREATED AS RO YALTY IN THE HANDS OF THE ASSESSEE. GROUND NO. 2 OF REVENUES APPEAL IS ACCO RDINGLY DISMISSED. 9. GROUND NO. 3 RAISED BY THE REVENUE IN THIS APPEA L READS AS UNDER:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) WAS CORRECT IN HOLDING THAT WHEN DUT Y IS CASE ON THE PAYER TO PAY TAX AT SOURCE, NO INTEREST U/S.234B CA N BE IMPOSED ON THE PAYEE ASSESSEE IGNORING THE FACT THAT IT IS THE LIA BILITY OF THE PAYEE TO PAY ADVANCE TAX EVEN ON THE AMOUNT WHICH HAD NOT BE EN DEDUCTED AT SOURCE UNDER SECTION 195 OF THE INCOME TAX ACT, 196 1. 10. AT THE TIME OF HEARING BEFORE US, THE LD. REPRE SENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THE ISSUE INVOLVED IN GROUND NO. 3 OF THE REVENUES APPEAL IS ALSO SQUARELY COVERED IN FAVOUR OF THE AS SESSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF DIT (IT) V S. NGC NETWORK ASIA LLC LIMITED REPORTED IN (2009) 313 ITR 187 (BOM.) WHERE IN IT WAS HELD THAT SINCE THE ENTIRE INCOME OF THE ASSESSEE WAS LIABLE TO DED UCTION OF TAX AT SOURCE, THE ASSESSEE WAS NOT LIABLE TO PAY ADVANCE TAX ON SUCH INCOME AND THE QUESTION OF CHARGING INTEREST U/S 234B OF THE ACT WOULD NOT ARISE. IT IS ALSO OBSERVED THAT FOLLOWING THE SAID DECISION RENDERED IN THE CA SE OF NGC NETWORK ASIA LLC LTD.(SUPRA), THE HONBLE BOMBAY HIGH COURT HAVE DEC IDED A SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR T HE EARLIER YEAR. RESPECTFULLY FOLLOWING THESE DECISIONS OF THE HONBLE JURISDICTI ONAL HIGH COURT, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) DELETING THE I NTEREST CHARGED U/S 234B OF THE ACT AND DISMISS GROUND NO. 3 OF THE REVENUES A PPEAL. ITA 1174/M/10 6 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MAY, 2014 . ) / 0 30-05-2014 ) SD/- SD/- (AMIT SHUKLA) (P.M. JAGTAP ) JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 0 DATED 3050552014 [ .../ RK , SR. PS ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT 2. $%# / THE RESPONDENT. 3. () / THE CIT(A)11, MUMBAI. 4. / DIT (IT), MUMBAI 5. < $> , * > , / DR, ITAT, MUMBAI L BENCH 6. A / GUARD FILE. / BY ORDER, %< $ //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI