M/s TelecomOne Teleservices India Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 1237/BANG/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5403 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-08-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 17-06-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Double taxation relief; Retrospective amendment; Revenue expenditure
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 1237/BANG/2016 ASSESSMENT YEAR : 2012 - 13 TELECOMONE TELESERVICES INDIA PRIVATE LIMITED, SRISHTI, # 243, 2 ND FLOOR, 1 ST BLOCK, 9 TH MAIN, HRBR LAYOUT, BANASWADI, BANGALORE 560 043. PAN: AACCT 3947J VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(1), BANGALORE. APP ELLANT RESPONDENT A PPELLANT BY : SHRI CHERIAN K BABY, CA RE SP ONDENT BY : SHRI B.R. RAMESH, JT. CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 17.01.2018 DATE OF PRONOUNCEMENT : 23 . 03 .201 8 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(APPEALS) INTER ALIA ON THE FOLLOWING GROUNDS:- THE GROUNDS OF APPEAL ARE AS UNDER: _ 1. THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT RS.14,45,760/- PAID TOWARDS IMPORT OF SOFTWARE AMOU NTS TO PAYMENT FOR ROYALTY AND TAX OUGHT TO HAVE BEEN DEDU CTED AT SOURCE U/S 194J/195. ITA NO.1237/BANG/2016 PAGE 2 OF 6 2. THE CIT (A) HAS FAILED TO UNDERSTAND THAT YOUR A PPELLANT WAS NOT UNDER ANY LEGAL OBLIGATION TO EFFECT TDS ON PURCHASE OF COMPUTER SOFTWARE IN F.Y. 2011-12 AS THESE WERE CON SIDERED AS PURCHASE OF GOODS UNDER THE THEN EXISTING PROVISION S OF LAW AND SUBJECTED TO CUSTOMS DUTY. PURCHASE OF COMPUTER SOF TWARE WAS BROUGHT UNDER THE DEFINITION OF ROYALTY VIDE THE FI NANCE ACT 2012 WITH RETROSPECTIVE EFFECT. 3. THE LEARNED CIT(A) AND AO HAS ALSO ERRED IN CONT ENDING THAT EXPENDITURE IS TO BE DISALLOWED U/S 40A(IA) SI NCE DISALLOWANCE OF PAYMENTS TO NON-RESIDENTS ARE NOT C OVERED UNDER THIS SECTION BUT COVERED U/S 40(A)(I). 4. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, THE ORDER OF THE COMMISSIONER OF I NCOME TAX APPEALS-7, BANGALORE MAY BE MODIFIED TO THE EXTENT APPEALED AGAINST. 2. THOUGH VARIOUS GROUNDS ARE RAISED BY THE ASSESSE E, BUT THEY ALL RELATE TO THE DISALLOWANCE OF RS.14,45,760 ON NON-D EDUCTION OF TDS. 3. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD AR E THAT THE ASSESSEE HAS IMPORTED SOFTWARE FOR A SUM OF RS.14,45,760 AND ON ITS PAYMENT NO TDS WAS DEDUCTED. THE AO ACCORDINGLY DISALLOWED TH E ENTIRE PAYMENT HAVING INVOKED THE PROVISIONS OF SECTION 40A(IA) OF THE ACT. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS) WITH TH E SUBMISSION THAT THE ASSESSEE HAS PAID THE CUSTOMS DUTY DURING THE IMPOR T TREATING IT AS GOODS, WHICH IS ALSO A PART OF MINISTRY OF FINANCE, GOVT. OF INDIA AND FURTHER THAT SALE OF GOODS GOT COMPLETED IN THE COUNTRY FROM WHE RE IT WAS PURCHASED HENCE NO INCOME ACCRUES OR ARISES IN INDIA. HE ALS O PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF TATA CONSULTANCY SERVICES V. STATE OF ANDHRA PRADESH (271 ITR 401) . IT WAS FURTHER CONTENDED THAT PAYMENT MADE FOR TRANSFER OF COMPUTE R SOFTWARE WAS BROUGHT UNDER THE DEFINITION OF ROYALTY VIDE FINANC E ACT, 2012 WITH ITA NO.1237/BANG/2016 PAGE 3 OF 6 RETROSPECTIVE EFFECT FROM AY 1976-77. THEREFORE, T HE APPELLANT COULD NOT HAVE CONTEMPLATED A CHANGE IN LAW DURING THE FY 201 1-12 RELEVANT TO AY 2012-13 THAT IS TO TAKE PLACE IN THE FUTURE, WHICH WOULD REQUIRE TO DEDUCT TAX AT SOURCE WHILE PURCHASING THE COMPUTER SOFTWAR E. THEREFORE, THE ASSESSEE WAS NOT UNDER ANY OBLIGATION TO DEDUCT TDS ON PURCHASE OF COMPUTER SOFTWARE IN FY 2011-12 RELEVANT TO AY 2012 -13, WHEN ALL THESE WERE CONSIDERED PURCHASE OF GOODS UNDER THE THEN EX ISTING PROVISIONS OF LAW. HE ALSO PLACED RELIANCE UPON THE DIFFERENT OR DERS OF THE TRIBUNAL. 4. THE CIT(APPEALS) RE-EXAMINED THE ISSUE IN THE LI GHT OF THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS COMPANY LTD. [2011] 203 TAXMAN 477 (KAR) IN WHICH IT WAS HELD THAT THE AMOUNT PAID FOR SUPPLY OF SOFTWARE WOULD BE CONSTRU ED AS ROYALTY IN TERMS OF THE PROVISIONS OF THE I.T. ACT AND CONSEQUENTLY ASSESSEE IS LIABLE TO WITHHOLD TAX IN TERMS OF THE RELEVANT PROVISIONS OF THE ACT. THE CIT(APPEALS) ACCORDINGLY CONFIRMED THE DISALLOWANCE MADE BY THE AO. 5. AGGRIEVED, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSION THAT AMENDMENT CAME BY THE FINANCE ACT, 2012, THEREFORE AT THE RELEVANT POINT OF TIME ASSES SEE WAS NOT AWARE ABOUT THE LAW TO BE INTRODUCED IN THE FUTURE. UNDER THES E CIRCUMSTANCES, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT THE TDS. 6. THE LD. DR, ON THE OTHER HAND, HAS CONTENDED THA T BEFORE THE AMENDMENT BY THE FINANCE ACT, 2012, THE JURISDICTIO NAL HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS COMPANY LTD. (SUPRA) HAS EXPRESSED ITS VIEWS AND CATEGORICALLY HELD THAT PAYMENT ON ACCOUN T OF IMPORT OF SOFTWARE IS ROYALTY, THEREFORE ASSESSEE IS REQUIRED TO DEDUC T THE TDS. THE JUDGMENT WAS DELIVERED ON OCTOBER 15, 2011 DURING THE RELEVA NT FINANCIAL YEAR IN WHICH ASSESSEE WAS REQUIRED TO DEDUCT THE TDS. THE LD. DR FURTHER CONTENDED THAT THE HONBLE HIGH COURT ONLY INTERPRE T THE LAW AND NEVER LAID ITA NO.1237/BANG/2016 PAGE 4 OF 6 DOWN ANY NEW LAW. LAW IS TO BE MADE BY THE PARLIAM ENT. THEREFORE AT THE RELEVANT POINT OF TIME, THE HONBLE HIGH COURT MADE IT CLEAR THAT PAYMENT ON IMPORT OF SOFTWARE IS A ROYALTY FOR WHICH THE ASSES SEE IS REQUIRED TO DEDUCT THE TDS. 7. HAVING CAREFULLY EXAMINED THE ORDERS OF THE AUTH ORITIES BELOW IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND THAT UNDISPUTED LY THE AMENDMENT CAME BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 1976-77. BEFORE THE AMENDMENT, THE JURISDICTIONAL HIGH COURT THROUG H ITS JUDGMENT IN THE CASE OF CIT V. SAMSUNG ELECTRONICS COMPANY LTD. REPORTED IN [2011] 16 TAXMANN.COM 141 (KAR) VIDE ITS JUDGMENT DATED 15.10 .2011 MADE IT VERY CLEAR THAT PAYMENTS FOR IMPORTING SOFTWARE FROM NON -RESIDENT IS A PAYMENT TOWARDS ROYALTY AND THE ASSESSEE IS REQUIRED TO DED UCT THE TDS. WHEN THE HONBLE HIGH COURT HAS CLARIFIED THE LEGAL POSITION WITH REGARD TO NATURE OF PAYMENT ON ACCOUNT OF IMPORT OF SOFTWARE DURING THE FY 2011-12, THE ASSESSEE WAS REQUIRED TO DEDUCT THE TDS ON MAKING P AYMENT TOWARDS IMPORT OF SOFTWARE AS IT WAS PAYMENT OF ROYALTY. I N THE LIGHT OF THIS LEGAL POSITION, WE ARE OF THE VIEW THAT THE CIT(APPEALS) HAS RIGHTLY ADJUDICATED THE ISSUE. WE, HOWEVER, FOR THE SAKE OF REFERENCE EXTRACT THE ORDER OF THE CIT(APPEALS) AS UNDER:- 7.4 I HAVE CAREFULLY CONSIDERED THE APPELLANT'S S UBMISSIONS AND PERUSED THE ASSESSMENT ORDER. IN THE CASE OF MIS SA MSUNG ELECTRONICS COMPANY LTD., THE HON'BLE KARNATAKA HIG H COURT [2011] 203 TAXMAN 477 (KAR) HAS HELD THAT THE AMOUN T PAID FOR THE SUPPLY OF SOFTWARE WOULD BE CONSTRUED AS 'ROYAL TY' IN TERMS OF THE PROVISIONS OF THE INCOME-TAX ACT 1961, AND CONS EQUENTLY, LIABLE TO WITHHOLDING TAX IN TERMS OF THE RELEVANT PROVISIONS AND THEREFORE THE PROVISIONS OF SEC 40(A)(IA) IS APPLIC ABLE ON IT. THE COURT HAS HELD THAT: '(I) U/S 9(1)(VI) OF THE ACT & ARTICLE 12 OF THE DTAA, 'PAYMENTS OF ANY KIND IN CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, ARTI STIC OR SCIENTIFIC WORK' IS DEEMED TO BE 'ROYALTY'. UNDER T HE ITA NO.1237/BANG/2016 PAGE 5 OF 6 COPYRIGHT ACT, 1957, A SOFTWARE PROGRAMME CONSTITUTE S A 'COPYRIGHT'. A RIGHT TO MAKE A COPY OF THE SOFTWARE AND USE IT FOR INTERNAL BUSINESS BY MAKING COPY OF THE SAME AND STORING IT ON THE HARD DISK AMOUNTS TO A USE OF THE COPYRIGHT U/S 14 (1) OF THAT ACT BECAUSE IN THE ABSE NCE OF SUCH A LICENCE, THERE WOULD HAVE BEEN AN INFRINGEME NT OF THE COPYRIGHT. ACCORDINGLY, THE ARGUMENT THAT THERE IS NO TRANSFER OF ANY PART OF THE COPYRIGHT AND THE TRANS ACTION INVOLVES ONLY A SALE OF A COPYRIGHTED ARTICLE IS NO T ACCEPTABLE. THE AMOUNT PAID T0 THE SUPPLIER FOR SUP PLY OF THE 'SHRINK-WRAPPED' SOFTWARE IS NOT THE PRICE OF T HE CD ALONE NOR SOFTWARE ALONE NOR THE PRICE OF LICENCE G RANTED. IT IS A COMBINATION OF ALL. IN SUBSTANCE UNLESS A L ICENCE WAS GRANTED PERMITTING THE END USER TO COPY AND DOWNLOA D THE SOFTWARE, THE CD WOULD NOT BE HELPFUL TO THE END US ER; (II) THERE IS A DIFFERENCE BETWEEN A PURCHASE OF A BOOK OR A MUSIC CD BECAUSE WHILE THESE CAN BE USED ONCE THEY ARE PURCHASED, SOFTWARE STORED IN A DUMB CD REQUIRES A LICENSE TO ENABLE THE USER TO DOWNLOAD IT UPON HIS HARD DISK, IN THE ABSENCE OF WHICH THERE WOULD BE AN INFRINGEMENT OF THE OWNER'S COPYRIGHT.' 7.5 THUS THE ONLY ISSUE INVOLVED IS WHETHER THE CO NSIDERATION PAID FOR IMPORT OF SOFTWARE CAN BE CAPITALISED. THE AMOUNT PAID TO OBTAIN COMPUTER SOFTWARE CANNOT BE ADDED TO THE BLOCK OF ASSETS OF COMPUTER AS THE JURISDICTION HIGH COURT H AS HELD THAT THE NATURE OF PAYMENT FOR COMPUTER SOFTWARE IS THAT OF ROYALTY. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO T REAT THE EXPENDITURE ON ROYALTY AS REVENUE EXPENDITURE. FURT HER, SINCE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE U/S 195/194 J IN RELATION TO PAYMENTS MADE FOR THE PURCHASE OF THIS COMPUTER SOF TWARE, SO THIS PURCHASE AMOUNT, WHICH OTHERWISE THE ASSESSEE COULD HAVE CLAIMED AS EXPENDITURE, CANNOT BE ALLOWED AS EXPEND ITURE AS PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT GET ATT RACTED. 8. SINCE NO SPECIFIC INFIRMITY HAS BEEN POINTED OUT IN THE ORDER OF THE CIT(APPEALS), WE CONFIRM HIS ORDER. ITA NO.1237/BANG/2016 PAGE 6 OF 6 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF MARCH, 2018. SD/- SD/- ( INTURI RAMA RAO ) ( SUNIL KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 23 RD MARCH, 2018. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.