Autodesk Asia Pte Limited, Bangalore V. JDIT, Bangalore

ITA 1258/BANG/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8669 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 13-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI
• Keywords: Double taxation relief; Advance ruling
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI RAJPAL YADAV , JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T. (T.P) A. NO S . 1258 & 1259 / BANG /20 1 1 ( ASSESSMENT YEAR S : 200 8 - 09 & 2009 - 10 ) M/S. AUTODESK ASIA PTE LIMI TED, C/O AUTODESK INDIA PRIVATE LIMITED, A4, A WING, 2 ND FLOOR, DIVYASHREE CHAMBERS, LANGFORD ROAD, BANGALORE - 560 025 . APPELLANT PAN AAFCA 6398D VS. JOINT DIRECTOR O F INCOME TAX, (INTERNATIONAL TAXATION), RANGE I, BA NGALORE . .. RESPONDENT. APPELLANT BY : SMT. TANMAYEE RAJKUMAR, ADVOCATE. RESPONDENT BY : S HRI FARHAT HUSSAIN QUR ESHI, CIT (D.R) DATE OF H EARING : 20.01.2015. DATE OF P RONOUNCEMENT : 6.2.2015 . O R D E R PER BENCH : THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE FINAL ORDERS OF ASSESSMENT FOR ASSESSMENT YEARS 2008 - 09 & 2009 - 10 PASSED UNDER SECTION 143(3) R.W.S. 144C(5) & (13) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS 'THE ACT') VIDE SEPARATE ORDERS DT.13.10.2011 IN PURSUANCE OF THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP), BANGALORE IN ITS ORDERS DT.27.9.2011 PASSED UNDER SECTION 144C OF THE ACT. SINCE THESE TWO APPEALS IT (T.P) A NO S . 1258 & 1259/BANG/2011 2 PERTAINING TO THE SAME ASSESSEE WERE HEARD TOGETHER, THEY ARE BEI NG DISPOSED OFF BY WAY OF THIS COMMON ORDER. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER : - 2.1 THE ASSESSEE IS A SINGAPORE BASED COMPANY IN THE BUSINESS OF SALE AND DISTRIBUTION OF SOFTWARE AND PROVIDING ANCILLARY SERVICES TO INDIAN DISTRIBUTORS. FOR ASSESSMENT YEARS 2008 - 09 & 2009 - 10, THE ASSESSEE FILED ITS RETURNS OF INCOME ON 24.9.200 8 AND 28.9.2009 RESPECTIVELY DECLARING TAXABLE INCOME AT NIL FOR BOTH THE YEARS. THE CASE WAS SELECTED FOR SCRUTINY FOR BOTH THE AFORESAID ASSESSMENT YEARS AND TH E DRAFT ASSESSMENTS WERE COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDERS DT.24.12.2010 AND 31.3.2011 RESPECTIVELY WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.111,73,97,086 FOR A. Y. 2008 - 09 AND RS.1,54,82,06,696 FOR ASSESSMENT YEAR 2009 - 1 0 AS AGAINST NIL RETURNED INCOME ; IN VIEW OF THE ASSESSING OFFICER HOLDING THAT THE INCOME FROM SALE OF SHRINK WRAPPED SOFTWARE IS ROYALTY, AND BRINGING THE SAME TO TAX IN THE ASSESSEE'S HANDS. AGGRIEVED BY THE DRAFT ORDERS OF ASSESSMENT FOR ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 DT.24.12.2010 AND 31.3.2011 RESPECTIVELY, THE ASSESSEE FILED ITS OBJECTIONS BEFORE THE DRP, BANGALORE. THE DRP IN ITS COMBINED ORDER UNDER SECTION 144C OF THE ACT DT.27.9.2011 , FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION , R EJECTED THE ASSESSEE'S OBJECTIONS AND THEREBY CONFIRMED THE DRAFT ORDERS OF ASSESSMENT. IT IS IN PURSUANCE THEREOF, THAT THE ASSESSING OFFICER PASSED THE IMPUGNED FINAL ASSESSMENT ORDERS DT.13.10.2011 FOR THE A.YS 2008 - 09 AND 2009 - 10. IT (T.P) A NO S . 1258 & 1259/BANG/2011 3 2.2 AGGRIEVED BY THE FINAL ORDERS OF ASSESSMENT PASSED UNDER SECTION 143(3) R.W.S. 144C(5) & (13) OF THE ACT FOR ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 DT.13.10.2011, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE FOLLOWING COMMON GROUNDS : - 1. ASSESSME NT BAD ON FACTS, THE ASSESSMENT ORDER, DT.13 OCT., 2011, PASSED BY THE JOINT DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) - I , UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') IS BAD ON FACTS. 2. ERRONEOUS D EMANDS THE ASSESSING OFFICER HAS ERRED IN : A) DETERMINING THE TOTAL INCOME OF THE APPELLANT AT RS.1,117,397,086 ; B) LEV YING INCOME TAX OF RS.111,739,710 ; AND C) RAISING A DEMAND OF RS. 51,570 . 3. ERRONEOUS TREATMENT OF THE RECEIPTS FROM INDIAN PARTIE S AS ROYALT Y 3.1 THE ASSESSING OFFICER AND THE DISPUTE RESOLUTION PANEL (DRP) HA S ERRED IN NOT HOLDING THAT THE PAYMENTS RECEIVED BY THE APPELLANT FROM THE INDIAN PARTIES IS NOT IN THE NATURE OF ROYALTY INCOME TAXABLE UNDER SECTION 9(1)(VI) OF THE ACT. 3.2 THE ASSESSING OFFICER AND THE DRP HA S ERRED IN NOT HOLDING THAT THE PAYMENTS RECEIVED BY THE APPELLANT WOULD NOT QUALIFY AS ROYALTY UNDER THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND SINGAPORE ( THE DTAA ) . 3.3 THE A.O. AND THE DRP HA S E RRED IN NOT HOLDING THAT APPELLANT DOES NOT HAVE A RIGHT AND TITLE TO THE SOFTWARE, DESPITE THE FACT THAT IT ONLY HAD DISTRIBUTION RIGHTS. 3.4 THE A.O. AND THE DRP HAS ERRED IN NOT HOLDING THAT WHETHER THE PAYMENT RECEIVED BY THE APPELLANT FROM THE INIDAN PARTIES WAS IN THE NATURE OF ROYALTY HAD MOST APPROPRIATELY TO BE JUDGED UNDER CLAUSE (V) OF EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT. THE ASSESSING OFFICER AND DRP ALSO ERRED IN NOT HOLDING THAT CLAUSE (V) OF EXPLANATION 2 TO SECTION 9(1 )(VI) OF THE ACT DID NOT APPLY BECAUSE THERE WAS NO RIGHT IN RESPECT OF ANY COPYRIGHT GRANTED BY THE APPELLANT. 3.5 THE A.O, AND THE DRP HAS ERRED IN HOLDING THAT THE APPELLANT HAS EFFECTIVELY SOLD THE SOFTWARE TO END USERS DESPITE THE FACT THAT THE APPELLANT HAD ENTERED INTO AGREEMENT WITH THE DISTRIBUTORS / RETAIL RESELLERS WHO IN TURN SELL THE SOFTWARE TO THE END USERS. 3.6 THE A.O. AND THE DRP HAVE ERRED IN NOT HOLDING THAT , AS THE PAYMENT RECEIVED BY THE APPELLANT FROM INDIAN PARTIES WAS NOT TO BE MEASURED BY REFERENCE TO THE PRODUCTIVITY OR USE OF THE SOFTWARE, IT COULD NOT BE CONSTRUED AS ROYALTY . IT (T.P) A NO S . 1258 & 1259/BANG/2011 4 3.7 THE A.O. AND THE DRP HAS ERRED IN NOT HOLDING THAT SINCE THE SOFTWARE IS CLASSIFIABLE AS GOODS UNDER THE KARNATAKA SALES TAX ACT, 1957, PAYMENTS RECEIVED FROM THE SALE OF SOFTWARE COULD NOT BE CONSTRUED AS ROYALTY . 3.8 THE ASSESSING OFFICER AND THE DRP HAS ERRED IN NOT FOLLOWING CERTAIN DECISIONS RENDERED BY THE DELHI HIGH COURT, THE AUTHORITY FOR ADVANCE RULING AND VARIOUS BE NCHES OF THE TRIBUNAL. 4. INITIATION OF PENALTY . THE A.O. HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 5 . RELIEF THE APPELLANT PRAYS THAT THE JDIT BE DIRECTED TO GRANT ALL SUCH RELIEF ARISING F RO M THE P RECEDING GROUNDS AS ALSO ALL RELIEF CONSEQUENTIAL THERETO. 3. THE GROUNDS RAISED AT S.NOS.1, 2 AND 5 OF TH ESE APPEAL S BY THE ASSESSEE BEING GENERAL IN NATURE, AND NOT URGED BEFORE US , ARE DISMISSED AS INFRUCTUOUS. 4. IN THE GROUND AT S.NO.4 , T HE ASSESSEE CHALLENGES THE ASSESSING OFFICER S ACTION IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT FOR BOTH ASSESSMENT YEARS IN THE CASE ON HAND. SINCE NO PENALTY HAS BEEN LEVIED UNDER SECTION 271(1)(C) OF THE ACT ON THE ASSESSEE IN ITS IMPUGNED ORDERS, NO CAUSE OF GRIEVANCE ARISES TO THE ASSESSEE TO AGITATE THIS ISSUE BEFORE THIS FORUM AT THIS STAGE. THIS GROUND IS THEREFORE NOT MAINTAINABLE AND IS ACCORDINGLY DISMISSED . 5. TREATMENT OF RECEIPTS FROM INDIAN CUSTOMERS ON SALE OF SHRINK WRAPPED SOFTWARE AS ROYALTY 5.1 IN THE GROUNDS AT S.NO.3 (3.1 TO 3.8) , THE ASSESSEE DISPUTES THE ACTION OF THE ASSESSING OFFICER AND THE DRP IN HOLDING THAT THE PAYMENT RECEIVED FROM ITS INDIAN CUSTOMERS ON IT (T.P) A NO S . 1258 & 1259/BANG/2011 5 A CCOUNT OF SALE OF SHRINK WRAPPED SOFTWARE AS ROYALTY INCOME TAXABLE UNDER SECTION 9(1)(VI) OF THE ACT. IT IS ALSO CONTENDED, INTER ALIA, THAT THE AUTHORITIES BELOW OUGHT TO HAVE HELD THAT THE SAID PAYMENTS WOULD NOT QUALIFY AS ROYALTY UNDER THE INDIA - S INGAPORE DTAA. THE FACTS OF THE MATTER ARE AS FOLLOWS : - IN THE TWO YEARS UNDER CONSIDERATION, THE ASSESSEE SOLD SOFTWARE LICENSES TO INDIAN CUSTOMERS AND PROVIDED ANCILLARY SERVICES LIKE CONSULTANCY, TRAINING, INSPECTION, INSTALLATION, ETC. THE ASS ESSEE HAS SHOWN TURNOVER ON SALE OF SOFTWARE LICENSES (SHRINK WRAPPED SOFTWARE) AND ANCILLARY SERVICES; OUT OF WHICH MAJORITY OF SOFTWARE LICENSES WERE SOLD TO ITS AUTHORISED DISTRIBUTOR, NAMELY M/S. INGRAM MICRO INDIA PVT. LTD. THE AUTHORISED DISTRIBUTOR SELLS THE SOFTWARE LICENSES TO RETAILERS WHO IN TURN SELL THE SOFTWARE LICENSES (SHRINK WRAPPED SOFTWARE) TO THE END USER CUSTOMERS. THE DISTRIBUTORS AND RETAILERS DO NOT HAVE ANY RIGHTS TO ALTER OR TRANSFER OF THESE SOFTWARE PRODUCTS AND HAVE TO SUPPLY THEM TO END USE CUSTOMERS IN THE SAME FORM AS IT HAS BEEN SUPPLIED BY THE ASSESSEE. IN THIS MANNER, THE ASSESSEE COMPANY HAS EFFECTIVELY SOLD THE SOFTWARE LICENSE TO END USER CUSTOMERS IN INDIA THROUGH ITS DISTRIBUTORS AND THEIR RETAILERS. AS FAR AS TH E ASSESSEE IS CONCERNED, IT HAS SOLD SOFTWARE LICENSES (SHRINK WRAPPED SOFTWARE) TO ITS DISTRIBUTORS / CUSTOMERS IN INDIA. THE SUM AND SUBSTANCE OF THE DETAILED ARGUMENTS PUT FORTH BY THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT SINCE IT DOES NOT HA VE ANY PHYSICAL PRESENCE IN INDIA AND THE SALES OF SOFTWARE WERE MADE OUTSIDE INDIA AND THE SALE PROCEEDS FOR THE SALES AND ANCILLARY SERVICES WERE RECEIVED OUTSIDE INDIA, NO AMOUNT SHOULD BE DEEMED TO ACCRUE OR ARISE TO IT IN INDIA. THE ASSESSEE IT (T.P) A NO S . 1258 & 1259/BANG/2011 6 SUBMITTE D THAT IN THESE CIRCUMSTANCES, NO PART OF ITS INCOME FROM SALE OF SOFTWARE (SHRINK WRAPPED SOFTWARE) TO DISTRIBUTORS IN INDIA IS COVERED WITHIN THE SCOPE OF ROYALTY. 5.2 THE ASSESSING OFFICER, AFTER EXAMINATION OF THE ARGUMENTS PUT FORTH BY THE A SSESSEE, DID NOT CONCUR WITH THEM. THE ASSESSING OFFICER WAS OF THE VIEW THAT AS FAR AS INCOME FROM ROYALTY AND FEES FOR TECHNICAL SERVICES ARE CONCERNED, THE ASSESSEE'S PRESENCE IN INDIA IS NOT NECESSARY AND ITS CONCERNED PLACE OF BUSINESS IS IMMATERIAL. THE ASSESSING OFFICER HELD THAT EVEN IF THE ASSESSEE RENDERS SERVICES FROM OUTSIDE INDIA, THEN ALSO SUCH INCOME IS CHARGEABLE TO TAX IN INDIA IN ACCORDANCE WITH THE PROVISIONS OF SECTION 9(1)(VI) AND 9(1)(VII) OF THE ACT; AS HAS BEEN CLARIFIED BY THE EX PLANATION 2 TO SECTION 9(1)(I) OF THE ACT. IN THAT VIEW OF THE MATTER, THE ASSESSING OFFICER TREATED THE INCOME FROM SALE OF SOFTWARE LICENSE (SHRINK WRAPPED SOFTWARE) AS ROYALTY IN THE HANDS OF THE ASSESSEE. ON APPEAL, THESE VIEWS AND FINDINGS OF THE AS SESSING OFFICER WERE UPHELD BY THE DRP, BANGALORE IN ITS COMBINED ORDER DT.27.9.2011 FOR BOTH ASSESSMENT YEARS. 5. 3 WE HAVE HEARD BOTH THE LEARNED AUTHORISED REPRESENTATIVE FOR THE ASSESSEE AND THE LEARNED DEPARTMENTAL REPRESENTATIVE OF REVENUE ON THE ISSUE OF THE NATURE OF THE PAYMENTS RECEIVED BY THE ASSESSEE FROM ITS INDIAN DISTRIBUTORS / CUSTOMERS I.E. WHETHER IT IS ROYALTY OR NOT. BOTH THE REPRESENT A TIVES OF REVENUE AND THE ASSESSEE AGREED THAT THIS ISSUE IS COVERED IN FAVOUR OF REVENUE BY THE DE CISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2006 - 07 IN ITA NO.26/BANG/2012 , FOLLOWING THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT I N THE CASE OF SYNOPSIS INTERNATIONAL PVT. LTD. IN IT (T.P) A NO S . 1258 & 1259/BANG/2011 7 ITA NOS.11 TO 15 OF 20 08 AND 17 OF 2008 DT.3.8.2010 WHEREIN SUCH RECEIPTS HAVE BEEN HELD TO BE IN THE NATURE OF ROYALTY. THEREFORE RESPECTFULLY FOLLOWING IS DECISIONS OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF SYNOPSIS INTERNATIONAL PVT. LTD. (SUPRA) AND OF THE CO - ORDI NATE BENCH IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2006 - 07, WE DECIDE THE ISSUE AGAINS T THE ASSESSEE AND IN FAVOUR OF REVENUE. CONSEQUENTLY, THE GROUNDS RAISED AT S.NO.3 (3.1 TO 3.8) IN THIS APPEAL ARE DISMISSED. 6. IN THE RESULT, THE ASSESSEE 'S APPEAL S FOR ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH FEBRUARY, 201 5 . SD/ - SD/ - ( RAJPAL YADAV ) ( JASON P BOAZ ) JUDICIAL MEMBER ACCOUNTANT MEMBER *REDDY GP C OPY TO : 1. APPELLANT 2. RES PONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, BANGALORE