Deputy Commissioner of Income-tax, V. John Deere India Pvt. Ltd., Pune

ITA 1342/PUN/2015

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8586 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-04-2019
• Assessment Year: 2007-2008
• Appeal Filed On: 12-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV GHEI
• Assessee Lawyers: ARPITA DESAI
• Keywords: Double taxation relief; Reasonable cause
• Section: 273B; 201(1); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI PARTHA SARATHI CHAUDHURY, JM / ITA NO.1342/PUN/2015 / ASSESSMENT YEAR : 2007-08 THE DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), CIRCLE-1, PUNE. ....... / APPELLANT / V/S. JOHN DEERE INDIA PVT. LTD. TOWER XIV, CYBER CITY, MAGARPATTA CITY, HADAPSAR, PUNE-411 013 PAN : AAACJ4233B / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK & MS. ARPITA DESAI REVENUE BY : SHRI SANJEEV GHEI / DATE OF HEARING : 08.04.2019 / DATE OF PRONOUNCEMENT : 08.04.2019 ! / ORDER PER PARTHA SARATHI CHAUDHURY, JM : THIS APPEAL PREFERRED BY THE REVENUE EMANATES FROM TH E ORDER OF THE LD. CIT(APPEALS)-13, PUNE DATED 31.07.2015 FOR THE ASSESSM ENT YEAR 2007-08 AS PER FOLLOWING GROUNDS OF APPEAL ON RECORD: 2 ITA NO. 1342/PUN/2015 A.Y.2007-08 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT NO PENALTY U/S.271C IS LEVIABLE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT NO PENALTY U/S.271C IS LEVIABLE DESPIT E HOLDING THAT AN INTEREST U/S.201(1) AND 201(1A) WAS CORRECTLY LEVIE D ON CERTAIN PAYMENTS, WHILE ALLOWING SOME RELIEF TO THE ASSESSE E ON THE ADDITIONS MADE BY THE AO. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN APPLYING THE SECTION 273B DESPITE THE FACT THAT THE RECOURSE WAS AVAILABLE TO THE ASSESSEE U/S.248 OF THE ACT. 4. THE APPELLANT CRAVES LEAVE TO ADD, TO MODIFY ANY OF THE GROUNDS OF APPEAL. 2. THE CRUX OF THE GRIEVANCE OF THE REVENUE IN THIS APPE AL IS WITH RESPECT TO THE DELETION OF PENALTY LEVIED U/S.271C OF THE INCOME TA X ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT'). 3. THE BRIEF FACTS IN THIS CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF SELLING AGRICULTURAL EQUIPMENTS. IT HAS SET U P A MANUFACTURING UNIT AT SANASWADI NEAR PUNE. DURING THE YEA R UNDER CONSIDERATION, THE ASSESSEE PAID RS.5,19,28,969/- TO DEERE & COMPANY USA WITHOUT DEDUCTING TAX AT SOURCE FOR ACQUIRING SAP LICENSE , E-MAIL FACILITY, DISK STORAGE AND FOR OTHER SYSTEMS EXPENSES. THE ASSESSING OFFICER IN THE ORDER PASSED U/S.201(1) AND 201(1A) HELD THAT THE ABOVE PAYMENT S ARE LIABLE TO BE TAXED AS EITHER ROYALTY OR FTS U/S. 9(1)(VI) AND 9(1)(VII) OF TH E ACT AS WELL AS UNDER ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEM ENT (DTAA) BETWEEN INDIA AND USA. ACCORDINGLY, THE ASSESSING OFFICER RAISED TH E TOTAL DEMAND OF TAX AND INTEREST OF RS.1,62,63,834/-. THE ASSESSING OFFICER INIT IATED PENALTY PROCEEDINGS AND LEVIED THE PENALTY OF RS.91,63,936/- U/S.271 C VIDE ORDER DATED 13.06.2014. 4. AGGRIEVED BY THIS PENALTY ORDER PASSED BY THE ASSES SING OFFICER, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(APPEALS). THE LD. CIT (APPEALS) AFTER 3 ITA NO. 1342/PUN/2015 A.Y.2007-08 CONSIDERING THE FACTS OF THE CASE, ASSESSMENT ORDER AND SUBMISSIONS OF THE ASSESSEE HELD AS FOLLOWS: 2.6 I HAVE CONSIDERED THE FACTS AND ARGUMENTS OF THE AP PELLANT. THE LEARNED AO HAS HELD THAT THESE PAYMENTS ARE TAXABLE ; THEREFORE, THE APPELLANT OUGHT TO HAVE DEDUCTED TAX AT SOURCE DESP ITE DEBATABLE NATURE OF ITS TAXABILITY. THE LEARNED AO HAS STATED THAT I N CASE OF DOUBT, THE APPELLANT OUGHT TO HAVE APPROACHED THE AO U/S. 195( 2) AND SHOULD HAVE OBTAINED THE CLARIFICATION ON THE SAME. THE DEPARTM ENT'S STAND IS CLEAR AND HAS BEEN CONSISTENT ON THIS ISSUE. THE DEPARTME NT CONSIDERS THE ABOVE PAYMENTS TO BE TAXABLE ON THE BASIS OF THE SE VERAL COURT DECISIONS IN ITS FAVOUR. 2.7 I DO NOT AGREE WITH THE LEARNED AO THAT THIS IS FIT CASE FOR LEVYING PENALTY U/S 271 C. THE APPELLANT HAS STATED THAT TH ERE ARE NUMBER OF DECISIONS FAVOURING ASSESSEE. OUT OF WHICH, SOME OF THE DECISIONS WERE RENDERED BEFORE THE AY UNDER CONSIDERATION. THE LEA RNED AO HAS STATED THAT THE APPELLANT WAS WELL AWARE OF THE DEPARTMENT 'S CONSISTENT POSITION ON THIS ISSUE. I AGREE WITH THE LEARNED AO HERE HOW EVER, THIS FACT DOES NOT MAKE THIS ISSUE OF UNDISPUTED IN NATURE. SECONDLY, THE ARGUMENT OF THE DEBATABLE NATURE OF TAXABILITY IS NOT TO BE TAKEN I N A MANNER SO AS TO CONCLUDE THAT THE APPELLANT WAS DOUBTFUL AS TO WHET HER THE PAYMENT IS TAXABLE OR NOT WHAT THE APPELLANT HAS ARGUED IS THA T THOUGH IT WAS OF THE VIEW THAT THE PAYMENT IS NOT TAXABLE, WHEREAS MANY OTHERS WERE OF THE VIEW THAT THE PAYMENT IS TAXABLE AND HENCE, PENALTY CANNOT BE LEVIED ON AN ISSUE ON WHICH, THERE IS NO UNANIMITY IN INTERPR ETATION OF LAW. AS ON TODAY, THERE ARE DECISIONS IN FAVOUR OF THE APPELLA NT AS WELL AS AGAINST THE ASSESSEE, WHICH IS INDICATIVE OF THE FACT THAT THE ISSUE IS DEBATABLE IN NATURE AND ALSO OF THE FACT THAT APPELLANT MAY HAVE BONA FIDE BELIEF THAT SUCH PAYMENT IS NOT TAXABLE. ACCORDING TO ME, BONA FIDE BELIEF OF NON- TAXABILITY OF THE PAYMENTS BASED ON THE FAVOURABLE COURT DECISIONS WOULD CONSTITUTE A 'REASONABLE CAUSE U/S. 273B. ON THE O THER HAND, THE LEARNED AOS ARGUMENT AMOUNTS TO STATING THAT ASSESSEE HAVE TO ACCEPT DEPARTMENTAL VIEW AND THEY ARE NOT ENTITLED TO THEI R VIEW. IN MY VIEW, THE LEARNED AOS SUCH POSITION IS NOT JUSTIFIED. 2.8.IN VIEW OF THE ABOVE, I AM OF THE VIEW THAT ,TH E LEARNED AO'S REASONING MAY BE SUFFICIENT FOR LEVYING TAX AND INTEREST ON T HE APPELLANT U/S 201 AND 201 (1A). HOWEVER, THE SAME CANNOT BE A GROUND FOR LEVYING PENALTY AS DISPUTED LEGAL NATURE OF THE ISSUE CAN BE THE BA SIS OF APPELLANT'S BONA FIDE BELIEF OF NON-TAXABILITY OF THE PAYMENT. THERE FORE, ACCORDING TO ME, THERE IS NO CASE F OR LEVY OF PENALTY U/S 271C. I DELETE THE PENALTY OF RS.91,63,936/- LEVIED BY THE LEARNED AO. THE LD. CIT(APPEALS) HAS PROVIDED RELIEF TO THE ASSESSEE ON GROUND THAT TWO VIEWS ARE PLAUSIBLE IN THIS CASE. 5. AT THE TIME OF HEARING, THE LD. AR OF THE ASSESSEE AP PRAISED THE BENCH THAT THE QUANTUM APPEAL HAS BEEN DECIDED IN FAVOUR OF TH E ASSESSEE BY THE CO-ORDINATE BENCH OF THE PUNE TRIBUNAL IN ITA NO.905 & 9 06/PUN/2015 VIDE 4 ITA NO. 1342/PUN/2015 A.Y.2007-08 PARA 90 AND 93 OF THE SAID TRIBUNALS ORDER. AT PARA 90 OF THE TRIBUNALS ORDER, IT HAS BEEN CLEARLY HELD THAT PURCHASE OF SOFTWARE BY THE AS SESSEE 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 COPYRIG HT IN THE SOFTWARE, IS NOT COVERED UNDER EXPLANATION 2 TO SECTION 9(1)(VI) OF THE A CT. THE TRIBUNAL FURTHER HELD THAT AMENDED DEFINITION OF 'ROYALTY' UNDER THE DOMESTIC LAW CANNOT BE EXTENDED TO THE DEFINITION OF 'ROYALTY' UNDER D TAA, 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 U SE ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK, ETC. THU S, PURCHASE OF COPYRIGHTED ARTICLE DOES NOT FALL WITHIN THE REALM OF 'ROYALT Y'. THE TRIBUNAL ALSO HELD THAT SINCE THE PROVISIONS OF DTAA OVERRIDES THE PROVISIONS OF INCOME TAX ACT AND ARE MORE BENEFICIAL AND THE DEFINITION OF 'ROYALT Y' HAVING NOT UNDERGONE ANY AMENDMENT IN DTAA, THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX FOR PAYMENTS MADE FOR PURCHASE OF SOFTWARE. HENCE, T HE ASSESSEE CANNOT BE HELD TO BE IN DEFAULT AND THE DEMAND CREATED UNDER SECTION 201(1) AND INTEREST CHARGED UNDER SECTION 201(1A) OF THE ACT WAS THUS CANCELLE D. 5.1 SIMILARLY AT PARA 93 IN THAT TRIBUNALS ORDER, IT HAS BE EN OBSERVED BY THE TRIBUNAL THAT THE ASSESSEE HAS FILED BREAK UP OF EXP ENSES AT PAGES 164 AND 165 OF THE FACTUAL PAPER BOOK. THE INTERNET CHARGES PAID, LINE CHARGES, SERVICE CHARGES AND OTHER CHARGES ETC. WERE NOT PAYME NT OF ROYALTY AND THERE WAS NO REQUIREMENT TO DEDUCT TAX AT SOURCE OUT OF SUC H PAYMENTS. THE LD. AR OF THE ASSESSEE THEREAFTER, SUBMITTED THAT WHERE ON ONE HAND, THE LD. CIT(APPEALS) HAS PROVIDED RELIEF ON THE FINDINGS THAT TWO VIEW S ARE PLAUSIBLE, HOWEVER, IN THE TRIBUNALS ORDER IN ASSESSEES OWN CASE, QUANTUM ITSELF HAS BEEN DELETED. THEREFORE, THERE CANNOT BE ANY CASE FOR LEVY OF PENA LTY U/S.271C OF THE ACT. 5 ITA NO. 1342/PUN/2015 A.Y.2007-08 6. WE HAVE PERUSED THE CASE RECORDS AND HEARD THE R IVAL CONTENTIONS AND ALSO CONSIDERED THE JUDICIAL PRONOUNCEMENTS PLACED BEFORE US. IT HAS BEEN DEMONSTRATED BY THE LD. AR OF THE ASSESSEE THAT THE IS SUE IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL I N ASSESSEES OWN CASE IN ITA NO.905 & 906/PUN/2015 (SUPRA.) WHEREIN IT HAS BEEN ANALYZED AND HELD THAT PURCHASE OF SOFTWARE BY THE ASSESSEE IS N OT COVERED WITHIN THE AMBIT OF THE TERMS ROYALTY U/S.9(1)(VI) OF THE ACT AND THER EFORE, THE ASSESSEE CANNOT BE HELD TO BE IN DEFAULT AND THEREFORE, DEMAND CRE ATED U/S.201(1) AND INTEREST CHARGED U/S.201(1A) OF THE ACT WAS CANCELLED. ACCO RDINGLY, WE ARE OF THE CONSIDERED VIEW THAT WHERE QUANTUM ITSELF HAS BEEN D ELETED, THERE IS NO CASE FOR THE REVENUE LEVYING PENALTY U/S.271C OF THE ACT. EVEN OTHERWISE, THE LD.CIT(APPEALS) HAS ANALYZED THE FACT UAL PARAMETERS AND THE PLAUSIBLE TWO VIEWS EMERGING AND BONA -FIDE BELIEF ON THE PART OF THE ASSESSEE FOR NON DEDUCTION OF TAX ON THE G ROUND THAT PURCHASE OF SOFTWARE IS NOT COVERED WITHIN THE AMBIT OF TERMS ROYALTY AS PERCEIVED IN THE ACT. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(APPEA LS) WHICH IS THEREBY UPHELD. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 08 TH DAY OF APRIL, 2019. SD/- SD/- D. KARUNAKARA RAO PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER / PUNE; / DATED : 08 TH APRIL, 2019. SB 6 ITA NO. 1342/PUN/2015 A.Y.2007-08 !'#$%&'&$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS)-13, PUNE. 4. THE CIT(IT/TP), PUNE. 5. '#$ %%&' , ( &' , )*+ , / DR, ITAT, A BENCH, PUNE. 6. $,- ./ / GUARD FILE. // TRUE COPY // (0 / BY ORDER, %1 &+ / PRIVATE SECRETARY ( &' , / ITAT, PUNE. 7 ITA NO. 1342/PUN/2015 A.Y.2007-08 DATE 1 DRAFT DICTATED ON 0 8 .0 4 .2019 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 08 .0 4 .201 9 SR.PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 DATE OF UPLOADING OF ORDER SR.PS/PS 8 FILE SENT TO BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER