Intertec Software Pvt. Ltd., Bangalore V. ITO, Bangalore

ITA 1388/BANG/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7458 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-09-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 01-10-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N SUKUMAR
• Assessee Lawyers: B S SUDHEENDRA
• Keywords: Question of law; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER IT (IT) A NO. 1 388 /BANG/201 3 ASSESSMENT YEAR : 20 1 0 - 11 M/S. INTERTEC SOFTWARE PVT. LTD., S. K. VISTA, NO. 21, RUSTUM BAGH, BEHIND MANIPAL HOSPITAL, OLD AIRPORT ROAD, BANGALORE 560 017. PAN: AA BCI1051R VS. THE ITO (INTL. TAXN.), WARD 1 (2), BANGALORE. APPELLANT RESPONDENT ASSESSEE BY : SHRI B. S. SUDHEENDRA, CA REVENUE BY : SHRI N. SUKUMAR, ADDL. CIT (DR) DATE OF HEARING : 1 1 .0 9 .201 7 DATE OF PRONOUNCEMENT : 13 . 1 0 .2017 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE O RDER OF LD. CIT (A)-IV, BANGALORE DATED 26.08.2013 FOR ASSESSMENT YEAR 2010 -11. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. 1. THE LEARNED ASSESSING OFFICER HAS ERRED IN PASSI NG THE ORDER IN MANNER PASSED BY HIM AND THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE SAME. THE ORD ERS PASSED WITHOUT JURISDICTION BEING BECOMES BAD IN LAW AND ARE LIABL E TO BE QUASHED. 2.1 IN ANY CASE AND WITHOUT PREJUDICE, THE LEARNED ASSESSING OFFICER HAD ERRED IN TREATING THE APPELLANT AS ASSESSEE IN DEFAULT ON THE GROUND THAT THE PAYMENTS MADE BY THE APPELLANT FOR PURCHAS E OF SOFTWARE IT(IT)A NO. 1388/BANG/2013 PAGE 2 OF 6 LICENSES CONSTITUTED ROYALTY PAYMENTS IN TERMS OF S EC. 9(1 )(IV) AND THE APPELLANT HAD DEFAULTED IN NOT DEDUCTING TAX AT SOU RCE ON THE SAID PAYMENT BY THE AUTHORITIES BELOW. THE LEARNED CIT(A ) HAS ALSO ERRED IN CONFIRMING THE SAME. THE CONCLUSIONS DRAWN ARE AGAI NST THE FACTS OF THE CASE, EVIDENCE AND THE LAW APPLICABLE. THE ABOVE CO NCLUSIONS BEING WHOLLY ERRONEOUS AND NOT TENABLE IN LAW ARE LIABLE TO BE DISREGARDED. 2.2 THE LEARNED ASSESSING OFFICER HAS ERRED IN CALC ULATING TAX @ 10% ON THE AFORESAID PAYMENTS AND ALSO ERRED IN LEVYING INTEREST OF RS. 11,23,032/- U/S. 201(1)(A) OF THE ACT, AND THE LEAR NED CIT(A) HAS ERRED IN CONFIRMING THE SAME. ON THE FACTS AND CIRCUMSTAN CES OF THE CASE, THERE BEING NO LIABILITY TO DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE BY THE APPELLANT, THE LEVY OF TAX AND INTEREST BEIN G BAD IN LAW AND ARE LIABLE TO BE DELETED. 2.3 IN ANY CASE AND WITHOUT FURTHER PREJUDICE, THE LEVY OF TAX AND INTEREST IS ERRONEOUS AND ALSO EXCESSIVE. 3. IN ANY CASE, THE AUTHORITIES BELOW HAVE ERRED IN NOT CONSIDERING THE PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGREEMENTS IN PROPER PERSPECTIVE. ON PROPER CONSIDERATION OF DOUBLE TAXA TION AVOIDANCE AGREEMENTS, THE PAYMENTS MADE BY THE APPELLANT WOUL D NOT WARRANT ANY TAX DEDUCTION AT SOURCE. 4.THE VARIOUS CASE LAWS AND JUDICIAL RELIED UPON BY THE AUTHORITIES BELOW ARE NOT APPLICABLE TO THE FACTS OF THE CASE. THE CONCLUSIONS DRAWN BASED ON INAPPLICABLE / INAPPROPRIATE PRONOUNCEMENT S ARE TO BE TOTALLY DISREGARDED AND ORDER PASSED IS TO BE QUASHED. 5. IN VIEW OF THE ABOVE AND ON OTHER GROUNDS TO BE ADDUCED AT THE TIME OF HEARING, IT IS REQUESTED THAT THE ORDER PASSED B E QUASHED OR ATLEAST THE APPELLANT BE HELD NOT TO BE AN ASSESSEE IN DEFA ULT AND CONSEQUENTLY THE DEMAND OF TAX AND INTEREST AS LEVIED BE DELETED . 3. IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT LEARNED CIT (A) HAS FOLLOWED THE JUDGMENT OF HONBLE KARNATAKA HIGH COU RT RENDERED IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO. LTD. AS REPORTED IN 245 CTR 481. HE SUBMITTED THAT BY A LATER JUDGMENT OF HONBLE KARNA TAKA HIGH COURT RENDERED IN THE CASE OF WIPRO LTD. VS. DCIT AS REPORTED IN 3 82 ITR 179, SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE EARLIER JUDGMENT OF THE SAME HIGH COURT RENDERED IN THE CASE OF THE SAME AS SESSEE IN ITA 507 OF 2002 IT(IT)A NO. 1388/BANG/2013 PAGE 3 OF 6 ON 25.08.2010 AND IT WAS HELD THAT NO DISALLOWANCE CAN BE MADE U/S 40 (A) (I) OF I. T. ACT IN RESPECT OF SOFTWARE IMPORTED WHICH IS IN THE NATURE OF ROYALTY U/S 9 (1) (VI) OF I. T. ACT. HE SUBMITTED A COPY OF BOTH THESE JUDGMENTS OF HONBLE KARNATAKA HIGH COURT. AT THIS JUNCTURE, A Q UERY WAS RAISED BY THE BENCH AS TO WHETHER THE JUDGMENT OF HONBLE KARNATA KA HIGH COURT RENDERED IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO. LTD. (SUPRA) WAS BROUGHT TO THE NOTICE OF HONBLE KARNATAKA HIGH COURT IN THE L ATER CASE DECIDED ON 25.03.2015 BECAUSE THE JUDGMENT OF HONBLE KARNATAK A HIGH COURT RENDERED IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO. LTD. (SUPRA) IS DATED 15.10.2011. IN REPLY, LEARNED AR OF THE ASSESSEE SU BMITTED THAT THE EARLIER JUDGMENT IN THE CASE OF WIPRO LTD. (SUPRA) DATED 25 .08.2010 WAS ALSO NOT BROUGHT TO THE NOTICE OF HONBLE KARNATAKA HIGH COU RT IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO. LTD. (SUPRA) DECIDED ON 15. 10.2011 AND THEREFORE, THE FIRST JUDGMENT DATED 25.08.2010 SHOULD BE FOLLO WED AND THIS JUDGMENT IS IN FAVOUR OF THE ASSESSEE. IN REPLY, LEARNED DR OF THE REVENUE SUPPORTED THE ORDER OF CIT (A) AND SUBMITTED THAT BOTH THE JUDGME NTS IN THE CASE OF WIPRO LTD. (SUPRA) ARE IN THE CONTEXT OF SECTION 40 (A) ( I) WHEREAS THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE O F CIT VS. SAMSUNG ELECTRONICS CO. LTD. (SUPRA) IS IN CONTEXT OF SECTI ON 195 AND IN THE PRESENT CASE ALSO, THE DISPUTE IS IN CONTEXT OF SECTION 195 AND THEREFORE, THIS JUDGMENT IT(IT)A NO. 1388/BANG/2013 PAGE 4 OF 6 RENDERED IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO. LTD. (SUPRA) SHOULD BE FOLLOWED. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST, W E EXAMINE THE APPLICABILITY OF THE FIRST JUDGMENT OF HONBLE KARNATAKA HIGH COU RT RENDERED IN THE CASE OF WIPRO LTD. VS. DCIT (SUPRA) RENDERED ON 25.08.20 10. IN THIS CASE, THE SUBSTANTIAL QUESTION OF LAW RAISED AS PER PARA 37 W AS AS UNDER:- WHETHER THE TRIBUNAL IS CORRECT IN ALLOWING EXPEND ITURE ON IMPORTED SOFTWARE WHEN THE EXPENDITURE PER SE IS CAPITAL IN NATURE AND IS NOT ALLOWABLE? 5. FROM THIS SUBSTANTIAL QUESTION OF LAW, IT COMES OUT THAT IN THAT CASE, THIS WAS NOT A DISPUTE BEFORE HONBLE KARNATAKA HIGH COURT AS TO WHETHER THE IMPORT OF SOFTWARE IS ROYALTY OR NOT? THE DISPUTE IN THAT CASE WAS THIS THAT THE IMPORT OF SOFTWARE IS CAPITAL EXPENSE IN THAT CASE AND THE REFORE, HOW THE SAME CAN BE ALLOWED AS DEDUCTION. IN THAT CASE ALSO, THE A.O. H ELD THAT THE PAYMENT FOR SOFTWARE IS ROYALTY AND SINCE TDS WAS NOT DEDUCTED, IT IS TO BE DISALLOWED U/S 40 (A) (I) BUT WHEN THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT (A), HE HELD THAT IT IS NOT ROYALTY AND THEREFORE, CANNO T BE DISALLOWED U/S 40 (A) (I). THE REVENUE FILED APPEAL BEFORE THE TRIBUNAL BUT TH E DISPUTE RAISED WAS NOT THIS THAT IT IS ROYALTY OR NOT? THE DISPUTE RAISED WAS T HIS THAT IT IS CAPITAL EXPENDITURE AND THEREFORE, CANNOT BE ALLOWED. THE T RIBUNAL HELD THAT THE TRIBUNAL CANNOT GO INTO THIS QUESTION AS THIS IS NO T WHAT WAS URGED BEFORE THE LOWER AUTHORITIES. THE REVENUE FILED APPEAL BEFORE HONBLE KARNATAKA HIGH IT(IT)A NO. 1388/BANG/2013 PAGE 5 OF 6 COURT AND THE TRIBUNAL ORDER WAS CONFIRMED. HENCE, THIS IS SEEN THAT AS PER THIS JUDGMENT OF HONBLE KARNATAKA HIGH COURT, THE DECIS ION IS NOT ON THIS ASPECT THAT IT IS ROYALTY OR NOT AND THEREFORE, THIS JUDGM ENT IS NOT RELEVANT IN THE PRESENT CASE. 6. NOW, WE EXAMINE THE APPLICABILITY OF THE SECOND JUD GMENT OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF WIPRO LTD. VS. DCIT (SUPRA) RENDERED ON 25.03.2015. AS PER THIS JUDGMENT, IN PA RA 171, IT WAS HELD THAT IN EARLIER JUDGMENT DATED 25.08.2010, SIMILAR QUESTION WAS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND THEREFORE, IN THOSE APPEALS ALSO, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. WE HAV E ALREADY SEEN THAT THE DECISION DATED 25.08.2010 IS NOT ON THIS ASPECT THA T IT IS ROYALTY OR NOT AND THEREFORE, THIS JUDGMENT IS NOT RELEVANT IN THE PRE SENT CASE. ACCORDINGLY, THIS LATER JUDGMENT DATED 25.03.2015 IS ALSO NOT RELEVAN T. 7. THERE IS NO DISPUTE THAT THE PRESENT ISSUE IS COVER ED AGAINST THE ASSESSEE BY THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDER ED IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO. LTD. (SUPRA) AND LEARNE D AR OF THE ASSESSEE HAS MERELY CITED THESE TWO JUDGMENTS RENDERED IN THE CA SE OF WIPRO LTD. (SUPRA) AND NO OTHER ARGUMENT WAS MADE TO THE EFFECT THAT T HIS ISSUE IS NOT COVERED AGAINST THE ASSESSEE BY THIS JUDGMENT OF HONBLE KA RNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO. LTD. (SUPRA). SINCE, THESE TWO JUDGMENTS CITED BY HIM ARE NOT APPLICABLE AS PER ABOVE DISCUSSION; IT(IT)A NO. 1388/BANG/2013 PAGE 6 OF 6 WE RESPECTFULLY FOLLOW THE JUDGMENT OF HONBLE KARN ATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO. LTD. (SUPRA) AND DECLINE TO INTERFERE IN THE ORDER OF CIT (A). 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (LALIET KUMAR) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 13 TH OCTOBER, 2017. / MS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.