M/s. Cybertech B.V (now merged with NICE Netherlands B.V.), Alkmaar V. Joint Commissioner Of Income Tax (International Taxation), Circle- 1(2), Bangalore

ITA 1514/BANG/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1387 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 22-06-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 21-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA
• Keywords: Double taxation relief; Question of law; TDS
• Section: 195; 201; 9(1); 9(1); 9(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(IT)A NO.1514/BANG/2019 ASSESSMENT YEAR: 2013-14 NICE NETHERLANDS B.V. (SUCCESSOR IN INTEREST OF CYBER TECH B.V.) COMENIUSSTRAAT 5, 1817 MS ALKMAAR. PAN NO : AAECC 7877 N VS. THE JT. COMMISSIONER OF INCOME-TAX (INTERNATIONAL TAXATION) CIRCLE-1(2) BANGALORE. APPELLANT RESPONDENT ASSESSEE BY : SHRI ALIASGER RAMPURAWALA, C.A RE VENUE BY : SHRI PRIYADARSHI MISHRA, ADDL. CIT (DR) DATE OF HEARING : 22.06.2021 DATE OF PRONOUNCEMENT : 02.07.2021 O R D E R PER BEENA PILLAI, JUDICIAL MEMBER: PRESENT APPEAL HAS BEEN FILED BY ASSESSEE A GAINST ORDER DATED 30/03/2019 PASSED BY LD.CIT(A)-12. 2. ADMITTEDLY, ASSESSEE HAD PURCHASED THE SOFTWARE FROM A COMPANY LOCATED IN ISRAEL. THE LD.AO TOOK A VIEW TH AT PAYMENT MADE FOR PURCHASE OF SOFTWARE WAS IN THE NATURE OF ROYALTY AND THAT ASSESSEE WAS REQUIRED TO DEDUCT TDS WHILE MAKI NG SUCH PAYMENT. 3. THE LD.AO FOLLOWING THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS SAMSUNG ELECTRONICS CO. LTD. , REPORTED IN (2011) 16 TAXMANN.COM 141 , HELD THAT, PAYMENT MADE BY PAGE 2 OF 6 IT(IT)A NO.1514/BANG/2019 ASSESSEE TO THE NON-RESIDENT COMPANY WOULD AMOUNT T O ROYALTY WITHIN THE MEANING OF ARTICLE 12 OF INDO ISRAEL DTA A AND THERE WAS AN OBLIGATION ON THE PART OF ASSESSEE TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT. 4. AT THE OUTSET BOTH SIDES SUBMITTED THAT THE ISSU E RAISED ON MERITS IN THE PRESENT APPEAL NOW STANDS SQUARELY CO VERED BY THE DECISION OF HONBLE SUPREME COURT IN CASE OF ENGINEERING ANALYSIS CENTRE FOR EXCELLENT PVT.LTD VS CIT REPORTED IN (2021) 125 TAXMANN.COM 42. 5. THE LD.AR SUBMITTED THAT, FOLLOWING THE DECISION OF HONBLE SUPREME COURT, HONBLE KARNATAKA HIGH COURT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12, IN ITA NO. 7/2019 BY ORDER DATED 26/03/2021 DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. 6. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SID ES IN LIGHT OF RECORDS PLACED BEFORE US. 7. WE NOTE THAT THE FACTS AND FOR ASSESSMENT YEAR 2 011-12 DECIDED BY HONBLE KARNATAKA HIGH COURT IN ASSESSEES OWN CASE ARE SIMILAR TO THE PRESENT FACTS BEFORE US. THE QUE STION OF LAW CONSIDERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE WAS AS UNDER: WHETHER THE TRIBUNAL WAS JUSTIFIED IN CONFIRMING THE ORDER OF ASSESSMENT WHERE UNDER IT CAME TO BE HELD THAT A MOUNT RECEIVED BY THE ASSESSEE FOR SALE OF SOFTWARE AMOUN TING TO ROYALTY AS DEFINED UNDER EXPLANATION 2 TO SECTION 9 (1)(VI) OF THE INCOME TAX ACT, 1961 AND UNDER SECTION 12 OF TH E INDI- ISRAEL (DTAA) AND THEREBY GIVING RISE TO AN INCOME CHARGEABLE TO TAX IN INDIA? 8. HONBLE KARNATAKA HIGH COURT OBSERVED AND HELD AS UNDER: PAGE 3 OF 6 IT(IT)A NO.1514/BANG/2019 THE CONTROVERSY INVOLVED IN THE PRESENT CASE, AS I NFORMED BY THE LEARNED COUNSEL FOR THE PARTIES STANDS CONCLUDED OR ACCOUNT OF THE JUDGMENT DELIVERED BY THE HONBLE SUPREME COURT IN THE CASE OF ENGINEERING ANALYSES CENTRE FOR EXCELLENCE PRIVATE LIMITED VS COMMISSIONER OF INCOME TAX & ANOTHER - AIR 2021 SC 124. THE APEX COURT IN THE AFORESAID CASE HAS HELD IN PARAGRAPHS 27, 47, 52, 168 & 169 AS UNDER: '27. THE MACHINERY PROVISION CONTAINED IN SECTION 1 95 OF THE INCOME TAX ACT IS INEXTRICABLY LINKED WITH THE CHARGING PROVIS ION CONTAINED IN SECTION 9 READ WITH SECTION 4 O THE IN COME TAX ACT, AS A RESULT OF WHICH, A PERSON RESIDENT IN INDIA, RESPON SIBLE FOR PAYING A SUM OF MONEY, 'CHARGEABLE UNDER THE PROVISIONS OF [THE] ACT', TO A NON- RESIDENT, SHALL AT THE TIME OF CREDIT OF SUCH AMOUN T TO THE ACCOUNT OF THE PAYEE IN ANY MODE, DEDUCT TAX AT SOURCE AT THE RATE IN FORCE WHICH, UNDER SECTION (37A)(III) OF THE INCOME. TAX ACT, IS THE R ATE IN FORCE PRESCRIBED BY THE DTAA. IMPORTANTLY, SUCH DEDUCTION IS ONLY TO B E MADE IF 'THE NON- RESIDENT IS LIABLE TO PAY TAX UNDER THE CHARGING PR OVISION CONTAINED IN SECTION 9 READ WITH SECTION 4 OF THE INCOME TAX ACT , ,READ WITH THE DTAA. THUS, IT IS ONLY WHEN THE NON-RESIDENT IS LIABLE TO PAY INCOME TAX IN INDIA ON INCOME DEEMED TO ARISE IN INDIA AND NO DEDUCTION OF TDS IS MADE UNDER SECTOR 105(1) OF THE INCOME TAX ACT, OR SUCH PERION HAS, AFTER APPLYING SECTION 195(2) OF THE INCOME TAX ACT, NOT DEDUCTED SUCH PROPORTION OF TAX AS IS REQUIRED, THAT THE CONSEQUE NCES OF A FAILURE TO DEDUCT AND PAY, REFLECTED IN SECTION 201 OF THE INC OME TAX ACT, FOLLOW, BY VIRTUE OF WHICH THE RESIDENT-PAYEE IS DEEMED AN 'AS SESSEE IN DEFAULT', AND THUS, IS MADE LIABLE TO PAY TAX, INTEREST AND P ENALTY THEREON. THIS POSITION IS ALSO MADE AMPLY CLEAR BY THE REFERRAL O RDER IN THE CONCERNED APPEALS FROM THE HIGH COURT OF KARNATAKA, NAMELY, THE JUDGMENT OF THIS CO URT IN GE TECHNOLOGY (SUPRA). 47. IN ALL THESE CASES, THE 'LICENCE' THAT IS GRANT ED VIDE THE EULA, IS RIOT A LICENCE IN TERMS OF SECTION 30 OF THE COPYRIGHT ACT , WHICH TRANSFERS AN INTEREST IN ALL OR ANY OF THE RIGHTS CONTAINED IN S ECTIONS 14(A) AND 14(B) OF THE COPYRIGHT ACT, BUT S A 'LICENCE' WHICH IMPOSES RESTRICTIONS OR CONDITIONS FOR THE USE OF COMPUTER SOFTWARE. THUS I T CANNOT BE SAID THAT ANY OF THE EULAS THAT WE ARE CONCERNED WITH ARE REF ERRED LO SECTION 30 OF THE COPYRIGHT ACT, INASMUCH AS SECTION 30 OF THE COPYRIGHT ACT SPEAKS OF GRANTING AR1 INTEREST IN ANY OF THE RIGHTS MENTI ONED IN SECTIONS 14(A) AND 14(B) OF THE COPYRIGHT ACT. THE EULAS IN ALL TH E APPEALS BEFORE US DO NOT GRANT ANY SUCH RIGHT OR INTEREST, !EAST OF ALL, A RIGHT OR INTEREST TO REPRODUCE THE COMPUTER SOFTWARE. IN POINT OF FACT, SUCH REPRODUCTION IS EXPRESSLY INTERDICTED, AND IT IS ALSO EXPRESSLY STA TED THAT NO VESTIGE OF COPYRIGHT IS AT ALL TRANSFERRED, EITHER TO THE DIST RIBUTOR OR TO THE END-USER. A SIMPLE ILLUSTRATION TO EXPLAIN THE AFORESAID POSI TION WILL SUFFICE. IF AN ENGLISH PUBLISHER SELLS 2000 COPIES OF A PARTICULAR BOOK TO AN INDIAN PAGE 4 OF 6 IT(IT)A NO.1514/BANG/2019 DISTRIBUTOR, WHO THEN RESELLS THE SAME AT A PROFIT, NO COPYRIGHT IN THE AFORESAID BOOK IS TRANSFERRED TO THE INDIAN DISTRIB UTOR, EITHER BY WAY OF LICENCE OR OTHERWISE, INASMUCH AS THE INDIAN DISTRI BUTOR ONLY MAKES A PROFIT ON THE SALE OF EACH HOOK. IMPORTANTLY, THERE IS NO RIGHT IN THE INDIAN DISTRIBUTOR TO REPRODUCE THE AFORESAID BOOK AND THE N SELL COPIES OF THE SAME. ON THE OTHER HAND, IF AN ENGLISH PUBLISHER WE RE TO SELL THE SAME BOOK TO AN INDIAN PUBLISHER, THIS TIME WITH THE RIG HT TO REPRODUCED AND MAKE COPIES OF THE AFORESAID BOOK WITH THE PERMISSI ON OF THE AUTHOR IT CAN BE SAID THE COPYRIGHT IN THE BOOK HAS BEEN TRA NSFERRED BY WAY OF LICENCE OR OTHERWISE, AND WHAT THE INDIAN PUBLISHER WILL PAY FOR, IS THE RIGHT TO REPRODUCE THE BOOK, WHICH CAN THEN BE CHAR ACTERIZED AS ROYALTY FOR THE EXCLUSIVE RIGHT TO REPRODUCE THE BOOK IN TH E TERRITORY MENTIONED BY THE LICENCE. 52. THERE CAN BE NO DOUBT AS TO THE REAL NATURE OF THE TRANSACTIONS IN THE APPEALS BEFORE US. WHAT IS 'LICENSED' BY THE FOREIG N, NON-RESIDENT SUPPLIER TO THE DISTRIBUTOR AND RESOLD TO THE RESID ENT END-USER, OR DIRECTLY SUPPLIED TO THE RESIDENT END-USER, IS IN FACT THE S ALE OF A PHYSICAL OBJECT WHICH CONTAINS AN EMBEDDED COMPUTER PROGRAMME, AND IS THEREFORE, A SALE OF GOODS, WHICH, AS HAS BEEN CORRECTLY POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEES, THE LAW DECLARED BY THIS COURT IN THE CONTEXT OF SALES TAX STATUTE IN TATA CONSULTANCY SERVICES V . STATE OF A.P., 2005(1) SCC 308 (SEE PARAGRAPH 27). 168. GIVEN THE DEFINITION OF ROYALTIES CONTAINED I N ARTICLE 12 OF THE DTAAS MENTIONED IN PARAGRAPH 41 OF THIS JUDGMENT, I T IS CLEAR THAT THERE IS NO OBLIGATION ON THE PERSONS MENTIONED IN S.195 OF THE INCOME TAX ACT TO DEDUCT TAX AT SOURCE, AS THE DISTRIBUTION AGREEM ENTS/EULAS IN THE FACTS OF THESE CASES DO NOT CREATE ANY INTEREST OR RIGHT IN SUCH DISTRIBUTORS/END-USERS, WHICH WOULD AMOUNT O THE US E OF OR RIGHT TO USE ANY COPYRIGHT. THE PROVISIONS CONTAINED IN THE INCO ME TAX ACT (S. 9(1) (VI), ALONG WITH EXPLANATIONS 2 AND 4 THEREOF), WHICH DEA L WITH ROYALTY, NOT BEING MORE BENEFICIAL TO THE ASESSEES, HAVE NO APPL ICATION IN THE FACTS OF THESE CASES. 169. OUR ANSWER TO THE QUESTION POSED BEFORE US, IS THAT THE AMOUNTS PAID BY RESIDENT INDIAN END-USERS/DISTRIBUTORS TO N ON-RESIDENT COMPUTER SOFTWARE MANUFACTURE/SUPPLIERS, AS CONSIDERATION FO R THE RESALE/USE OF THE COMPUTER SOFTWARE THROUGH EULAS/DISTRIBUTION AG REEMENTS, IS NOT THE PAYMENT OF ROYALTY' FOR THE USE OF COPYRIGHT IN THE COMPUTER SOFTWARE AND THAT THE SAME DOES NOT GIVE RISE TO ANY INCOME TAXA BLE IN INDIA, AS A RESULT OF WHICH THE PERSONS REFERRED TO IN SECTION 195 OF THE INCOME TAX ACT WERE NOT LIABLE TO DEDUCE ANY TDS UNDER SECTION 195 OF THE INCOME TAX ACT. THE ANSWER TO THIS QUESTION WILL APPLY TO ALL, FOUR CATEGORIES OF CASES ENUMERATED BY US, IN PARAGRAPH-4 OF THIS JUDG MENT. 8. IN THE LIGHT OF THE AFORESAID JUDGMENT DELIVERED BY THE HON'BLE SUPREME COURT, THE QUESTION OF LAW FRAMED IN THE PR ESENT APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE. PAGE 5 OF 6 IT(IT)A NO.1514/BANG/2019 9. IN THE LIGHT OF THE ABOVE OBSERVATIONS, AND RESP ECTFULLY FOLLOWING THE DECISION OF HONBLE SUPREME COURT , WE ARE OF THE VIEW THAT LD.CIT(A) ERRED IN TREATING THE RECEIPTS OF RS.1,55,77,494/- FROM SALE OF SOFTWARE AS ROYALTY. ACCORDINGLY GROUNDS RAISED BY ASSESSEE STANDS ALLOW ED. 10. THE ASSESSEE HAS FILED ADDITIONAL GROUNDS VIDE APPLICATION DATED 12/08/2020, WHICH IS NOT PRESSED AT THE TIME OF HEARING. ACCORDINGLY WE DO NOT CONSIDER THE ADMISSION OF ADD ITIONAL GROUNDS RAISED BY ASSESSEE. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOW ED. ORDER PRONOUNCED IN OPEN COURT ON 2 ND JULY, 2021 SD/- SD/- (CHANDRA POOJARI ) ACCOUNTANT MEMBER (BEENA PILLAI) JUDICIAL MEMBER BANGALORE, DATED 2 ND JULY, 2021. COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE. PAGE 6 OF 6 IT(IT)A NO.1514/BANG/2019 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -7-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -7-2021 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -77-2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -7-2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -7-2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -7-2021 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -7-2021 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS