DCIT, Bangalore V. M/s Rational Software Corporation (India) Pvt. Ltd., Bangalore

ITA 1536/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51316 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 29-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA CITIII
• Section: 201(1)

Judgement Text

PAGE 1 OF 5 ITA NO.1536/BANG/201 0 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES A BEFORE SHRI N K SAINI, ACCOUNANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.1536/BANG/2010 (ASST. YEAR 2004-05) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-12(4), BANGALORE. - APPELLANT VS M/S RATIONAL SOFTWARE CORPORATION (INDIA) PVT. LTD. , SUBRAMANYA ARCADE, NO.12, BANNERGHATTA MAIN ROAD, BANGALORE-29. - RESPONDENT PA NO.AABCR0060K DATE OF HEARING : 10/10/2011 DATE OF PRONOUNCEMENT : 10/10/2011 APPELLANT BY : SHRI ETWA MUNDA, CIT-III RESPONDENT BY : SHRI SHARATH RAO, C.A. O R D E R PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE DEPARTMENT IS DIRECT ED AGAINST THE ORDER OF THE CIT(A)-III, BANGALORE DATED 23/08/ 2010. THE RELEVANT ASST. YEAR IS 2004-05. 2. THE SOLITARY ISSUE THAT IS RAISED IS WHETHER THE LEARNED CIT(A) IS JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO AMOUNTING TO RS.9,63,33,544/-. PAGE 2 OF 5 ITA NO.1536/BANG/201 0 2 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE IS AN INDIAN SUBSIDIARY OF RATIONAL SOFTWARE BV, NETHERLANDS. IT IS IN THE BUSINESS OF DEVELOPMENT AND MARKETING OF SOFTWARE PRODUCTS. FOR THE CONCERNED ASST. YEAR, TH E ASSESSEE HAD REMITTED AN AMOUNT OF RS.9,63,33,544/- TOWARDS COST OF SOFTW ARE PRODUCTS IMPORTED FROM ITS FOREIGN PARENT FOR IN TURN SALE/DISTRIBUTI ON IN INDIA. THE AO IN THE SCRUTINY ASSESSMENT HELD THAT THE REMITTANCE TO THE FOREIGN PARENT WAS LIABLE FOR DEDUCTION OF TAX AT SOURCE AND SINCE THE ASSESSEE HAD FAILED TO DEDUCT TAX, THE SAME IS DISALLOWED U/S 40(A)(I) OF THE ACT. 4. AGGRIEVED BY THE DISALLOWANCE BY INVOKING THE PRO VISIONS OF SECTION 40(A)(I) OF THE ACT, THE ASSESSEE CARRIED T HE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. IT WAS CONTENDED THA T THE PAYMENT TO THE FOREIGN PARENT BEING REMITTANCE TOWARDS THE COST OF SOFTWARE PRODUCTS PURCHASED, THE SAME IS NOT LIABLE FOR DEDUCTION OF TAX U/S 195 OF THE ACT. THEREFORE, IT WAS SUBMITTED THAT THE PROVISIONS OF SECTION 40(A)(I) IS NOT APPLICABLE TO THE FACTS OF THIS CASE. THE ASSESSEE ALSO RELIED ON THE TRIBUNAL DECISION IN ASSESSEES OWN CASE WHEREIN IT WAS HELD THAT PAYMENTS MADE TOWARDS PURCHASE OF SOFTWARE CANNOT BE TREATED AS R OYALTY AND THERE WAS NO LIABILITY THEREOF TO DEDUCT TAX AT SOURCE U/S 195 OF THE ACT. 5. THE FIRST APPELLATE AUTHORITY, FOLLOWING VARIOUS ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE, DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE. THE RELEVANT FINDING OF THE CIT(A) AT PA RA 7.7 READS AS FOLLOWS:- 7.7 THUS, IN VIEW OF THE DECISION OF THE HONBLE ITAT, BANGALORE BENCH-B, IN THE SAID ORDERS, HOLDIN G THE PAGE 3 OF 5 ITA NO.1536/BANG/201 0 3 REMITTANCES AS NOT A ROYALTY AND THE PROVISIONS OF TH E SECTION 195 OF THE ACT ARE NOT APPLICABLE THEREON, THERE WOULD BE NO INCIDENCE OF THE PROVISIONS OF THE SEC. 40(A)(I) OF THE ACT. IT MAY ALSO BE RELEVANT TO MAKE NOTE OF THE FACT THAT THE HONBLE ITAT HAS IN ITA NO.1046/BANG/ 07 IN THE CASE OF THE APPELLANT HELD THAT IT WAS NOT L IABLE TO WITHHOLD ANY TAXES IN RESPECT OF PAYMENTS MADE TO RATIONAL SOFTWARE NETHERLANDS AND ACCORDINGLY WAS NO T LIABLE TO BE TREATED AS AN ASSESSEE IN DEFAULT U/S 201(1) AND WAS CONSEQUENTLY NOT LIABLE FOR INTEREST U/S 201 (1A) OF THE ACT. ACCORDINGLY, I HOLD THAT ONCE THE PAYMEN T MADE IS NOT LIABLE TO TDS U/S 195 OF THE ACT, DISALLOWANCE PROVISIONS UNDER SECTION 40(A)(I) OF T HE ACT WOULD NOT BE APPLICABLE. IN THAT VIEW OF THE MATTE R AND CONSIDERING THAT THERE IS NO CHANGE IN THE FACT PAT TERN AND THE PAYMENTS IN QUESTION ARE THE SAME AS THOSE INVOLVED IN THE EARLIER AYS AND RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE ITAT, BANGALORE-B-BENCH IN THE SAID ORDERS (IN THE APPELLANTS CASE ON THE ORD ERS U/S 201(1) RWS 195 AND 201(1A) FOR THE AY 03-04) PASSED (UNDER ITA NOS.3038 TO 3040/BANG/2004/AYS : 2000-02 & 02-03 AND UNDER ITA NO.30-38, 3041/BANG/2004 ON 4.5.05 AND 28.6.05, RESPECTIVELY , I HOLD THE IMPUGNED AMOUNT OF RS.9,63,33,544/- - REMITTANCES TOWARDS THE COST OF THE SOFTWARE PRODUC TS PURCHASED (IMPORTED) FROM FOREIGN SUPPLIER (PARENT- COMPANY) AS NOT A ROYALTY AND HENCE, THERE WAS NO LIABILITY FOR DEDUCTION OF TAX UNDER SECTION 195 OF THE ACT . ACCORDINGLY, THE IMPUGNED AMOUNT IS NOT ATTRACTED BY THE PROVISIONS OF THE SEC.40(A)(I) OF THE ACT . THUS, THIS GROUND OF APPEAL, IS ALLOWED IN FAVOUR OF THE APPELLANT. 6. THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFORE US. 7. AT THE VERY OUTSET, THE LEARNED AR SUBMITTED THA T THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE ORDER OF THE TRIB UNAL IN ASSESSEES OWN PAGE 4 OF 5 ITA NO.1536/BANG/201 0 4 CASE IN ITA NO.172/2007 CONCERNING ASST. YEAR 2003-0 4 (DATED 11 TH JANUARY, 2008). 8. THE LEARNED DR FAIRLY SUBMITTED THAT THE TRIBUNA L WAS CONSIDERING THE DISALLOWANCE BY INVOKING THE PROVISI ONS OF SECTION 40(A)(I) OF THE I T ACT AND IS IDENTICAL TO THE FACTS OF THIS C ASE. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. A COPY OF THE ORDER OF THE TRIBUNAL IN ITA NO.172/2007 CONCERNING ASST. YEAR 2003-04 IS PLACED ON RECORD. THE TRIBUNAL IN ASSESSEES OWN CASE CITED SUPRA WAS CONSIDERING THE ISSUE THAT WHETHER THE REMITTANCES MADE TO FOREIGN PARENT AMOUNTING TO RS. 16,54,39,136/- TOWARDS THE COST OF SOFTWARE PRODUCTS PURCHASED DID CONSTIT UTE ROYALTY OR NOT. THE TRIBUNAL IN TURN FOLLOWED THE ORDER OF THE TRIBUNAL IN ITA NO.3038 TO 3040/2004 FOR THE ASST. YEAR 2000-01 TO 2002-03 IN A SSESSEES OWN CASE. THE TRIBUNAL HELD THAT THE PAYMENTS MADE BY THE ASSESSEE CANNOT BE TREATED AS ROYALTY AND HENCE, THERE IS NO LIABILITY FO R DEDUCTION OF TAX U/S 195 OF THE ACT. WE FIND THAT THE FACTS ARE IDENTICAL TO THAT OF THE FACTS CONSIDERED BY THE TRIBUNAL IN ITA NO.172/2007 CONCER NING AY 2003-04. RESPECTFULLY FOLLOWING THE COORDINATE BENCH ORDER OF THE TRIBUNAL, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL FILE D BY THE DEPARTMENT. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH DAY OF OCTOBER, 2011 SD/- SD/- (N K SAINI) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER PAGE 5 OF 5 ITA NO.1536/BANG/201 0 5 COPY TO:- 1.THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCE RNED 4. THE CIT(A) CONCERNED 5. THE DR 6. GF MSP/- BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.