TATA HAL TECHNOLOGIES LIMITED, Bangalore V. Deputy Commissioner of Income-Tax, Bangalore

ITA 1592/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7250 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 27-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 01-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SRINIVAS BHARATH
• Keywords: Depreciation; Double taxation relief; Question of law; Non-deduction of tax; Bad and doubtful debts; Revenue expenditure
• Section: 32; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.1592/BANG/2016 ASSESSMENT YEAR : 2012-13 M/S. TATA HAL TECHNOLOGIES LTD., VINTAGE/VENUS BUILDING, 1 ST FLOOR, 1/1 & 1/2 , JAKKASANDRA, KALYANAMANTAP ROAD, KORAMANGALA 1 ST BLOCK, BENGALURU 560 034. PAN : AABCI 9224 L VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -7(1)(1), BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI. SRINIVAS BHARATH, CA REVENUE BY : SHRI. PARDEEP KUMAR, JCIT DATE OF HEARING : 21.11.2017 DATE OF PRONOUNCEMENT : 23.11.2017 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF CIT(A), INTERALIA , ON THE FOLLOWING GROUNDS: 1) THAT THE IMPUGNED ORDER IS OPPOSED TO FACTS AND LAW AND THE APPELLANT DENIES ITS LIABILITY TO TREAT THE SOFTWARE PURCHASE AS REVENUE EXPENDITURE AND ITS LIABILITY TO NOT ACCOUNT FOR DE PRECIATION ON THE SAME. 2) THE HONORABLE COMMISSIONER OF INCOME TAX (APPEALS)- 7 HAS ERRED IN AFFIRMING THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER. 3) THE HONORABLE COMMISSIONER OF INCOME TAX (APPEALS)- 7 MISS-DIRECTED HIMSELF IN HOLDING THAT THE PAYMENT AMOUNTS TO ROYA LTY WHEN NO SUCH INTERPRETATION WAS WARRANTED IN AS MUCH AS THE TRAN SACTION WAS ON PRINCIPAL TO PRINCIPAL BASIS. 4) THE HONORABLE CORN MISSIONER OF INCOME TAX (APPEALS )-7 HAS MISS- DIRECTED HIMSELF IN HOLDING THAT THE DEPRECIA TION CANNOT BE CLAIMED ON THE AMOUNT IN DISPUTE 5) THAT THE HONORABLE COMMISSIONER OF INCOME TAX (APPE ALS) REFUSED TO TAKE COGNIZANCE OF THE CONSTRUCTIVE AMENDMENT OF SECTION 201 AND AS A CONSEQUENCE AMENDMENT TO SECTION 40(A)(1A) AND ALSO FAILED TO ITA NO. 1592/BANG/2016 PAGE 2 OF 10 GIVE APT INTERPRETATION TO JUDICIAL PRONOUNCEMENTS. 6) THAT THE HONORABLE COMMISSIONER OF INCOME TAX(APPEA LS) HAS NOT CONSIDERED THE JUDICIAL PRECEDENTS PERTAINING TO TA X TO BE DEDUCTED ON SETTLED LIABILITY. 7) THE APPELLANT PRAYS FOR LEAVE TO ADD, MODIFY DELETE OR INTRODUCE ADDITIONAL GROUNDS OF APPEAL AT ANY TIME BEFORE THE APPEAL IS DISPOSED. BASED ON THESE AND SUCH OTHER GROUNDS THAT MAY BE A DDUCED FROM TIME TO TIME, THE APPELLANT REQUESTS THE HONORABLE INCOME TAX APPELLANT TRIBUNAL TO CONSIDER THE PETITION IN THE LIGHT OF PRINCIPLES OF JUSTICE AND CANCEL THE ADDITIONS MADE BY THE ASSESS ING OFFICER AND THE APPELLANT ORDER PASSED BY COMMISSIONER OF INCOM E TAX (APPEALS)' 2. DURING THE COURSE OF HEARING, THE LEARNED COUNSE L FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE FACT THAT THE IMPUGNED ISSUE IS SQ UARELY COVERED BY THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE IMMEDIA TELY PRECEDING YEAR I.E., 2011-12 IN WHICH THE TRIBUNAL HAS HELD THAT THE PAYMENT FOR PU RCHASE OF SOFTWARE IS IN THE NATURE OF ROYALTY, HOWEVER NO DISALLOWANCE CAN BE MADE UNDER SECTION 40A(IA) IN RESPECT OF CLAIM OF DEPRECIATION. THE LEARNED DR DID NOT DISPUTE THESE FACTS. 3. HAVING CAREFULLY EXAMINED THE ORDER OF THE TRIBU NAL VIS--VIS THE GROUNDS RAISED BEFORE US AND THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT UNDISPUTEDLY THE IMPUGNED ISSUES ARE SQUARELY COVERED BY THE AFORESAID ORDERS OF THE TRIBUNAL. COPY OF THE ORDER OF THE TRIBUNAL IS PLACED ON RECORD. THE RELEVANT OBS ERVATION OF THE TRIBUNAL ON THE IMPUGNED ISSUES IS EXTRACTED HEREUNDER FOR THE SAKE OF REFER ENCE: 3. THE ONLY ISSUE IN THE APPEAL OF ASSESSEE I S REGARDING DISALLOWANCE OF DEPRECIATION UNDER SECTION 40(A)(IA) OF THE INCO ME TAX ACT, 1961 (IN SHORT 'THE ACT') IN RESPECT OF PURCHASE OF SOFTWAR E CAPITALIZED BY THE ASSESSEE. THE ASSESSEE HAS PURCHASED SOFTWARE AND CAPITALIZED THE SAME. THE ASSESSEE HAS CAPITALIZED THE COST OF SOFTWARE O F RS.49,45,752 ON WHICH THE ASSESSEE CLAIMED DEPRECIATION OF RS.29,67,451. THE ASSESSING OFFICER HELD THAT THE PAYMENT FOR PURCHASE OF SOFTWARE IS IN THE NATURE OF ROYALTY IN VIEW OF THE DECISION OF HON'BLE JURISDICTIONAL H IGH COURT IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO. LTD. 345 ITR 494. SINCE THE ASSESSEE DID NOT DEDUCT TDS THEREFORE, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF ITA NO. 1592/BANG/2016 PAGE 3 OF 10 DEPRECIATION OF THE ASSESSEE. THE ASSESSEE CHALLEN GED THE ACTION OF THE ASSESSING OFFICER BEFORE THE CIT (APPEALS) BUT COUL D NOT SUCCEED. 4. WE HAVE HEARD THE LEARNED AUTHORISED REPRE SENTATIVE AS WELL AS LEARNED DEPARTMENTAL REPRESENTATIVE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL VIDE ORDER DT.29.11.2016 IN THE CASE OF DCIT VS. TALLY SOLUTIONS PVT.LTD. IN IT(IT)A NO.1463/BANG/2013 IN PARAS 18 & 19 AS UNDER : 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS A S WELL AS THE RELEVANT MATERIAL ON RECORD. AS REGARDS THE QUESTION WHETHER THE PAYMENT FOR PURCHASE OF IPR IN SOFTWARE IS IN THE NATURE OF ROY ALTY, WE FIND THAT THIS ISSUE IS NOW COVERED BY THE DECISION OF HON'BLE JU RISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO. LTD. (SUPRA) WHEREIN THE HON'BLE HIGH COURT HAS HELD IN PARAS 27 TO 30 AS UN DER : 27. THE QUESTION AS TO WHETHER THE PAYMENT MADE FOR IMPORT OF S OFTWARE OR SUPPLY OF SOFTWARE BY THE NON-RESIDENT COMPANIES WAS ROYALTY OR NOT WAS NOT AT ALL IN ISSUE IN TCS CASE (SUPRA) AND THE QUESTION WAS WHETHER CANNED SOFTWARE SOLD BY THE APPELLANTS THEREIN AMOUNTED TO SALE OF GOODS UNDER THE ANDHRA PRADESH GENERAL SALES-TAX ACT. FURTHER, THE ISSUE OF TRANSF ER OF RIGHT TO USE THE GOODS AS PER THE EXPANDED DEFINITION OF 'SALE' DID NOT COME UP FOR CONSIDERATION IN THAT CASE. ON THE OTHER HAND, THE ISSUE IN THE PRESENT CASE IS AS TO WHETHER THE PAYMENT WOULD AMOUNT TO 'ROYALTY' WITHIN THE MEANING OF IT ACT AND DTAA. IN THE SAID TCS CASE (SUPRA), IT HAS BEEN HELD THAT COPYRIGHT IN COMPUTER PROGRAM MAY REMAIN WITH THE ORIGINATOR OF THE PROGRAM, BUT, THE MOMENT COPIES ARE MADE AND MARKETED, IT BECOMES GOODS, WHICH ARE SUSCEPTIBLE TO TAX. THE CONTENTION OF THE ASSESS EE THAT THE CONSIDERATION RECEIVED BY THE NON-RESIDENT SUPPLIER TOWARDS THE SOFTWARE PRODUCTS WOULD AMOUNT TO 'ROYALTY' WITHIN THE MEANING OF DTAA WITH RESPECTIVE COUNTRY WAS NOT AT ALL CONSIDERED IN THE SAID CASE. THEREFORE, THE SAID DECISION IN TCS CASE (SUPRA) IS NOT HELPFUL TO THE RESPONDENTS IN T HE PRESENT CASES. IT IS WELL SETTLED THAT THE INTENT OF THE LEGISLATURE IN IMPOSING SALES-TAX AND INCOME-TAX ARE ENT IRELY DIFFERENT AS INCOME-TAX IS A DIRECT TAX AND SALES-TAX IS AN INDIRECT TAX AND WHEREFORE, MERE FINDI NG THAT THE COMPUTER SOFTWARE WOULD BE INCLUDED WITHIN THE TERM 'SALES-TAX' WOULD NOT PRECLUDE THIS COURT FROM HOLDING THAT THE SAID PAYMENT MADE BY THE RESPONDENTS TO THE NON-RESIDENT COMPANY IN THE PRE SENT CASES WOULD AMOUNT TO 'ROYALTY' UNLESS THE RESPONDENTS ARE ABLE TO PROVE THAT THE SAID PAYMENT IS FOR THE SALE OF COMPUTER SOFTWARE, WHEREIN THE INCOME WOULD BE FROM THE BUSINESS AND IN THE ABSENCE OF ANY PE OF THE NON-RESIDENT SUPPLIER, THERE IS NO OBLIGATION ON THE PART OF THE PAYER TO MAK E DEDUCTION UNDER S. 195(1) OF THE ACT. 28. IT IS WELL SETTLED THAT IN THE ABSENCE OF ANY DEFINITION OF 'COPYRIGHT' IN THE IT ACT OR DTAA WITH THE RESPECTIVE COUNTRIES, IN VIEW OF CL. 3 OF THE DTAA, REF ERENCE IS TO BE MADE TO THE RESPECTIVE LAW REGARDING DEFINITION OF 'COPYRIGHT', NAMELY, COPYRIGHT ACT, 1957, IN I NDIA, WHEREIN IT IS CLEARLY STATED THAT 'LITERARY WORK' INCLUDES COMPUTER PROGRAMMES, TABLES AND COMPILATIONS INCLUDING COMPUTER (DATABASES). SEC. 16 OF THE COPYRIGHT ACT, 1957 STATES THAT NO PERSON SHALL BE ENTITLED T O COPYRIGHT OR ANY SIMILAR RIGHT IN ANY WORK, WHETHER PUBLISHED OR UNPUBLISHED, OTHERWISE THAN UNDER AND IN ACCORDANCE WITH THE PROVISIONS OF THE SAID ACT OR OF ANY OTHER LAW FOR THE TIME BEING IN FORCE , BUT NOTHING IN THIS SECTION SHALL BE CONSTRUED AS ABROGATING ANY RIGHT OR JURISDICTION TO RESTRAIN A BREACH OF TRUST OR CONFIDENCE. SEC. 14 OF THE SAID ACT DEALING WITH MEANING OF 'COPYRIGHT' READS AS FOLLOWS : '14. MEANING OF COPYRIGHTFOR THE PURPOSES OF THIS ACT, 'COPYRIGHT ' MEANS THE EXCLUSIVE RIGHT SUBJECT TO THE PROVISIONS OF THIS ACT, TO DO OR AUTHORISE THE DOING OF ANY OF THE FOLLOWING ACTS IN RESPECT OF A WORK OR ANY SUBSTANTIAL PART THEREOF, NAMELY : (A) IN THE CASE OF A LITERARY, DRAMATIC OR MUSICAL WORK, NOT BE ING A COMPUTER PROGRAMME, (I) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCLUDING THE STORING OF IT IN ANY MEDIUM BY ELECTRONIC MEANS; (II) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT BEING C OPIES ALREADY IN CIRCULATION; (III) TO PERFORM THE WORK IN PUBLIC, OR COMMUNICATE IT TO THE PUBLIC; (IV) TO MAKE ANY CINEMATOGRAPH FILM OR SOUND RECORDING IN RES PECT OF THE WORK; (V) TO MAKE ANY TRANSLATION OF THE WORK; ITA NO. 1592/BANG/2016 PAGE 4 OF 10 (VI) TO MAKE ANY ADAPTATION OF THE WORK; (VII) TO DO, IN RELATION TO A TRANSLATION OR AN ADAPTATION OF THE WOR K, ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB-CLS. (I) TO (VI); (B) IN THE CASE OF A COMPUTER PROGRAMME, (I) TO DO ANY OF THE ACTS SPECIFIED IN CL. (A); (II) TO SELL OR GIVE ON COMMERCIAL RENTAL OR OFFER FOR SALE OR FOR COMMERCIAL RENTAL ANY COPY OF THE COMPUTER PROGRAMME : PROVIDED THAT SUCH COMMERCIAL RENTAL DOES NOT APPLY IN RESPECT O F COMPUTER PROGRAMMES WHERE THE PROGRAMME ITSELF IS NOT THE ESSENTIAL OBJECT OF THE RENT AL. (C) IN THE CASE OF AN ARTISTIC WORK, (I) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCLUDING DEPIC TION IN THREE DIMENSIONS OF A TWO- DIMENSIONAL WORK OR IN TWO DIMENSIONS OF A THREE-DIMENSIONAL WORK; (II) TO COMMUNICATE THE WORK TO THE PUBLIC; (III) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT BEING COPIE S ALREADY IN CIRCULATION; (IV) TO INCLUDE THE WORK IN ANY CINEMATOGRAPH FILM; (V) TO MAKE ANY ADAPTATION OF THE WORK; (VI) TO DO IN RELATION TO AN ADAPTATION OF THE WORK ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB- CLS. (I) TO (IV); (D) IN THE CASE OF A CINEMATOGRAPH FILM, (I) TO MAKE A COPY OF THE FILM, INCLUDING A PHOTOGRAPH OF ANY IMAGE FORMING PART THEREOF; (II) TO SELL OR GIVE ON HIRE, OR OFFER FOR SALE OR HIRE, ANY COPY OF THE FILM, REGARDLESS OF WHETHER SUCH COPY HAS BEEN SOLD OR GIVEN ON HIRE ON EARLIER OCCASIONS; (III) TO COMMUNICATE THE FILM TO THE PUBLIC; (E) IN THE CASE OF A SOUND RECORDING, (I) TO MAKE ANY OTHER SOUND RECORDING EMBODYING IT; (II) TO SELL OR GIVE ON HIRE, OR OFFER FOR SALE OR HIRE, ANY COPY OF THE SOUND RECORDING REGARDLESS OF WHETHER SUCH COPY HAS BEEN SOLD OR GIVEN ON HIRE ON EARLIER OCCASIO NS; (III) TO COMMUNICATE THE SOUND RECORDING TO THE PUBLIC. EXPLANATIONFOR THE PURPOSES OF THIS SECTION, A COPY WHICH HAS BEEN SOLD ONCE SHALL BE DEEMED TO BE A COPY ALREADY IN CIRCULATION.' IT MAY ALSO BE NOTED THAT UNDER S. 51 OF THE ACT DEALING WIT H 'WHEN COPYRIGHT INFRINGED' STATES THAT COPYRIGHT IN A WORK SHALL BE DEEMED TO BE INFRINGEDWHEN ANY PERSON, WI THOUT A LICENCE GRANTED BY THE OWNER OF THE COPYRIGHT OR THE REGISTRAR OF COPYRIGHTS UNDER THE ACT OR IN CONTRAVENTION OF THE CONDITIONS OF A LICENCE SO GRANTED OR OF ANY CONDITION IMPOSED BY A COMP ETENT AUTHORITY UNDER THE ACT DOES ANYTHING, THE EXCLUSIVE RIGHT TO DO WHICH IS BY THE ACT CONF ERRED UPON THE OWNER OF THE COPYRIGHT. SEC. 52 OF THE ACT DEALING WITH CERTAIN ACTS NOT TO BE INFRINGEMENT OF C OPYRIGHT STATES THAT THE FOLLOWING ACTS SHALL NOT CONSTITUTE AN INFRINGEMENT OF COPYRIGHT, NAMELY '............. (AA) THE MAKING OF COPIES OR ADAPTATION OF A COMPUTER PROGRAM ME BY THE LAWFUL POSSESSOR OF A COPY OF SUCH COMPUTER PROGRAMME, FROM SUCH COPY (I) IN ORDER TO UTILISE THE COMPUTER PROGRAMME FOR THE PURPOSE FOR WHICH IT WAS SUPPLIED; OR (II) TO MAKE BACK-UP COPIES PURELY AS A TEMPORARY PROTECTION AGAI NST LOSS, DESTRUCTION OR DAMAGE IN ORDER ONLY TO UTILISE THE COMPUTER PROGRAMME FOR THE PURPOSE FOR WHICH IT WAS SUPPLIED.' 29. IT IS CLEAR FROM THE ABOVESAID PROVISIONS OF THE COPYRIGHT A CT THAT THE RIGHT TO COPYRIGHT WORK WOULD ALSO CONSTITUTE EXCLUSIVE RIGHT OF THE COPYRIGHT HOLDER AND ANY VIOLATION OF THE SAID RIGHT WOULD AMOUNT TO INFRINGEMENT UNDER S. 51 OF THE ACT. HOWEVER, IF SUCH COPYING OF COMPUTER PROGRAM IS DONE BY A LAWFUL POSSESSOR OF A COPY OF SUCH COMPUTER PROGRAMME, THE SAME WOULD N OT CONSTITUTE INFRINGEMENT OF COPYRIGHT AND WHEREFORE, BUT FOR THE LICENCE GRANTED IN THESE C ASES TO THE RESPONDENT TO MAKE COPY OF THE SOFTWARE CONTAINED IN SHRINK WRAPPED/OFF-THE-SHELF SOFTWARE I NTO THE HARD DISK OF THE DESIGNATED COMPUTER AND TO TAKE A COPY FOR BACK UP PURPOSES, THE END-USER HAS NO OTHER RIGHT AND THE SAID TAKING BACK UP WOULD HAVE CONSTITUTED AN INFRINGEMENT, BUT, FOR THE LI CENCE. THEREFORE, LICENCE IS GRANTED FOR TAKING COPY OF THE SOFTWARE AND TO STORE IT IN THE HARD D ISK AND TO TAKE A BACK UP COPY AND RIGHT TO MAKE A COPY ITSELF IS A PART OF THE COPYRIGHT. THEREFORE, WHEN LIC ENCE TO MAKE USE OF THE SOFTWARE BY MAKING COPY OF THE SAME AND TO STORE IT IN THE HARD DISK OF THE DESIGNAT ED COMPUTER AND TO TAKE BACK UP COPY OF THE SOFTWARE, IT IS CLEAR THAT WHAT IS TRANSFERRED IS RIGHT TO USE THE SOFTWARE, AN EXCLUSIVE RIGHT, WHICH THE OWNER OF THE COPYRIGHT I.E., THE RESPONDENT-SUPPLIER OWNS AND WHAT IS TRANSFERRED IS ONLY RIGHT TO USE COPY OF THE SOFTWARE FOR THE INTERNAL BUSINESS AS PER THE TERMS A ND CONDITIONS OF THE AGREEMENT. THE ITA NO. 1592/BANG/2016 PAGE 5 OF 10 DECISION OF THE DELHI HIGH COURT IN CIT VS. DYNAMIC VERTI CAL SOFTWARE INDIA (P) LTD. IN IT APPEAL NO. 1692 OF 2010 DT. 22ND FEB., 2011 RELIED UPON BY SRI ARAVIND DATTAR , LEARNED SENIOR COUNSEL APPEARING FOR THE RESPONDENTS IN SOME OF THE CASES IN SUPPORT OF HIS CONTENT ION THAT BY NO STRETCH OF IMAGINATION, PAYMENT MADE BY THE RESPONDENTS TO THE NON-RESIDENT SUPPLIERS CAN BE TREATED AS 'ROYALTY' IS NOT HELPFUL TO THE RESPONDENTS IN THE PRESENT CASES AS IN THE SAID CASE, DEL HI HIGH COURT WAS CONSIDERING THE PROVISIONS OF S. 40(A)(I) OF THE ACT AND THE ORDER OF THE H IGH COURT READS AS FOLLOWS : 'WHAT IS FOUND, AS A MATTER OF FACT, IS THAT THE ASSESSEE HAS BEEN PURCHASING THE SOFTWARE FROM MICROSOFT AND SOLD IT FURTHER IN INDIAN MARKET. BY NO STRETCH OF IMAGINA TION, IT WOULD BE TERMED AS ROYALTY.' THEREFORE, THE CONTENTION OF THE LEARNED SENIOR COUNSEL APPEARING FOR THE RESPONDENTS THAT THERE IS NO TRANSFER OF ANY PART OF COPYRIGHT OR COPYRIGHT UNDER THE IMPUGN ED AGREEMENTS OR LICENSES CANNOT BE ACCEPTED. ACCORDINGLY, WE HOLD THAT RIGHT TO MAKE A COPY OF THE SOFTWARE AND USE IT FOR INTERNAL BUSINESS BY MAKING COPY OF THE SAME AND STORING THE SAME IN THE HARD DIS K OF THE DESIGNATED COMPUTER AND TAKING BACK UP COPY WOULD ITSELF AMOUNT TO COPYRIGHT WORK UNDER S. 14(1) OF THE ACT AND LICENCE IS GRANTED TO USE THE SOFTWARE BY MAKING COPIES, WHICH WORK, BUT FOR THE L ICENCE GRANTED WOULD HAVE CONSTITUTED INFRINGEMENT OF COPYRIGHT AND LICENCEE IS IN POSSESSION OF THE LEGAL COPY OF THE SOFTWARE UNDER THE LICENCE. THEREFORE, THE CONTENTION OF THE LEARNED SENIOR COU NSEL APPEARING FOR THE RESPONDENTS THAT THERE IS NO TRANSFER OF ANY PART OF COPYRIGHT OR COPYRIGHT AND TRANSACTION ONL Y INVOLVES SALE OF COPY OF THE COPYRIGHT SOFTWARE CANNOT BE ACCEPTED. IT IS ALSO TO BE NOTED THA T WHAT IS SUPPLIED IS THE COPY OF THE SOFTWARE OF WHICH THE RESPONDENT-SUPPLIER CONTINUES TO BE TH E OWNER OF THE COPYRIGHT AND WHAT IS GRANTED UNDER THE LICENCE IS ONLY RIGHT TO COPY THE SOFTWARE AS PER T HE TERMS OF THE AGREEMENT, WHICH, BUT FOR THE LICENCE WOULD AMOUNT TO INFRINGEMENT OF COPYRIGHT AND IN VIEW OF THE LICENCE GRANTED, THE SAME WOULD NOT AMOUNT TO INFRINGEMENT UNDER S. 52 OF THE COPYRIGHT ACT AS RE FERRED TO ABOVE. THEREFORE, THE AMOUNT PAID TO THE NON-RESIDENT SUPPLIER TOWARDS SUPPLY OF SHRINK-WRAPPE D SOFTWARE OR OFF-THE-SHELF SOFTWARE IS NOT THE PRICE OF THE CD ALONE NOR SOFTWARE ALONE NOR THE PR ICE OF LICENCE GRANTED. THIS IS A COMBINATION OF ALL AND IN SUBSTANCE, UNLESS LICENCE IS GRANTED PERMITTING THE END USER TO COPY AND DOWNLOAD THE SOFTWARE, THE DUMB CD CONTAINING THE SOFTWARE WOULD NOT IN ANY WAY BE HELPFUL TO THE END USER AS SOFTWARE WOULD BECOME OPERATIVE ONLY IF IT IS DOWNLOADED TO THE HAR DWARE OF THE DESIGNATED COMPUTER AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT AND THAT MAKES T HE DIFFERENCE BETWEEN THE COMPUTER SOFTWARE AND COPYRIGHT IN RESPECT OF BOOKS OR PRE-RECORDED MUSIC SOFTWARE AS BOOK AND PRE-RECORDED MUSIC CD CAN BE USED ONCE THEY ARE PURCHASED, BUT SO FAR AS SOF TWARE STORED IN DUMB CD IS CONCERNED, THE TRANSFER OF DUMB CD BY ITSELF WOULD NOT CONFER ANY RIGH T UPON THE END USER AND THE PURPOSE OF THE CD IS ONLY TO ENABLE THE END USER TO TAKE A COPY OF THE SOFT WARE AND TO STORE IT IN THE HARD DISK OF THE DESIGNATED COMPUTER IF LICENCE IS GRANTED IN THAT BEHALF AND IN THE ABSENCE OF LICENCE, THE SAME WOULD AMOUNT TO INFRINGEMENT OF COPYRIGHT, WHICH IS EXCLUSIVELY OWNE D BY NON-RESIDENT SUPPLIERS, WHO WOULD CONTINUE TO BE THE PROPRIETOR OF COPYRIGHT. THEREFORE, THERE IS NO SIMILARITY BETWEEN THE TRANSACTION OF PURCHASE OF THE BOOK OR PRE-RECORDED MUSIC CD OR THE CD CONTAI NING SOFTWARE AND IN VIEW OF THE SAME, THE LEGISLATURE IN ITS WISDOM, HAS TREATED THE LITERARY WO RK LIKE BOOKS AND OTHER ARTICLES SEPARATELY FROM 'COMPUTER SOFTWARE' WITHIN THE MEANING OF THE 'COPYRIGHT' AS RE FERRED TO ABOVE UNDER S. 14 OF THE COPYRIGHT ACT. 30. IT IS ALSO CLEAR FROM THE ABOVESAID ANALYSIS OF THE DTAA, IT ACT, COPYRIGHT ACT THAT THE PAYMENT WOULD CONSTITUTE 'ROYALTY' WITHIN THE MEANING OF ART. 12(3) OF THE DTAA AND EVEN AS PER THE PROVISIONS OF S. 9(1)(VI) OF THE ACT AS THE DEFINITION OF 'ROYALTY' UNDER S. 9( 1)(VI) OF THE ACT IS BROADER THAN THE DEFINITION OF 'ROYALTY' UNDER THE DTAA AS THE RIGHT THAT IS TRANSFERRED IN THE PRESENT CASE IS THE TRANSFER OF COPYRIGHT INCLUDING THE RIGHT TO MAKE COPY OF SOFTWARE FOR INTERNA L BUSINESS, AND PAYMENT MADE IN THAT REGARD WOULD CONSTITUTE 'ROYALTY' FOR IMPARTING OF ANY INFORMATI ON CONCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR SKILL AS PER CL. (IV) OF EXPLN. 2 TO S. 9(1)(VI) OF THE ACT. IN ANY VIEW OF THE MATTER, IN VIEW OF THE PROVISIONS OF S. 90 OF THE AC T, AGREEMENTS WITH FOREIGN COUNTRIES DTAA WOULD OVERRIDE THE PROVISIONS OF THE ACT. ONCE IT IS HELD THAT PAYMENT MADE BY THE RESPONDENTS TO THE NON- RESIDENT COMPANIES WOULD AMOUNT TO 'ROYALTY' WITHIN THE MEANING O F ART. 12 OF THE DTAA WITH THE RESPECTIVE COUNTRY, IT IS CLEAR THAT THE PAYMENT MADE BY THE RESPONDENT TO THE NON-RESIDENT SUPPLIER WOULD AMOUNT TO ROYALTY. IN VIEW OF THE SAID FINDING, IT IS CLEAR THAT THERE IS OBLIGATION ON THE PART OF THE RESPONDENTS TO DEDUCT TAX AT SOURCE UNDER S. 195 OF THE ACT AND C ONSEQUENCES WOULD FOLLOW AS HELD BY THE HON'BLE SUPREME COURT WHILE REMANDING THESE APPEALS TO THIS COURT. ACCORDINGLY, WE ANSWER THE SUBSTANTIAL QUESTION OF LAW IN FAVOUR OF THE REVENUE AND AGAINST THE AS SESSEE BY HOLDING THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS NOT JUSTIFIED IN HOLDING THAT THE AMOUNT(S) PAID BY THE RESPONDENT(S) TO THE FOREIGN SOFTWARE SUPPLIERS WAS NOT 'ROYA LTY' AND THAT THE SAME DID NOT GIVE RISE TO ITA NO. 1592/BANG/2016 PAGE 6 OF 10 ANY 'INCOME' TAXABLE IN INDIA AND WHEREFORE, THE RESPONDENT(S ) WERE NOT LIABLE TO DEDUCT ANY TAX AT SOURCE AND PASS THE FOLLOWING ORDER : ALL THE APPEALS ARE ALLOWED. THE ORDER PASSED BY THE TRIBUNAL , BANGALORE BENCH 'A' IMPUGNED IN THESE APPEALS IS SET ASIDE AND THE ORDER PASSED BY THE CIT(A) CONFI RMING THE ORDER PASSED BY THE AO (TDS)-I IS RESTORED. FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO. LTD. (SUPRA), WE HOLD THAT THE PAYMENT FOR PURCHASE OF IPR IN SOFTWARE IS IN THE NATURE OF ROY ALTY. 19. AS REGARDS THE APPLICABILITY OF THE PROVISI ONS OF SECTION 40(A)(IA) OF THE ACT FOR DISALLOWANCE OF CLAIM OF DEPRECIATION, WE FIND THAT WHEN THE ASSESSEE HAS CAPITALISED THIS AMOUNT AND NOT CLAIME D AS A REVENUE EXPENDITURE THEN THE CLAIM OF DEPRECIATION CANNOT BE DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THIS ISSUE HAS BEEN DEALT WITH BY THE CO-ORDINATE BENCH OF THIS TRIBUNA L IN THE CASE OF SKOL BEVERAGES LTD. VS. ACIT (SUPRA) AS WELL AS KAWASAKI MICRO ELECTRONICS, INC. INDIA BRANCH VS. DCIT (SUPRA). IN THE CASE OF KAWASAKI MICRO ELECTRONICS, INC. INDIA BRANCH VS. DCIT (SUPRA), THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE IN PARAS 6 TO 8 AS UN DER : 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AS WEL L AS CONSIDERED THE MATERIAL ON RECORD. THE ISSUE BEFORE US IS LIMITED ONLY WITH RESPECT TO THE DISALLOWANCE OF DEPRECIATION BY INVOKING THE PROVIS IONS OF SECTION 40(A)(I) OF THE ACT. THERE IS NO DISPUTE THAT THE ASSESSEE HAS MADE THE PAYMENT IN QUESTION TO A NON-RESIDENT FOR PURCHASE OF SOFTWARE AND THE SAID PAYMENT HAS BEEN CAPITALIZED BY THE ASSESSEE IN THE BLOCK O F COMPUTER ASSET. ONCE THE ASSESSEE CAPITALIZED THE PAYMENT AND HAS NOT CL AIMED THE SAME AS AN EXPENDITURE AGAINST THE PROFITS OF THE BUSINESS OF THE ASSESSEE, THEN, THE QUESTION ARISES WHETHER THE DEPRECIATION IS A STATU TORY DEDUCTION AS PER THE SECTION 32 OF THE ACT CAN BE DISALLOWED BY INVO KING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. AT THE OUTSET, IT IS TO MENTION THAT ON THE SAME SET OF FACTS AN IDENTICAL ISSUE HAS BEEN DEAL T BY THE ITAT, MUMBAI BENCH IN THE CASE OF SKOL BREWERIES LTD. (SUPRA), WHEREIN IT WAS HELD IN PARAS 16.1 TO 16.4 AS UNDER :- 16.1 AS REGARDS THE ALTERNATIVE PLEA OF THE LD SR COUNS EL FOR THE ASSESSEE THAT SINCE THE ASSESSEE HAS NOT CLAIMED THE ENTIRE AMOUNT AS REVEN UE EXPENDITURE; BUT HAS CAPITALIZED THE SAME AND CLAIMED ONLY DEPRECIATION U/S 32(1)(II ); THEREFORE, PROVISIONS OF SEC. 40(A)((I) SHALL NOT APPLY. SECTION 40(A)(I) CONTEMP LATES THAT ANY INTEREST, ROYALTY, FEE FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER TH IS ACT, WHICH IS PAYABLE OUTSIDE INDIA AS IT IS RELEVANT FOR THE CASE IN HAND ON WHI CH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII -B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID, THE AMOUNT OF INTEREST, ROYALTY, FEE FOR TECH NICAL SERVICES AND OTHER SUM SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDE R THE HEAD 'PROFITS & GAINS OF BUSINESS OR PROFESSION'. THIS CONDITION OF DEDUCTIB ILITY HAS BEEN STIPULATED U/S 40 ITA NO. 1592/BANG/2016 PAGE 7 OF 10 NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION 30 TO 38 OF THE ACT. SEC. 40 BEGINS WITH NON-OBSTANTE CLAUSE; THEREFORE, IT IS AN OVERR IDING EFFECT T THE PROVISIONS OF SEC. 30 TO 38 OF THE I T ACT. THE QUESTION ARISES IS WHETHE R ANY AMOUNT PAID OUTSIDE INDIA OR TO THE NON RESIDENT WITHOUT DEDUCTION OF TAX AT SOURCE AND THE ASSESSEE HAS CAPITALIZED THE SAME IN THE FIXED ASSETS AND CLAIMED ONLY DEPRE CIATION IS SUBJECTED TO THE PROVISIONS OF SEC. 40(A)(I) OR NOT ?. WE QUOTE THE PROVISIONS OF SEC. 40(A)(I) AS UNDER: 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SEC TIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCO ME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', (A) IN THE CASE OF ANY ASSESSEE (I) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISSU ED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938), ROYALTY, FEES FOR TECHNICA L SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYABLE, (A) OUTSIDE INDIA; OR (B) IN INDIA TO A NON-RESIDENT, NOT BEING A COMPAN Y OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DUR ING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESC RIBED UNDER SUB-SECTION (1) OF SECTION 200 : PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR OR, HAS BEEN DEDUCTED IN THE PREVIO US YEAR BUT PAID IN ANY SUBSEQUENT YEAR AFTER THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING TH E INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. EXPLANATION.FOR THE PURPOSES OF THIS SUB-CLAUSE, 'ROYALTY' SHALL HAVE THE SAME MEANING AS IN EXPLANA TION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9; 'FEES FOR TECHNICAL SERVICES' SHALL HAVE THE SAME M EANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9; 16.2 IT IS MANIFEST FROM THE PLAIN READING OF PROVISION S OF SEC. 40(A)(I) THAT AN AMOUNT PAYABLE TOWARDS INTEREST, ROYALTY, FEE FOR TECHNICA L SERVICES OR OTHER SUMS CHARGEABLE UNDER THIS ACT SHALL NOT BE DEDUCTED WHILE COMPUTIN G THE INCOME UNDER THE HEAD PROFIT AND GAIN OF BUSINESS OR PROFESSION ON WHICH TAX IS DEDUCTIBLE AT SOURCE; BUT SUCH TAX HAS NOT BEEN DEDUCTED. THE EXPRESSION 'AMOUNT PAYAB LE' WHICH IS OTHERWISE AN ALLOWABLE DEDUCTION REFERS TO THE EXPENDITURE INCUR RED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND THEREFORE, THE SAID EXPENDITURE IS A DEDUCTIBLE CLAIM. THUS, SECTION 40 REFERS TO THE OUTGOING AMOUNT CHARGEABLE UNDER THIS ACT AND SUBJECT TO TDS UNDER CHAPTER XVII-B. THERE IS A DIFFERENCE BETWEEN THE E XPENDITURE AND OTHER KIND OF DEDUCTION. THE OTHER KIND OF DEDUCTION WHICH INCLUD ES ANY LOSS INCIDENTAL TO CARRYING ITA NO. 1592/BANG/2016 PAGE 8 OF 10 ON THE BUSINESS, BAD DEBTS ETC., WHICH ARE DEDUCTIB LE ITEMS ITSELF NOT BECAUSE AN EXPENDITURE WAS LAID OUT AND CONSEQUENTIALLY ANY SU M HAS GONE OUT; ON THE CONTRARY THE EXPENDITURE RESULTS A CERTAIN SUMS PAYABLE AND GOES OUT OF THE BUSINESS OF THE ASSESSEE. THE SUM, AS CONTEMPLATED UNDER SEC. 40(A) (I) IS THE OUTGOING AMOUNT AND THEREFORE, NECESSARILY REFERS TO THE OUTGOING EXPEN DITURE. DEPRECIATION IS A STATUTORY DEDUCTION AND AFTER THE INSERTION OF EXPLANATION 5 TO SEC. 32, IT IS OBLIGATORY ON THE PART OF THE ASSESSING OFFICER TO ALLOW THE DEDUCTION OF DEPRECIATION ON THE ELIGIBLE ASSET IRRESPECTIVE OF ANY CLAIM MADE BY THE ASSESSEE. THE REFORE, DEPRECIATION IS A MANDATORY DEDUCTION ON THE ASSET WHICH IS WHOLLY OR PARTLY OW NED BY THE ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS OR PROFESSION WHICH MEANS THE D EPRECIATION IS A DEDUCTION FOR AN ASSET OWNED BY THE ASSESSEE AND USED FOR THE PURPOS E OF BUSINESS AND NOT FOR INCURRING OF ANY EXPENDITURE. 16.3 THE DEDUCTION U/S 32 IS NOT IN RESPECT OF THE AMOU NT PAID OR PAYABLE WHICH IS SUBJECTED TO TDS; BUT IS A STATUTORY DEDUCTION ON A N ASSET WHICH IS OTHERWISE ELIGIBLE FOR DEDUCTION OF DEPRECATION. DEPRECIATION IS NOT A N OUTGOING EXPENDITURE AND THEREFORE, THE PROVISIONS OF SEC. 40(A)(I) OF THE A CT ARE NOT ATTRACTED ON SUCH DEDUCTION. THIS VIEW HAS BEEN FORTIFIED BY THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF MARK AUTO INDUSTRIES LTD. (SUP RA) IN PARS 5 & 6 AS UNDER: '5. ADVERTING TO QUESTIONS (II) AND (III), THE ISSU E WHICH ARISES FOR CONSIDERATION IS WHETHER THE ASSESSEE COULD BE DISALLOWED CLAIM FOR DEPRECIATION UNDER SECTION 40(A)(I) OF THE ACT ON THE GROUND THAT THE PAYMENTS MADE FOR TECHNICAL KNOW-HOW WHICH HAD BEEN CAPITALIZED, NO TAX DEDUCTION AT SOURCE HAS BE EN MADE THEREON. THE TRIBUNAL WHILE ACCEPTING THE PLEA OF THE ASSESSEE, IN PARA 3 , HAD NOTICED AS UNDER: '3. GROUND NO. 4 IS AGAINST DELETION OF AN ADDITION OF RS. 6,88,1751- MADE BY THE AO ON ACCOUNT OF DEDUCTION OF DEPRECIATION ON TECHNICA L KNOW-HOW AS THE ASSESSEE FAILED TO DEDUCT TAX IN ACCORDANCE WITH THE PROVISION CONT AINED IN SECTION 40(A)(I). THE FINDING OF THE LEARNED CIT(A) WAS THAT THE ASSESSEE HAD INCURRED, EXPENDITURE BY WAY OF TECHNICAL KNOW-HOW, WHICH WAS CAPITALIZED AMOUNT AS MADE IN THE RETURN OF INCOME. SINCE THE ASSESSEE HAD NOT CLAIMED DEDUCTION FOR TH E AMOUNT PAID, THE PROVISIONS CONTAINED IN SECTION 40(A) (I) WERE NOT ATTRACTED. THE LEARNED DR COULD NOT FIND ANY FAULT WITH THIS DIRECTION OF THE CIT(A) ALSO ALTHOU GH SHE REFERRED TO PAGE 4 OF THE ASSESSMENT ORDER, WHERE IT WAS MENTIONED THAT THE T AX DEDUCTED IN RESPECT OF THE PAYMENT WAS MADE OVER TO THE GOVERNMENT IN THE SUBS EQUENT YEAR AND, THEREFORE, DEPRECIATION COULD NOT BE DEDUCTED ON THE CAPITAL E XPENDITURE INCURRED BY THE ASSESSEE. IN REPLY, THE LEARNED COUNSEL POINTED OUT THAT THE EXPENDITURE BY WAY OF TECHNICAL KNOW- HOW WAS CAPITALIZED AND IT WAS NOT CLAIMED AS REVEN UE EXPENDITURE. THEREFORE, THERE WAS ALSO NO REASON TO DISALLOW DEPRECIATION ON SUCH CAPITALIZED AMOUNT AS THE AFORESAID PROVISION DOES NOT DEAL WITH DEDUCTION OF DEPRECIATION. HAVING CONSIDERED ARGUMENTS FROM BOTH THE SIDES, WE ARE OF THE VIEW T HAT THERE IS NO ERROR IN THE ORDER OF THE LEARNED CIT(A) WHICH REQUIRES CORRECTION FROM U S. THUS, THIS GROUND IS ALSO DISMISSED.' 6. LEARNED COUNSEL FOR THE REVENUE WAS UNABLE TO SU BSTANTIATE THAT IN THE ABSENCE OF ANY REQUIREMENT OF LAW FOR MAKING DEDUCTION OF TAX OUT OF THE EXPENDITURE ON TECHNICAL KNOW HOW WHICH WAS CAPITALIZED AND NO AMOUNT WAS CL AIMED AS REVENUE EXPENDITURE, THE DEDUCTION COULD BE DISALLOWED UNDER SECTION 40( A)(I) OF THE ACT. ACCORDINGLY, NO INFIRMITY COULD BE FOUND IN THE ORDER PASSED BY THE TRIBUNAL WHICH MAY WARRANT INTERFERENCE BY THIS COURT. THUS, BOTH THE QUESTION S ARE ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE.' ITA NO. 1592/BANG/2016 PAGE 9 OF 10 16.4 IN VIEW OF THE ABOVE DISCUSSION AS WELL AS FOLLOWI NG THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT, WE DECIDE THIS ISSUE I N FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 7. AS MENTIONED ABOVE, THE TRIBUNAL HAS DISCUSS ED AND ANALYSED THE PROVISIONS OF SECTION 40(A)(I) IN DETAIL IN THE CONTEXT OF DISALL OWANCE OF DEPRECIATION. THE LEARNED D.R. HAS SUBMITTED THAT ONCE THE ASSESSEE HAS VIOLA TED THE PROVISIONS OF SECTION 195, THEN, EVEN THE EXPENDITURE IS CAPITALIZED BY THE AS SESSEE, THE PROVISIONS OF SECTION 40(A)(I) FOR DISALLOWANCE OF DEPRECIATION OF SUCH C APITALIZED EXPENDITURE. WE DO NOT AGREE WITH THE CONTENTION OF THE LEARNED D.R. AS A REMEDY FOR VIOLATION OF PROVISIONS OF SECTION 195 IS AVAILABLE WITH THE ASSESSING OFFICER UNDER SECTION 201 & 201A OF THE ACT. THE PROVISIONS OF SECTION 40(A) IS ONLY AN A DDITIONAL MEASURE TO ENFORCE THE COMPLIANCE OF CHAPTER 17 17B. 8. BY DISALLOWING AN EXPENDITURE WHICH IS OTHERWISE ALLOWABLE UNDER THE PROVISIONS OF THE ACT. THEREFORE, THE QUESTION OF D ISALLOWANCE UNDER SECTION 40(A) RAISES ONLY WHEN AN EXPENDITURE IS CLAIMED BY THE A SSESSEE WITHOUT DEDUCTING THE TAX AT SOURCE AS PER THE PROVISIONS OF CHAPTER 17 - 17B. IN THE CASE ON HAND, WHEN THE ASSESSEE HAS NOT CLAIMED, THE SAID PAYMENT AS AN EX PENDITURE THEN THE QUESTION OF DISALLOWANCE UNDER SECTION 40(A)(I) DOES NOT ARISE. THE ONLY REMEDY WHICH MAY BE PRESSED ON BY THE ASSESSING OFFICER IS THE ACTION U NDER SECTION 201 AND 201A OF THE ACT. A SIMILAR VIEW HAS BEEN TAKEN BY THE DELHI BE NCH OF THE TRIBUNAL IN THE CASE OF SMS DEMANG (P) LTD. (SUPRA) IN PARA 8 AS UNDER :- ACCORDINGLY, BY FOLLOWING THE EARLIER DECISIONS OF THIS TRIBUNAL, WE DECIDE THIS ISSUE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. THE ORDER OF THE CIT (APPEALS) FOR THIS ISSUE IS UPHELD. ITA NO. 1592/BANG/2016 PAGE 10 OF 10 FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL, WE HO LD THAT THE PAYMENT FOR PURCHASE OF SOFTWARE IS IN THE NATURE OF ROYALTY HO WEVER NO DISALLOWANCE CAN BE MADE UNDER SECTION 40(A)(IA) IN RESPECT OF T HE CLAIM OF DEPRECIATION. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW QUA THE ISSUE OF DISALLOWANCE OF DEPRECIATION UNDER SECTION 40(A)(IA) OF THE ACT. 4. SINCE THE TRIBUNAL HAS TAKEN A PARTICULAR VIEW I N SIMILAR SET OF FACTS, WE FIND NO REASON TO TAKE A CONTRARY VIEW IN THIS APPEAL. ACC ORDINGLY, FOLLOWING THE SAME, WE HOLD THAT THE PAYMENT FOR THE PURCHASE OF SOFTWARE IS IN THE NATURE OF ROYALTY AND NO DISALLOWANCE CAN BE MADE UNDER SECTION 40A(IA) IN RESPECT OF CLA IM OF DEPRECIATION. ACCORDINGLY, ORDER OF THE CIT(A) IS SET ASIDE AND AO IS DIRECTED TO AL LOW THE CLAIM OF DEPRECIATION. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 23 RD NOVEMBER, 2017. SD/- SD/- ( JASON P BOAZ ) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : BANGALORE DATED : 23/11/2017 /NSHYLU/* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE.