M/s Energy Solutions Internatiional(India) P.Ltd., Hyderabad V. DCIT, Hyderabad

ITA 1624/HYD/2008

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5949 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-02-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 03-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: E S NAGENDRA PRASAD
• Keywords: Principle of natural justice

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENTAND SHRI AKBER BASHA, ACCOUNTANT MEMBER ITA NO.1624/HYD/08 AND : ASSTT. YEAR 20 04-05 ITA 1675/HYD/08 ASST . YEAR 2005-06 M/S ENERGY SOLUTIONS INTERNATIONAL (I) PVT. LTD., HYDERABAD. (PAN:AABCP2325F) (APPELLANT) VS DCIT, CIR-2(2), HYDERABAD. (RESPONDENT) APPELLANT BY : SRI SRIRAM SESHADRI & BALAJI RESPONDENT BY : SRI E.S. NAGENDRA PRASAD O R D E R PER AKBER BASHA, ACCOUNTANT MEMBER THESE TWO APPEALS PREFERRED BY THE ASSESSEE ARE DIRECTED AGAINST SEPARATE ORDERS PASSED BY THE LEARNED CIT (A)-I II, HYDERABAD DATED 13-6-2008 AND 16-9-2008 FOR THE ASSESSMENT YEARS 2 004-05 AND 2005-06 RESPECTIVELY. SINCE COMMON ISSUES ARE INVOLVED, TH ESE ARE HEARD TOGETHER AND DISPOSED OFF BY THIS COMBINED ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEF FACTS OF THE CASE RELEVANT TO THE ASSESSMENT YE AR 2004-05 ARE THAT THE ASSESSEE PURCHASED SOFTWARE LICENSE FROM M/S. ENERGY SOLUTIONS INTERNATIONAL LIMITED, DENMARK, DURING THE RELEVANT PREVIOUS 2 YEAR, AND DEBITED AN AMOUNT OF RS.5,26,159 ON THIS ACCO UNT. DURING THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR 2005-06, THE ASSESSEE CLAIMED TO HAVE PURCHASED SOFTWARE FROM ITS ASSOCIATED ENTE RPRISES AND DEBITED THE AMOUNT OF RS.1,02,72,907 AS DIRECT COST TO P & L ACCOUNT AND OUT OF THE SAID AMOUNT RS.7,25,031 WAS INCURRED ON ACCOUNT OF PLS MAINTENANCE CHARGES AND RS.34,143 AS CREDIT CHARGES. THE B ALANCE OF RS.95,13,373 WAS CLAIMED AS PURCHASE OF COST OF THE SOFTWAR E 'PIPE LINE STUDIO'. THE ASSESSING OFFICER NOTICED THAT THE PAYMENT IN RESPECT OF SOFTWARE/LICENSE WAS IN THE NATURE OF PAYMENT FOR 'ROYA LTY' WITHIN THE MEANING OF SECTION 9(1)(VI) OF THE ACT, WHICH ATTRACTED TDS PROVISIONS U/S 195 OF THE ACT. THE ASSESSEE FILED A REPLY BEFORE TH E ASSESSING OFFICER IN WHICH IT WAS STATED THAT THE PIPELINE STUDIO SOFTWARE WAS IMPORTED FROM THE FOREIGN COMPANY AND THE APPLICATION WAS USED FOR PETROCHEMICAL COMPANIES AND OIL REFINERIES. HOWEVER, THE ASSESSING OFFICER EXAMINED THE COPIES OF BILLS AND PURCHASE ORDERS A ND FOUND THAT THE LICENSE OBTAINED BY THE ASSESSEE ALSO INCLUDED THE RIGH T TO APPLY THE SOFTWARE FOR DEVELOPING THE SOFTWARE FOR SALE IN INDIA AND THEREFORE IT WAS NOT A CASE OF SIMPLE PURCHASE AND SALE OF SOFTWARE. T HE ASSESSING OFFICER REFERRED TO THE EXPLANATION 2 TO SECTION 9(1)( VI) OF THE IT ACT AS PER WHICH 'ROYALTY' INCLUDES CONSIDERATION FOR THE TRAN SFER OF RIGHTS IN RESPECT OF A PATENT, INVENTION, FORMULA, PROCESS ETC. AC CORDINGLY, HE TREATED THE PAYMENT MADE BY THE ASSESSEE TO THE DENMARK COMP[ANY AS AMOUNTING TO 'ROYALTY' AND CHARGEABLE TO TAX WITHI N THE SCOPE OF SECTION 9(1)(VI) OF THE ACT WHICH ALSO ATTRACTED TDS U/S 1 95 OF THE IT ACT. AS THE ASSESSEE HAD FAILED TO MAKE TDS ON SUCH PAYMEN TS, THE AMOUNT WAS DISALLOWED UNDER THE PROVISIONS OF SECTION 40 (A)(1) OF THE INCOME-TAX ACT FOR THE TWO YEARS UNDER CONSIDERATION. T HE ASSESSEE IS ENGAGED IN DESIGN DEVELOPMENT, SUPPLY, INTEGRATION, I NSTALLATION AND 3 COMMISSIONING OF SOFTWARE. FOR THIS PURPOSE, THE ASSESSEE P URCHASED AND IMPORTED SOFTWARE LICENSE FROM FOREIGN ENTERPRISE A ND PETROCHEMICAL COMPANIES AND OIL REFINERIES USED THIS APPLICATION FOR T RANSPORTATION OF PETROLEUM PRODUCTS THROUGH PIPELINES AND THE ASSESSEE PUR CHASED THE SOFTWARE LICENSE FROM THE FOREIGN ENTERPRISE FOR FURTHE R SELLING TO M/S RELIANCE AND IT HAS ACQUIRED NO RIGHTS TO COPY AND SELL T HE PROGRAMME TO OTHER CLIENTS AS IT WAS IMPORTED AND THEREFORE PAYMENTS FOR IMPORT OF SOFTWARE PURCHASE DID NOT CONSTITUTE ROYALTY IF THERE I S NO TRANSFER OF COPYRIGHT IN THE SOFTWARE. IT WAS SUBMITTED THAT IN TH E INSTANT CASE, THE ASSESSEE COMPANY HAD NOT ACQUIRED ANY RIGHT IN COPYRIGHT P ROGRAMME. 3. AGGRIEVED AGAINST THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT (A). THE CIT (A) AFT ER DISCUSSING THE POINTS AT ISSUE BY DISCUSSING THE POINTS ELABORATELY, CONF IRMED THE DISALLOWANCES MADE BY THE ASSESSING OFFICER FOR THE TWO YE ARS UNDER CONSIDERATION U/S 40(A)(I) OF THE IT ACT AND DISMISSED THE GROUNDS TAKEN BY THE ASSESSEE IN THESE TWO APPEALS. 4. FURTHER AGGRIEVED, THE ASSESSEE IN APPEAL BEFORE US. THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS FILED PETITION FOR ADMISSION OF ADDITIONAL GROUNDS FOR THE ASSESSMENT YEAR 2004-05 AN D HENCE THE ISSUE MAY BE RESTORED BACK TO THE FILE OF THE CIT(A) TO ADJUDICATE UPON THE SAME AFRESH IN ACCORDANCE WITH LAW. 5. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSE E SUBMITTED THAT BOTH THE ASSESSING OFFICER AS WELL AS CIT (A) NOT RE CORDED THE ENTIRE FACTS OF THE CASE IN THEIR ORDERS EVEN THOUGH THE PAPER BOOK WAS SUBMITTED WHICH CONTAINS FULL REQUIRED DETAILS FOR ADJUD ICATING THE ISSUE 4 UNDER DISPUTE AND HENCE HE REQUESTED THAT IN THE INTE RESTS OF NATURAL JUSTICE, THESE MATTERS MAY BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RECONSIDERATION AFRESH IN ACCORDANCE WITH LAW . 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. AFTER CONSIDERING THE F ACTS OF THE CASE, WE FIND THAT BOTH THE REPRESENTATIVES OF RIVAL PARTIES AG REED TO SEND BACK THE MATTERS TO THE FILE OF THE ASSESSING OFFICER FOR RECO NSIDERATION. IN VIEW OF THE ABOVE, WE AGREE WITH THE REPRESENTATIVES OF THE PARTIES AND SEND BACK ALL THE ISSUES INCLUDING ADDITIONAL GROUNDS TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WIT H LAW AND DECIDE THE SAME AFTER HEARING ALL THE CONTENTIONS OF T HE ASSESSEE. 7. IN THE RESULT, BOTH THE APPEALS BY THE ASSESSEE ARE TR EATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 10-2-2010 SD/- (G.C. GUPTA) SD/- (AKBER BASHA) VICE PRESIDENT ACCOUNTANT MEMBER. DT/- 10TH FEB. 2010. 5 COPY FORWARDED TO: 1. M/S.ENERGY SOLUTIONS INTERNATIONAL (INDIA) P. LTD. 1ST FLOOR, ROAD NO.10, JUBILEE HILLS, HYDERABAD. 2. DCIT, CIR-2(2), IT TOWERS, AC GUARDS, HYDERABAD. 3. CIT, AP, HYDERABAD. 4. CIT (A) III,, HYDERABAD. 5. THE D.R., ITAT, HYDERABAD. JMR