India Soft Technologies Pvt. Ltd., Pune V. DDIT (Int. Tax.)-I, Pune

ITA 1712/PUN/2013

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9476 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-01-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 06-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Opportunity of being heard; Retrospective amendment; Permanent establishment
• Section: 5(2)

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NOS.1709 TO 1712/PUN/2013 / ASSESSMENT YEARS : 2008-09 TO 2011-12 INDIA SOFT TECHNOLOGIES PRIVATE LTD., NIRVANA, 2 ND FLOOR, COMMERCIAL 3, PLOT NO.18, S.NO.213/214/215, KALYANI NAGAR, PUNE 411 006 PAN : AABCI0540H . /APPELLANT VS. DDIT (INTERNATIONAL TAXATION)-I, PUNE . / RESPONDENT ASSESSEE BY : SHRI M.K. KULKARNI REVENUE BY : SHRI ACHAL SHARMA, ADDL. CIT / DATE OF HEARING : 18.01.2018 / DATE OF PRONOUNCEMENT: 24.01.2018 / ORDER PER D. KARUNAKARA RAO, AM : THERE ARE 4 APPEALS FILED BY THE ASSESSEE UNDER CONSIDER ATION INVOLVING ASSESSMENT YEARS 2008-09 TO 2011-12. 2. THE ISSUES RAISED IN THESE APPEALS ARE IDENTICAL AND T HE GROUNDS RAISED IN THESE APPEALS ARE ARGUMENTATIVE IN NATURE. THER EFORE, WE PROCEED TO CULL OUT THE SUMMARY OF THE 4 GROUNDS RAISED BY THE ASSESSEE FOR THE A.Y. 2008-09. ITA NO.1709/PUN/2013 (A.Y. 2008-09) ISSUES RAISED IN THE GROUNDS : (1) ASSESSEE IS OF THE VIEW THAT THE ASSESSEE BEING THE DISTRIBUTOR MADE PAYMENTS TO THE NON-RESIDENTS SUPPLIERS FOR ITA NOS.1709 TO 1712/PUN/2013 INDIA SOFT TECHNOLOGIES PVT. LTD., 2 PURCHASE OF THE SOFTWARE PRODUCTS HELD TO BE CHARGEABLE TO TAX IN THE HANDS OF RESIDENTS, PAYEE (RESIDENT OF UK/USA). (2) ASSESSEE RAISED THE ISSUE OF ABSENCE OF PERMANENT ESTABLISHMENT (PE) IN INDIA FOR THE SAID SUPPLY OF SOFTWARE. (3) FURTHER, ASSESSEE ALSO RAISED THE ISSUE RELATING TO CORRECTNESS OF RETROSPECTIVE APPLICATION OF EXPLANATION 4 T O SECTION 9 OF THE I.T. ACT. THE NATURE OF THE PAYMENTS ACCORDING TO THE ASSESSEE DID NOT CONSTITUTE ROYALTY. THEREFORE, THE PROV ISIONS OF SECTION 195 HAS NO APPLICATION. CONSEQUENTLY, THE ORDER PASSED BY THE AO U/S.201 R.W.S.201(1A)OF THE ACT IS UNSUSTAINABLE. GROUNDS NOS. 2, 3 AND 4 ARE RELATED TO THE ISSUES ALREAD Y DISCUSSED ABOVE. 3. BRIEFLY STATED RELEVANT FACTS CULLED OUT FROM THE RELEVA NT ASSESSMENT YEARS 2008-09 INCLUDE THAT THE ASSESSEE CLA IMS THAT HE IS A DISTRIBUTOR OF SOFTWARE PRODUCED AND MARKETED BY CERTAIN COMPANIES FROM UK/ USA. THE MODUS OPERANDI OF THE ASSESSEES BUS INESS ACCORDING TO HIM INCLUDES THAT SUPPLIERS DEVELOPS THE SOFTW ARE SOLUTIONS ABROAD. ASSESSEE IS APPOINTED AS DISTRIBUTOR FOR MARKET ING OF THE SAID PRODUCTS. ASSESSEE RECEIVES ORDERS FROM THE CUSTOMERS . ORDERS ARE PLACED IN THE NAME OF THE SUPPLIER COMPANY. THE SUPPLIER SHIPS THE SOFTWARE PRODUCTS TO THE CUSTOMERS DIRECTLY. THE SUPP LIER RAISES THE BILL IN THE NAME OF THE ASSESSEE COMPANY. IN TURN, ASSESSE E RAISED THE BILL IN THE NAME OF THE CUSTOMERS. ASSESSEE MAKES THE PAYMENT S TO THE SUPPLIERS ABROAD. 4. DURING THE YEAR UNDER CONSIDERATION, THE PROCESS SYS TEM ENTERPRISE ( IN SHORT PSE), THE LANNER GROUP LTD., UK AR E THE SUPPLIERS ITA NOS.1709 TO 1712/PUN/2013 INDIA SOFT TECHNOLOGIES PVT. LTD., 3 FROM UK. GAMS DEVELOPMENT CORPORATION OF USA IS ANOTHER SUPPLIER. ASSESSEE PAID RS.47,77,786/- TO THE SAID SUPPLIERS. MAJOR REMITTANCES ARE MADE TO THE LANNER GROUP LTD., UK FOR PURCHASE OF S OFTWARE FOR RESALE. WHILE MAKING THE SAID PAYMENTS TO SUPPLIERS, ASSESS EE DID NOT THE EFFECT THE TDS AND DID NOT CONSIDER THE PAYMENTS AS ROYALTY. IN THE PROCEEDINGS U/S.201 AND 201(1A) OF THE I.T. ACT, AO RAISED THE ISSUE OF ASSESSEES FAILURE TO MAKE TDS ON THE SAID REMITTANCES T O THE SUPPLIERS AT USA/UK. ON EXAMINATION OF THE SAID AGREEMENTS WITH TH E SAID SUPPLIERS, AO CAME TO THE CONCLUSION THAT ASSESSEE HAS G OT RIGHT TO SUB- LEASE THE SAID PRODUCTS. FOR EXAMPLE, THE CLAUSES OF THE AGREEMENT D ATED 15-06-2006 OF THE ASSESSEE WITH PROCESS SYSTEM ENTERP RISE, UK ARE CITED. AS PER PARA NO.2.2 OF THE SAID AGREEMENT, PSE (A S UPPLIER) GRANTS THE ASSESSEE A NON-EXCLUSIVE, NON-TRANSFERABLE AND NON-A SSIGNABLE LICENSE TO USE THE PSE SOFTWARE. SIMILAR READING IS DONE FR OM THE AGREEMENT WITH LANNER GROUP LTD. UK. FROM THESE, TH E AO CONCLUDED THAT THE LICENSE ASSESSEE RECEIVES FROM LANNER GROUP L TD. IS ONE WITH THE RIGHT TO GRANT THE SUB-LICENSES TO THE END USERS T O USE THE SOFTWARE. AO FOUND THE ELEMENT OF ROYALTY IN THE SAID EXPRESSIONS. A O ANALYSED THE PROVISIONS OF SECTION 5(2) AND SECTION 9 OF THE ACT TO CONCLUDE THAT THE PAYMENTS MADE BY THE ASSESSEE TO THE SUPPLIERS CO NSTITUTE A TAXABLE ROYALTY. CONTENTS OF PARA NOS. 5.9 AND 5.10 PROVIDE NECES SARY EXPLANATION FOR HOLDING THE PAYMENTS AS ROYALTY. HE ALSO D EALT WITH THE NEWLY INTRODUCED EXPLANATION 4 RETROSPECTIVELY TO SECTIO N 9 OF THE ACT AND HELD THE PAYMENTS MADE BY THE ASSESSEE TO NON-RE SIDENT SUPPLIERS FOR PURCHASE OF SOFTWARE AS IN THE NATURE OF ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VI) OF THE ACT OR THE RELEVANT ARTICLE OF THE DTAA. 5. IN PARA NO.6 OF THE AOS ORDER, THERE IS DISCUSSION WIT H REGARD TO THE ARTICLE 12 OF INDO-USA DTAA AND ARTICLE 13 OF INDO-UK DTAA BEFORE ITA NOS.1709 TO 1712/PUN/2013 INDIA SOFT TECHNOLOGIES PVT. LTD., 4 CONCLUDING THE PAYMENTS CONSTITUTES ROYALTY. HE ALSO EXT RACTED CERTAIN DECISIONS IN SUPPORT OF HIS CONCLUSIONS. HE ALSO CONSIDERED THE ASSESSEES REPLY IN THIS REGARD. IN PARA NO.8, THERE IS REFERENCE TO THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. M/S. SAMSUNG ELECTRONICS COMPANY LTD. VIDE ITA NO.2808 OF 2005 DATED 15-10-2011 AND MANY OTHER DECISIONS. IN THE PARA NO.9 , THE AO EXTRACTED THE RELEVANT PORTION FROM THE SAID JUDGMENT A ND MANY OTHER JUDGMENTS FROM THE SAME HIGH COURT. HE ALSO CITED VARIO US DECISIONS FROM AIR INVOLVING THE CASES OF MILLENNIUM I.T SOFTWARE LTD. AAR NO.835 OF 2009, DATED 28-09-2011 AND CITRIX SYSTEMS ASIA PVT. LTD. AAR NO.922 OF 2009 DATED 06-02-2012. EVENTUALLY, THE AO CO NCLUDED IN PARA NO.10 OF HIS ORDER IN FAVOUR OF TREATING THE ASSESSEE IN DEFAULT AND INVOKED THE PROVISIONS OF SECTION 201 AND 201(1A) OF THE A CT. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, RELEVANT PARA NO.10 IS EXTRACTED HERE AS UNDER : 10. ACCORDINGLY, ASSESSEE'S CONTENTION IS NOT ACCE PTABLE, IN VIEW OF ABOVE FACTS AND CASE LAWS CITED, THE ABOVE MENTIONE D PAYMENTS RECEIVED BY THE NON-RESIDENT SUPPLIERS FROM THE ASSESSEE ARE IN THE NATURE OF ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VI) OF T HE INCOME-TAX ACT, 1961 AND WITHIN THE MEANING OF ARTICLE 12/13 OF THE DTAA BETWEEN INDIA AND USA/UK. THEREFORE, THE PROVISIONS OF SECTION 195 OF THE INCOME-TAX ACT. 1961 ARE SQUARELY APPLICABLE FOR PAYMENTS OF LICENCE FEE AND THE ASSESSEE WAS BOUND BY LAW TO DEDUCT THE TAXES BEFORE REMITTI NG THE MONEY TO NON- RESIDENTS. BY NOT DEDUCTING OR WITHHOLDING TAXES, T HE ASSESSEE HAS COMMITTED A DEFAULT IN TERMS OF SEC. 201 (1) AND 20 1(1A) OF THE INCOME-TAX ACT, 1961 AND IS THEREFORE TREATED AS 'ASSESSEE IN DEFAULT' AS PE R THE PROVISIONS OF SECTION 201(1). IN CASE OF SUPPLIERS FROM UK, THE ASSESSEE HAS ENTERED INTO AGREEMENT ON OR AFTER 1 ST JUNE 2005, HENCE TAX IS TO DEDUCTED AT RATE OF 10% PLUS SURCHARGE PLUS EDUCATION CESS A S PER SECTION 115A(1)(B)(AA) OF THE INCOME-TAX ACT, 1961. IN CASE OF SUPPLIER FROM USA, AS THE ASSESSEE HAS NOT GIVEN EVIDENCE THAT AGREEME NT IS ENTERED ON OR AFTER 1 ST JUNE 2005 TO CLAIM THE LOWER RATE OF 10% AS PER SE CTION 115A(1)(B)(AA) OF THE INCOME-TAX ACT, 1961, THE TAX TO BE DEDUCTED IS CALCULATED @15% AS PER DTAA BETWEEN INDIA AND USA. CONSIDERING THE PROVISIONS OF SECTION 201(1A), THE ASSESSEE IS ALSO LIABLE TO PAY SIMPLE INTEREST @ 1% FOR EVERY MONTH OR PART OF A MONTH ON THE AMOUNT OF SUCH TAX ON WHICH SUCH TAX WAS DEDUCTIBLE TO THE DATE ON WHICH SUCH TAX IS DEDUCTED. ITA NOS.1709 TO 1712/PUN/2013 INDIA SOFT TECHNOLOGIES PVT. LTD., 5 6. ASSESSEE WAS REQUIRED TO PAY THE TAX OF RS.5,81,081/- AND INTEREST OF RS.3,66,100/- TOTAL PAYMENT RAISED ON THIS BENEFIT FOR THI S YEAR WORKS OUT TO RS.9,47,182/-. 7. AGGRIEVED WITH THE ORDER OF AO, ASSESSEE FILED AN APPEA L BEFORE THE CIT(A) STATING THAT THE ORDER PASSED BY THE AO U/S.201/ 201(1A) OF THE ACT IS BAD IN LAW. HE ALSO CRITICIZES THE FINDING OF THE AO I N TREATING THE ASSESSEE COMPANY AS THE ASSESSEE IN DEFAULT. ASSESSEE IS ALSO CRITICAL OF AOS FINDING THAT THE PAYMENTS MADE BY THE ASSESSEE CO NSTITUTE ROYALTY. AS SUCH, THERE ARE SPECIFIC ISSUES RAISED BEFORE THE CIT(A) AS IN THE CASE OF THE APPEAL BEFORE THE TRIBUNAL WITH REFERENCE TO (1) EXIS TENCE OF PERMANENT ESTABLISHMENT OF THE PAYEES AND (2) SIMILAR ADDITIO NS WERE MADE FOR A.YRS. 2009-10 TO 2011-12. TOTAL PAYMENTS RAISED IS TABULATED AS UNDER : ASSESSMENT YEAR ADDITIONS MADE 2009-10 1,25,463-/ 2010-11 1,61,307/- 2011-12 11,87,422/ 8. GROUNDS RAISED BY THE ASSESSEE IN ALL THESE 4 APPEALS ARE IDENTICAL. THEY REVOLVE AROUND THE FINDING OF THE AO THAT THE PAYMENTS MADE B Y THE ASSESSEE TO PURCHASE THE SOFTWARE PRODUCTS CONSTITUTE ROYALTY AND THE RETROSPECTIVE AMENDMENT TO SECTION 9 QUA THE INSERTION OF EXPLANATION 4. THERE IS A REFERENCE TO ARTICLE 13 OF INDO-UK DTAA AND A RTICLE 12 OF INDIA-USA/INDO-IRELAND AND INDO-CANADA DTAAS. FURTHE R, THERE IS DISCUSSION IN PARA NOS. 2.1.27 OF THE ORDER OF CIT(A) WITH REFE RENCE TO ARTICLE 2 OF THE AGREEMENTS UNDER THE HEADING GRANT OF LICENCES AND SUBMITTED THAT THE SUPPLIERS GRANTED TO THE ASSESSEE T HE DEALERSHIP RIGHTS TO SUB-LICENCE THE SOFTWARES IN THE TERRITORIES OF T HE CUSTOMERS AND HAS BEEN GIVEN THE COMMERCIAL RIGHT TO DEMONSTRATE THE SOFTWARE TO THE POTENTIAL CUSTOMERS ALONG WITH TRAINING. THE DEALER HAS RIG HT TO ITA NOS.1709 TO 1712/PUN/2013 INDIA SOFT TECHNOLOGIES PVT. LTD., 6 MAINTENANCE AND SUPPLY SUPPORT FOR THE SOFTWARE TO CON SUMERS. EVENTUALLY, THE CIT(A) AGREED WITH THE FINDING OF THE AO AS PER THE DISCUSSION GIVEN IN PARA NOS. 2.1.28 AND 2.1.29 OF HIS ORDER. RELEVANT PARAS ARE EXTRACTED HERE AS UNDER : 2.1.28 IT CAN BE SEEN FROM THE ABOVE PROVISIONS OF THE AGREEMENTS THAT THE APPELLANT HAS BEEN GRANTED RIGHT TO SUB-LI CENSE SOFTWARE BY PERFORMANCE FLUID DYNAMICS LIMITED, LANNER GROUP LIM ITED, SCALE-UP AND BY DYADEM INTERNATIONAL LIMITED. IN ALL THE CASES, THE APPELLANT IS ALSO PROVIDING SERVICES OF IMPLEMENTATION, MAINTENANCE S UPPORT AND TRAINING. FURTHER, THE APPELLANT HAS BEEN GRANTED RIGHT TO MO DIFY SOFTWARE WITH THE CONSENT OF SOFTWARE DEVELOPER TO MEET SPECIFIC REQU IREMENTS OF THE CUSTOMER BY PERFORMANCE FLUID DYNAMICS LIMITED AND LANNER GROUP LIMITED. IT IS CLEAR THAT ALL THE ABOVE FUNCTIONS CANNOT BE PERFORMED WITHOUT THE FULL KNOWLEDGE OF TECHNICAL INFORMATION IN THE SOFTWARE. THESE FUNCTIONS ALSO CANNOT BE PERFORMED WITHOUT USING CO PYRIGHT OF THE OWNER. THEREFORE, THIS IS NOT AN ORDINARY CASE, IN WHICH T HE DISTRIBUTOR HAS PURCHASED AND SOLD SOFTWARE PRODUCTS TO THE CUSTOME RS BUT ALSO HAS PERFORMED MANY OTHER CRITICAL FUNCTIONS ADDING VALU E TO THE PRODUCTS REQUIRING USE OF COPYRIGHT OF THE OWNER. THEREFORE , I HOLD THAT THE APPELLANT HAS USED COPYRIGHT OF THE OWNER FOR PERFO RMANCE OF VALUE ADDED FUNCTIONS, FOR WHICH THE APPELLANT HAS PAID ROYALT Y. AS MENTIONED EARLIER, THIS AMOUNT IS TAXABLE UNDER THE INCOME TAX ACT. S INCE THE APPELLANT HAS USED COPY RIGHT, IT WOULD BE TAXABLE UNDER THE RELE VANT DTAA AS WELL. 2.1.29 WITH THE RESULT, I CONFIRM THE ACTION OF TH E LEARNED AO TO TAX THIS AMOUNT AS A ROYALTY ON WHICH THE TAX PAYER OUGHT TO HAVE DEDUCTED TAX. ACCORDINGLY, I HOLD THAT THE DEMAND OF TAX AND INTE REST RAISED BY THE LEARNED AO DOES NOT REQUIRE ANY INTERFERENCE. SIMILAR IS THE FINDING IN THE APPEALS PERTAINING TO A.YRS. 2009-10 TO 2011-12. 9. AGGRIEVED WITH THE ABOVE FINDING OF THE CIT(A), THE ASSE SSEE RAISED THE CURRENT APPEALS FOR ALL THE 4 ASSESSMENT YEARS. IS SUES AS NARRATED IN THE PRECEDING PARAGRAPHS ARE COMMON. 10. BEFORE US, LD. AR FOR THE ASSESSEE BROUGHT OUR ATTE NTION TO THE LIST OF THE SUPPLIERS, I.E. PSE, LANNER GROUP LTD.,UK AND GAMS DE VELOPMENT CORPORATION AND SUBMITTED THAT THERE IS NO PE FOR TH E SAID CONCERNS IN INDIA. REFERRING TO THE WAY THE OFFICERS APPLIED ARTICLES 12 AND 13 OF THE RESPECTIVE DTAAS WITH USA AND UK RESPECTIVELY, LD. AR SU BMITTED THAT ITA NOS.1709 TO 1712/PUN/2013 INDIA SOFT TECHNOLOGIES PVT. LTD., 7 THE EXISTENCE OF THE PE IS RELEVANT BEFORE ANY PAYMEN TS OF THIS KIND ARE TO BE BROUGHT UNDER THE SAID ARTICLES 12 AND 13, AS THE CASE MAY BE, OF THE RESPECTIVE DTAAS. BRINGING OUR ATTENTION TO THE FINDIN GS OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SIEMENS AKTIONGESELLSCHAFT 15 DTR 0233, LD. AR FOR THE ASSESSEE SU BMITTED THAT THE SAID JUDGMENT IS RELEVANT FOR THE LEGAL PROPOSITION THA T IN THE ABSENCE OF PE, THE AMOUNTS IN RESPECT OF WHICH TRIBUNAL HAS RECORD ED A FINDING THAT THE INCOME SOUGHT TO BE ASSESSED AS INDUSTRIAL OR COMMERCIAL PROFITS AND NOT ASSESSABLE TO TAX IN INDIA AS ADMITTEDLY ASSESSEE HAS NO PE IN INDIA. THE QUESTION OF APPLYING THE DEEMING PROVISION S WOULD NOT ARISE. ACCORDING TO THE LD. AR, WITHOUT GOING INTO THESE I SSUES, SUCH INCOME WOULD NOT BE TAXABLE IN TERMS OF THE DTAA WHICH IS MORE BENEFICIAL. HE ALSO BROUGHT OUR ATTENTION TO THE DECISION O F THE TRIBUNAL IN THE CASE OF M/S. RELIANCE INDUSTRIES LTD. ITA NOS. 198 0, 1981, 1983, 2984, 2523, 2529/MUM/2008 DATED 18-05-2016 AND SUBMITT ED THAT SAID DECISIONS ARE NOT FINALLY CONCLUDED ACCORDING TO THE L D. AR. IN VIEW OF THE SIGNIFICANCE OF THIS ASPECT RELATING TO THE EXISTENCE OF PE OF THE PAYEES, THE APPLICABILITY OF THE PROVISIONS OF ARTICLE 12 AND 13 OF THE RESPECTIVE DTAAS IS PREMATURE. 11. REFERRING TO THE CORRECTNESS OF THE FINDING OF THE AO AND THE CIT(A) ON THE NATURE OF PAYMENTS AS ROYALTY OR OTHERWISE, LD. A R FOR THE ASSESSEE SUBMITTED THAT THERE ARE VARIOUS DECISIONS IN T HIS REGARD INCLUDING THE JUDGMENT IN THE CASE OF HONBLE KARNATAKA H IGH COURT IN THE CASE OF SAMSUNG ELECTRONICS COMPANY LTD. VIDE ITA N O.2808 OF 2005 DATED 15-10-2011 AND THE JUDGMENT OF HONBLE DE LHI HIGH COURT IN THE CASE OF PR.CIT VS. M. TECH INDIA (P) LTD. 287 CTR 213 (DEL.) AND M/S.RELIANCE INDUSTRIES LTD. (SUPRA). AO AND THE CIT(A) DID NOT CONSIDER THESE DECISIONS BEFORE HOLDING THE SAID PAYMENTS CONSTITUT ES THE ROYALTY. ITA NOS.1709 TO 1712/PUN/2013 INDIA SOFT TECHNOLOGIES PVT. LTD., 8 FOR THE REASON OF BRINGING CLARITY AND APPLICABILITY OF THE RELEVANT PROVISIONS WITH REGARD TO THE EXISTENCE OF THE PE AS WELL AS APPLICABILITY OF VARIOUS DECISIONS OF VARIOUS HIGH COURTS, LD. AR FOR THE A SSESSEE SUBMITTED THAT ALL THE ISSUES MAY BE REMANDED TO THE FILE OF AO FOR FRESH ADJUDICATION ON THE ENTIRE GAMUT OF THE ISSUES. 12. ON PERUSAL OF THE WRITTEN NOTE FURNISHED BY THE LD . AR FOR THE ASSESSEE, WE FIND THE ALLEGATION OF NEITHER THE SUBLEASING N OR THE MODIFICATION OF THE SOFTWARE PRODUCTS IMPORTED BY THE ASSE SSEE HAVE BEEN ATTEMPTED BY THE ASSESSEE. HE MERELY STATED TH AT THE PAYMENTS MADE FOR USE OF COPYRIGHT ARTICLES DOES NOT CONSTITUTE ROYALTY. 13. PER CONTRA, LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDERS OF AO AND THE CIT(A). BRINGING OUR ATTENTION TO THE DEALERSH IP AGREEMENT WITH THE SUPPLIERS, LD. DR SUBMITTED THAT THE ASSESSEE HA S GOT THE RIGHT TO SUB-LEASE THE SOFTWARE PRODUCTS RECEIVED BY THE ASS ESSEE. ASSESSEE HAS BEEN GIVEN THE COMMERCIAL RIGHTS, DISTRIBUTION RIGHTS, RIG HT TO DEMONSTRATIONS, RIGHT TO MODIFICATION OF THE SOFTWARE ETC BY THE SUPP LIERS. HOWEVER, HE NEVER POINTED OUT ANY CASE OF SUCH SUBLEASE OR WHETHER ASSESSEE HAS UNDERTAKEN ANY MODIFICATION OF THE SOFTWARE IN ORDER TO CATER THE NEEDS OF THE SPECIFIC CUSTOMERS IN INDIA. FURT HER, HE SUBMITTED THAT THE ASSESSEE HAS RAISED THIS GROUND NO.3 LINKED TO GROUND NO. 1 OF GROUNDS OF APPEAL AND MENTIONED THAT THE SAID GROUNDS A RE NEVER RAISED EITHER BEFORE THE AO OR BEFORE THE CIT(A). IN THE ABSENCE OF FINDING OF FACT ON THE EXISTENCE OF PE PAYEES, THERE IS A NEED FOR FINDING OF FACT ON THIS ISSUE BY THE LOWER AUTHORITIES. 14. WE HEARD BOTH THE PARTIES ON THE ISSUES, I.E. EXISTENCE OF PE, NATURE OF PAYMENTS AS ROYALTY, RIGHTS GIVEN BY THE SUPPLIE RS TO THE DEALER, APPLICABILITY OF THE PROVISIONS OF SECTION 195 OF THE A CT ETC. ON ITA NOS.1709 TO 1712/PUN/2013 INDIA SOFT TECHNOLOGIES PVT. LTD., 9 HEARING BOTH THE SIDES, WE FIND THERE ARE SOME GAPS RELAT ING TO THE FACTS WHICH ARE REQUIRED TO BE COLLECTED BY THE REVENUE AUTHORITIES. (A) REGARDING THE RIGHT TO SUB-LEASE THE SOFTWARE PRODUC TS, NO FINDING OF FACT IS GATHERED BY THE AUTHORITIES THAT ASSESSEE HA S ACTUALLY SUBLEASED THE SOFTWARE PRODUCTS TO VARIOUS DEALERS/SUB- DEALERS. SAME IS THE CASE WITH REGARD TO THE RIGHT TO MODIFY THE EXISTIN G SOFTWARE RECEIVED FROM THE SUPPLIERS. SPECIFIC TO THE PRODUCTS RECEIVED BY T HE ASSESSEE FOR THE CUSTOMERS IN INDIA, ONE NEED TO EXAMINE IF THESE PROD UCTS WERE INFACT SUBJECTED TO MODIFICATIONS IF ANY, TO MEET THE SPECIFIC REQU IREMENTS OF THE CUSTOMERS IN INDIA, BEFORE THE PAYMENTS ARE REMITTED TO THE SUPPLIERS. AO NEED TO EXAMINE SUBLEASING OF THE DEALERSHIP RIGHTS TO OTHERS AS AUTHORIZED BY THE AGREEMENT BETWEEN THE SUPPLIERS AND THE ASSESSEE. THERE IS NEED FOR REMANDING THE ISSUE TO THE FILE OF AO FOR FRESH CONSIDERATION. (B) REGARDING THE EXISTENCE OF PE FOR THE PAYEES ABROAD UK/USA, THIS ISSUE HAS COME UP FOR THE FIRST TIME BEFORE THE TRIBUNAL. THE FACT ON THE EXISTENCE OF PE, ACCORDING TO LD. AR FOR THE ASSESSEE, IS A MATTER BOTH ON FACTS AND LAW. THEREFORE, THIS ISSUE IS RIGHTLY RAISED FROM THE LEGAL POINT OF VIEW AND PRAYED FOR ADMITTING THE SAME AND REMANDING T O THE FILE OF AO FOR ADJUDICATION, IF REQUIRED. CONSIDERING THE FACT THAT THIS ISSUE IS ALSO PARTLY LEGAL IN NATURE, WE ARE OF THE OPINION THAT GRO UND NO.3 AND OTHER RELATED LIMBS OF GROUNDS OF APPEAL ARE ADMITTED AND REMANDED TO THE FILE OF AO FOR A DECISION BEFORE INVOKING THE ARTICLE 12 AN D 13 OF THE RESPECTIVE DTAAS. FURTHER, WE NOTICE THAT THE ABOVE RE FERRED ISSUES RELATING TO PE ARE REQUIRED TO BE ADJUDICATED CONSIDERING THE JUDGMENTAL LAW IN EXISTENCE AS ON DATE. THERE IS NEED FOR REMANDING THE ISSUE TO THE FILE OF AO FOR FRESH CONSIDERATION. ITA NOS.1709 TO 1712/PUN/2013 INDIA SOFT TECHNOLOGIES PVT. LTD., 10 (C) REGARDING THE NATURE OF PAYMENTS, WHETHER IT CONSTITU TES ROYALTY OR OTHERWISE, THE SAME DEPENDS ON FACTS OF EACH CASE WH ICH ARE TO BE GATHERED BY THE AO IN THE PROPOSED REMAND PROCEEDINGS . THERE ARE DIVERGENT DECISIONS IN LAW ON THE SAID ROYALTY. IF THE REMIT TANCES ARE RELATABLE TO MERE RECEIVING THE SOFTWARE PRODUCTS FROM TH E SUPPLIERS AND PASSING IT ON TO THE CUSTOMERS, PLAYING THE ROLE OF A DEALER, WE DO NOT FIN D THERE IS ANY ROYALTY INVOLVED IN THESE REMITTANCES. HOWEV ER, AS ARGUED BY THE LD. DR FOR THE REVENUE, RELYING ON THE ORDERS OF THE AO AND THE CIT(A), IF THERE IS EXPLOITATION OF THE SOFTWARE PRODUCTS OBTA INED FROM THE SUPPLIERS FOR COMMERCIAL BENEFITS OF THE ASSESSEE OR ITS C USTOMERS THROUGH THE MECHANISM OF SUBLEASING OR THROUGH MECHANISM OF INCORPORATING THE MODIFICATION IN THE SAID SOFTWARE TO MEET THE DEMANDS OF THE CUSTOMERS, THE CONCLUSIONS MAY VARY DEPENDING ON THE FACTS. THEREFORE, WE ARE OF THE OPINION THAT THE AO SHOULD INVOK E THE REQUISITE VERIFICATION AND MODIFICATION AND APPLICATION OF LAW TO THE ABOV E REFERRED ISSUES AND DECIDE THE ISSUE AFRESH AS PER THE LAW. AO SH ALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE FOR A.Y. 2008-09 ARE ALLOW ED FOR STATISTICAL PURPOSES. 15. IN THE RESULT, APPEAL OF THE ASSESSEE FOR A.Y. 2008-09 IS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS. 1710 TO 1712/PUN/2013 (BY ASSESSEE A.YRS. 2009-10 TO 2011-12) 16. FROM THE GROUNDS OF THESE APPEALS OF THE ASSESSEE, T HE ABOVE REFERRED ISSUES ARE FOUND TO BE COMMON. ACCORDINGLY, THE ARGUMENTS AND THE COUNTER ARGUMENTS OF THE ASSESSEE AND THE LD . DR FOR THE REVENUE RESPECTIVELY ARE ALSO IDENTICAL. CONSIDERING OUR FIN DING ON THESE ISSUES IN PARA NO.13 OF THIS ORDER, WE ARE OF THE OPINION TH AT ALL THE ITA NOS.1709 TO 1712/PUN/2013 INDIA SOFT TECHNOLOGIES PVT. LTD., 11 GROUNDS RAISED BY THE ASSESSEE IN THE ABOVE ASSESSMEN T YEARS SHOULD ALSO BE REMITTED TO BE FILE OF AO FOR FRESH ADJUDICATION. ACC ORDINGLY, ALL THE GROUNDS RAISED BY THE ASSESSEE IN THE ABOVEMENTION ED THREE APPEALS ARE ALSO ALLOWED FOR STATISTICAL PURPOSES. 17. IN THE RESULT, APPEALS OF THE ASSESSEE FOR A.YRS. 2009 -10 TO 2011- 12 ARE ALLOWED FOR STATISTICAL PURPOSES. 18. TO SUM UP, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF JANUARY, 2018. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 24 TH JANUARY, 2018. / COPY OF THE ORDER FORWARDED TO : BY ORDER // TRUE COPY // //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. CIT(A) - IT/TP, PUNE 4 . 5. CIT - IT/TP, PUNE % , , A BENCH PUNE; 6 . / GUARD FILE.