Shri Hiren K. Bhandari, Ahmedabad V. The Income Tax Officer, International Taxation-II, Ahmedabad

ITA 179/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8522 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 13-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 20-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: RIDDHI SHAH
• Keywords: Double taxation relief; Retrospective amendment; Reason to believe

Judgement Text

ITA NO. 179/AHD/2014 HIREN K BHANDARI VS. ITO ASSESSMENT YEAR: 2009-10 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND MAHAVIR PRASAD JM] ITA NO. 179/AHD/2014 ASSESSMENT YEAR: 2009-10 HIREN K BHANDARI .............APPELLANT PROP. BIOMETRICS SHOP, C-4, BLUE HEAVEN COMPLEX, S.P. COLONY ROAD, NARANPURA, AHMEDABAD [PAN : AGGPB 5441 A] VS. THE INCOME-TAX OFFICER, .................RESPONDENT INTERNATIONAL TAXATION-II, AHMEDABAD APPEARANCES BY: RIDDHI SHAH FOR THE APPELLANT VK SINGH FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 13.07.2017 DATE OF PRONOUNCING THE ORDER : 19.09.2017 O R D E R PER PRAMOD KUMAR AM: 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), GANDHINAGAR, AHMEDABAD DATED 07.10.2013 PASSED FOR ASSESSMENT YEAR 2009-10. 2. GRIEVANCES RAISED BY THE ASSESSEE APPELLANT ARE AS FOLLOWS:- 1. THE ID. CIT (A) ERRED IN LAW AND ON FACTS IN UPH OLDING THE AO'S DECISION THAT THE AMOUNTS PAID BY THE APPELLANT TOWARDS PURCHASE OF SOFTWARE WAS 'ROYALTY' WITHIN THE MEANING OF SECTION 9(1)(VI) AND THEREFOR E THE SAME WAS LIABLE FOR DEDUCTION OF TAX UNDER SECTION 195 OF THE ACT. 2. THE ID. CIT(A) FAILED TO APPRECIATE THE REAL NAT URE OF THE TRANSACTION AND WHOLLY MISINTERPRETED THE ITAT, MUMBAI'S DECISION I N THE CASE OF DDIT(IT), ITA NO. 179/AHD/2014 HIREN K BHANDARI VS. ITO ASSESSMENT YEAR: 2009-10 PAGE 2 OF 4 2(1) V/S RELIANCE INFOCOM LTD. THE FACTS ARE WHOLLY DISTINGUISHABLE IN AS MUCH AS THE NON RESIDENT SELLER OF SOFTWARE TO THE APPEL LANT HAS NO PE IN INDIA AND THERE WAS NO TRANSFER OF ANY LICENSE TO USE ANY COP YRIGHT BELONGING TO THE NON-RESIDENT. 3. THE ID. CIT(A) FAILED TO APPRECIATE THAT THE PRO VISION CONTAINED IN DTAA BETWEEN CONTRACTING AND OTHER CONTRACTING STATES OV ERRIDES THE PROVISION OF THE IT ACT AND ARTICLE 13 (OF DTAA WITH KOREA) INTE R ALIA DEFINES ROYALTY AS PAYMENT TOWARDS USE OF COPYRIGHT AND NOT SALE OF CO PYRIGHTED ARTICLES. 4. THE ID. CIT(A) FAILED TO APPRECIATE THAT YOUR AP PELLANT HAD NOT ACQUIRED ANY RIGHT OR LICENSE TO EXPLOIT COMMERCIALLY ANY ITEM O F SCIENTIFIC WORK AND IT HAD ONLY PURCHASED OFF THE SHELF SOFTWARE AND THEREFORE THE PAYMENT MADE TOWARDS SUCH PURCHASES CANNOT BE TERMED AS ROYALTY WITHIN THE MEANING OF ARTICLE 13 OF THE DTAA WITH KOREA. 3. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE MADE CERTAIN PAYMENTS, AGGREGATING TO US$5,180, IN CONSIDERATION OF PURCHASE OF SOFTWARE, TO SUPREMA I NC., KOREA AND CHIYU TECHNOLOGY CO. LTD., TAIWAN. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE PAYMENTS SO MADE ARE TAXABLE IN INDIA, AS ROYALTY U NDER SECTION 9(1)(VII) OF THE ACT, AND THAT THE ASSESSEE, THEREFORE, HAD A LIABILITY T O DEDUCT TAX AT SOURCE @ 10% FROM THE SAME. ACCORDINGLY, A TAX WITHHOLDING DEMAND UN DER SECTION 201 R.W.S. 195, FOR AN AMOUNT OF RS.35,366/- WAS RAISED BY THE ASSESSIN G OFFICER. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. RELYING UPON A DECISION OF THIS TRIBUNAL, IN THE CASE OF DD IT VS. RELIANCE INFOCOM LTD [(2014) 64 SOT 137 (MUM)], LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. THE ASSESSEE IS AGGRIEVED AND IS IN FURTH ER APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLIC ABLE LEGAL POSITION. 5. WE FIND THAT THE TRIBUNAL DECISION RELIED UPON B Y THE LEARNED CIT(A) HAS BEEN, VIDE ORDER DATED 18 TH NOVEMBER 2016, RECALLED. IT IS THUS A LEGAL NULLI TY AS ON NOW. THE ISSUE IS NOW COVERED, IN FAVOUR OF THE ASSESSEE , BY A SUBSEQUENT DECISION OF THE TRIBUNAL IN THE CASE OF DDIT VS. RELIANCE INDUSTRIE S LTD [(2016) 159 ITD 208 (MUM)], WHEREIN THE TRIBUNAL HAS, INTER ALIA, OBSERVED AS FOLLOWS:- 54. WE HAVE CONSIDERED THE ABOVE SUBMISSIONS OF TH E LD. REPRESENTATIVES OF THE PARTIES. ADMITTEDLY, AS NOTED IN 4TH COLUMN OF THE TABLE DRAWN IN PARA 4 OF THIS ORDER, THE PURCHASE ORDERS WERE MADE BY THE ASSESSEE FOR THE SOFTWARES AS MENTIONED IN COLUMN NO.5, PRIOR TO THE BRINGING OF AMENDMENT VIDE FINANCE ACT, 2012, THOUGH THE AMENDM ENT HAS BEEN MADE WITH RETROSPECTIVE EFFECT FROM 01.06.1976. HOWEVER, WE FIND THAT THE SAID AMENDMENT VIDE WHICH THE EXPLANATION 4 HAS BEEN INS ERTED TO SECTION 9(1)(VI) ITA NO. 179/AHD/2014 HIREN K BHANDARI VS. ITO ASSESSMENT YEAR: 2009-10 PAGE 3 OF 4 HAS THE EFFECT OF CHANGE IN THE LAW AS WAS EXISTING AND EVEN INTERPRETED BY THE VARIOUS HIGHER COURTS OF THE COUNTRY PRIOR TO T HE INSERTION OF EXPLANATION 4 IN THE SAID PROVISION. BY THE INTRODUCTION OF THE S AID EXPLANATION 4, COMPUTER SOFTWARE HAS BEEN SPECIFICALLY INCLUDED IN THE DEFI NITION OF 'RIGHT, PROPERTY OR INFORMATION' WHICH WAS NEVER ASSUMED TO HAVE BEEN I NCLUDED BY ANY COURT OF LAW PRIOR TO THE INSERTION OF EXPLANATION 4 VIDE AM ENDMENT OF ACT OF 2012. THE HON'BLE SUPREME COURT IN THE CASE OF SEDCO FOREX IN TERNATIONAL DRILL INC.(SUPRA) HAS HELD THAT IF AN EXPLANATION ADDED T O A PROVISION CHANGES THE LAW, THEN IT IS NOT TO BE PRESUMED TO BE RETROSPECT IVE IRRESPECTIVE OF THE FACT THAT THE PHRASE USED ARE 'IT IS DECLARED' OR 'FOR T HE REMOVAL OF DOUBTS'. AS IT IS AN ADMITTED POSITION THAT IN THE EARLIER YEARS, NOT ONLY THE VARIOUS HIGH COURTS BUT ALSO THE TRIBUNAL IN THE CASES OF THE ASSESSEE HAS TAKEN A VIEW THAT THE CONSIDERATION PAID FOR THE PURCHASE OF THE SOFTWARE CANNOT BE TREATED AS ROYALTY; THE ASSESSEE WAS, THUS, UNDER THE BONA FID E BELIEF THAT NO TDS/WITHHOLDING OF TAX WAS REQUIRED TO BE DONE IN R ESPECT TO SAID PURCHASES. THE ASSESSEE HAD NO REASON TO BELIEVE OR TO FORESEE A SUBSEQUENT EVENT VIDE WHICH THE DEFINITION OF ROYALTY HAS BEEN EXTENDED TO INCLUDE THE CONSIDERATION FOR THE USE OF OR RIGHT TO USE THE SO FTWARE HAS BEEN INCLUDED IN THE DEFINITION OF ROYALTY UNDER THE ACT. AS PER THE EXISTING LAW WHICH WAS IN OPERATION AT THE TIME OF PURCHASE OF SOFTWARE, THE ASSESSEE WAS UNDER THE BONA FIDE BELIEF THAT THERE WAS NO LIABILITY TO DEDUCT TAX IN RESPECT OF THE CONSIDERATION PAID FOR THE SAID PURCHASE OF SOFTWAR E. IT MAY BE FURTHER OBSERVED THAT AS THE DEFINITION AS WAS IN EXISTENCE BEFORE THE INSERTION OF EXPLANATION 4, THERE WAS A REMOTE POSSIBILITY TO GIVE A BROAD INTERPRETATION TO THE DEFINITION OF 'RIGHT, PROPERTY OR INFORMATIO N' SO AS TO INCLUDE THE RIGHT TO USE OR RIGHT FOR USE OF THE SOFTWARE IN THE SAID DE FINITION. THE EXPLANATION 4 HAS BROUGHT AND ADDED A FURTHER MEANING TO THE PROV ISION WHICH WAS NOT SUPPOSED TO BE FORESEEN BY THE ASSESSEE. THE CO-ORD INATE BENCH OF THE TRIBUNAL IN THE CASE OF RICH GRAVISS PRODUCTS (P.) LTD. (SUPRA), WHILE RELYING UPON VARIOUS OTHER DECISIONS OF THE TRIBUNAL, HAS H ELD THAT THE DISALLOWANCE CANNOT BE MADE UNDER SECTION 40(A)(IA) ON THE BASIS OF A SUBSEQUENT AMENDMENT BROUGHT INTO THE ACT WITH RETROSPECTIVE E FFECT. IN VIEW OF THIS, EVEN OTHERWISE, THE EXPLANATION 4 INSERTED VIDE FINANCE ACT, 2012 CANNOT BE APPLIED RETROSPECTIVELY TO THE CASE OF THE ASSESSEE AS THE SAID EXPLANATION 4 HAS THE EFFECT OF CHANGE IN LAW AND THE ASSESSEE WA S NOT EXPECTED TO FORESEE SUCH CHANGE AT THE TIME OF MAKING THE REMITTANCE IN CONSIDERATION OF PURCHASE OF THE SOFTWARE IN QUESTION. HENCE, UNDER SUCH CIRCUMSTANCES, EVEN OTHERWISE, THE ASSESSEE WAS NOT SUPPOSED TO DEDUCT TDS ON SUCH PURCHASES. 55. WE MAY MENTION HERE THAT IN CASES OF ITA NOS.52 64 & 5829/M/2009 BEFORE US, THERE IS NO TREATY/DTAA OF INDIA WITH 'H ONG KONG,' FROM THE RESIDENT OF WHICH COUNTRY, THE ASSESSEE HAD MADE PURCHASE OF SOFTWARE IN THE ABOVE TWO CASES. IN THE LIGHT OF THE LAW LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF SEDCO FOREX INTERNATIONAL DRILL INC. (S UPRA) AND IN VIEW OF THE OBSERVATIONS MADE ABOVE, WE HOLD THAT THE ASSESSEE DURING THE RELEVANT PERIOD PRIOR TO THE INSERTION OF EXPLANATION 4 TO S ECTION 9(1)(VI) OF THE I.T. ACT, ITA NO. 179/AHD/2014 HIREN K BHANDARI VS. ITO ASSESSMENT YEAR: 2009-10 PAGE 4 OF 4 WAS NOT LIABLE TO DEDUCT TDS EVEN IN ABOVE SAID TWO CASES ALSO EVEN THOUGH THERE WAS NO DTAA WITH THE COUNTRIES FROM THE RESID ENTS OF WHOM THE ASSESSEE HAD MADE THE PURCHASES. 6. CLEARLY, THEREFORE, EVEN UNDER THE PROVISIONS OF THE ACT, AS ARE APPLICABLE FOR THE RELEVANT POINT OF TIME, SOFTWARE PAYMENTS CANNO T BE TAXED AS ROYALTIES. RESPECTFULLY FOLLOWING THE ESTEEMED VIEWS OF THE CO -ORDINATE BENCH, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND CANCEL THE IMPUGNED T AX WITHHOLDING LIABILITY OF RS.35,366/-. 7. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT TODAY ON THE 19 TH DAY OF SEPTEMBER, 2017. SD/- SD/- MAHAVIR PRASAD PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 19 TH DAY OF SEPTEMBER, 2017 **BT COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD 1. DATE OF DICTATION: .........PREPARED AS PER 3 P AGES MANUSCRIPTS OF HONBLE AM 19.09.2017 .................. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: ..... 19.09.2017 .......... 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S.: ......... 19.09.2017 ............ 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: ....... 19.09.2017 .................... 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK : ......... 19.09.2017 ................ 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK : . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: .. 8. DATE OF DESPATCH OF THE ORDER: ......