Servion Global Solutions Ltd., CHENNAI V. DCIT, CHENNAI

ITA 1974/CHNY/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4112 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 30-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SP CHIDAMBARAM
• Keywords: TDS
• Section: 43B; 195; 139(1); 43; 194J

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , , ! ' BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NO. 1974/CHNY/2016 / ASSESSMENT YEAR : 2009-10 M/S. SERVION GLOBAL SOLUTIONS LTD., PLOT NO. 4/600 & 4/197, 7 TH STREET, DR. VSI ESTATE, PHASE II, THIRUVANMIYUR, CHENNAI 600 041. [PAN: AAACI 0947F] VS. COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI 600034. ( / APPELLANT) ( #$%& /RESPONDENT ) %& ' ( / APPELLANT BY : SHRI. S.P. CHIDAMBARAM, ADVOCATE #$%& ' ( / RESPONDENT BY : SHRI. AR V SREENIVASAN, JCIT * '+! /DATE OF HEARING : 19.11.2019 ,-. '+! /DATE OF PRONOUNCEMENT : 12.02.2020 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI IN ITA NO. 466/CIT(A)-15/13-14 DATED 18.03.2016 FOR ASSESSMENT YEAR 2009-10. :-2-: ITA NO.1974/CHNY/2016 2. M/S. SERVION GLOBAL SOLUTIONS LTD., THE ASSESSE E, IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND EXPORT OF SOFTWARE. WHILE MAKING THE ASSESSMENT FOR ASSESSMENT YEAR 2009-10, THE ASSESSI NG OFFICER, INTER ALIA, DISALLOWED SOFTWARE LICENSE PURCHASED BY THE ASSESSEE AT RS. 1,72,41,400/- TREATING THE SAME AS ROYALTY U/S. 9(1 )(VI) ON WHICH THE ASSESSEE HAS NOT DEDUCTED TDS U/S. 195 R.W.S. 40(A) (I). FURTHER, HE DISALLOWED THE PAYMENTS OF CONTRIBUTION TOWARDS PF AT RS. 84,30,994/- AS THE SUMS RECEIVED BY THE ASSESSEE FROM ITS EMPLO YEES TOWARDS CONTRIBUTION TO PF WERE MADE BEYOND THE DUE DATE AS PER PF ACT. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE LD. CIT(A) SUSTAINED THE DISALLOWANCE MADE U/S. 9(I)(VI ). WITH REGARD TO THE DISALLOWANCE OF PAYMENT OF EMPLOYEES CONTRIBUTI ON TO PF, THE LD. CIT(A) DIRECTED THE AO TO ALLOW THE DEDUCTION U/S. 36(1)(VA), WHERE ANY PAYMENTS HAS BEEN MADE WITHIN THE GRACE PERIOD ALLO WED UNDER THE PF ACT. AGGRIEVED AGAINST THAT ORDER, THE ASSESSEE FI LED THIS APPEAL. 3. THE LD. AR SUBMITTED THAT BOTH THE LD. AO AS WEL L AS THE LD. CIT(A) FAILED TO APPRECIATE THAT THE PURCHASE OF SO FTWARE LICENSE IS IN THE NATURE OF GOODS UNDER THE SALES TAX/VAT ACT. T HESE PRODUCTS, ACQUEON AIQ AND IVR CONNECTORS ARE OFF-THE-SHELF SO FTWARE AND THEY HAVE BEEN USED BY THE COMPANY TO DEVELOP APPLICATIO N AS PER THE REQUIREMENTS OF THE CUSTOMERS. ACQUEON AIQ IS A C ONTACT CENTER IN A :-3-: ITA NO.1974/CHNY/2016 BOX SOLUTION THAT INTEGRATES FUNCTIONALITY OF VARI OUS APPLICATIONS OF THE CONTACT CENTER UNDER MULTIPLE CHANNELS VIZ. VOICE, CHAT, E-MAIL, SMS, FAX ETC. IVR CONNECTOR IS A SOFTWARE TOOLS THAT GRABS INFORMATION FROM IVR TO POPULATE THE SAME IN CTI (COMPUTER TELEPHONIC IN TEGRATION) THAT IS USED BY AGENTS IN A CALL CENTER. THE PRODUCT LICENS ES PROCURED DURING THE YEAR WERE CONSUMED TO BUILD APPLICATION AS PER THE SPECIFICATION OF CERTAIN CUSTOMER. THE PURCHASE OF SOFTWARE FROM AC QUEON TECHNOLOGIES INC., USA DOES NOT INVOLVE ANY TRANSFE R OF TECHNOLOGY FEE AS ROYALTY OR TECHNICAL FEE. IN THIS REGARD, THE L D. AR INVITED OUR ATTENTION TO THE PARA 4 OF THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF CIT, COMPANY CIRCLE 3(4), CHENNAI VS VINZAS SOLUTIONS INDIA (P) LTD., REPORTED IN 254 TAXMAN 289 (MADRAS) [2017], 3 92 ITR 155 (MAD) WHICH READS AS UNDER: 4. WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTI ON 9(1)(VI) DEALING WITH AND DEFINING ROYALTY CANNOT BE MADE APPLICABLE TO A SITUATION OF OUTRIGHT PURCHASE AND SALE OF A PRODUC T. THE CORPUS JURIS SECUNDUM UNDERSTANDS ROYALTY THUS: THE WORD ROYALTY MEANS A SHARE OF THE PRODUCT O R PROFIT RESERVED BY THE OWNER FOR PERMITTING ANOTHER TO USE THE PROPERTY, THE SHARE OF THE PRODUCTION OR PROFIT PAID THE OWNER; A SHARE OF THE PRODUCT OR PROCEEDS THEREFROM RESERVED TO THE OWNER FOR PERMITTING THE ANOTHER TO USE THE PROPERTY; THE SHARE OF THE PRODUCE RESERVED TO THE OWNER FOR PERMITTING ANOTHER TO EXPLOIT AND USE THE PROPERTY; A SHARE OF THE PROFIT, RESERVED BY THE OWNER FOR PERMITTING ANOTHER TO USE THE PROPERTY; THE AMOUNT RESERVED OR THE REN TAL TO BE PAID THE ORIGINAL OWNER OF THE WHOLE ESTATE. :-4-: ITA NO.1974/CHNY/2016 THEREAFTER, HE INVITED OUR ATTENTION TO THE HEAD NO TE OF THE DECISION IN THE TAXMAN WHICH READS AS UNDER: SECTION 9 OF THE INCOME TAX ACT, 1961, READ WITH A RTICLE 12 OF OECD MODEL TAX CONVENTION INCOME DEEMED TO ACCR UE OR ARISE IN INDIA (ROYALTY) ASSESSEE, A DEALER IN COMPUTER SO FTWARE, HAD PURCHASED SOFTWARES FROM VARIOUS COMPANIES - ASSESSING OFFICE R OPINED THAT CONSIDERATION FOR PURCHASE WAS IN NATURE OF ROYALT Y AND TAX OUGHT TO HAVE BEEN DEDUCTED AT SOURCE IN ACCORDANCE WITH PRO VISIONS OF SECTION 194J WHETHER PROVISIONS OF SECTION 9(1)(VI) DEALI NG WITH AND DEFINING ROYALTY COULD NOT BE MADE APPLICABLE TO A SITUATI ON OF OUTRIGHT PURCHASE AND SALE OF A PRODUCT HELD, YES WHETHER FURTHER , THERE IS A DIFFERENCE BETWEEN A TRANSACTION OF SALE OF A COPYRIGHTED ART ICLE AND ONE OF THE COPYRIGHT ITSELF; PROVISIONS OF SECTION 9(1)(VI) A S A WHOLE, WOULD STAND ATTRACTED IN CASE OF LATTER AND NOT FORMER HELD, YES [PARAS 4,6 AND 7] (IN FAVOUR OF ASSESSEE). 4. RELYING ON THESE DECISIONS, THE LD. AR PLEADED T O ALLOW THE APPEAL. WITH REGARD TO THE DISALLOWANCE MADE TOWAR DS DELAYED PAYMENT TO EMPLOYEES CONTRIBUTION TO PF, THE LD. AR SUBMITTED THAT THE LD. CIT(A) ERRED IN NOT CONSIDERING THE AMENDMENT O F PROVISIONS OF SECTION 43B OF THE ACT IN FINANCE ACT, 2003 TO ALLO W PF CONTRIBUTIONS AS EXPENDITURE AS LONG AS THEY ARE REMITTED TO THE GOV ERNMENT ACCOUNT BEFORE THE DUE DATE FOR FILING RETURN OF INCOME U/S . 139. IN THIS REGARD, HE RELIED ON THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF CIT VS INDUSTRIAL SECURITY AND INTELLIGENCE INDIA PVT. LTD IN TAX CASE (APPEAL) NO. 585 & 586 OF 2015 AND MP NO. 1/2015, DATED 24.0 7.2015. :-5-: ITA NO.1974/CHNY/2016 WHEREIN, THE ASSESSEE HAD REMITTED THE EMPLOYEE CON TRIBUTION BEYOND THE DUE DATE FOR PAYMENT BUT WITHIN THE DUE DATE FO R FILING THE RETURN OF INCOME. THE JURISDICTIONAL HIGH COURT FOLLOWING TH E DECISION OF CIT VS ALOM EXTRUSIONS LTD. REPORTED IN 319 ITR 306 (SC) A ND DELHI HIGH COURT DECISION IN THE CASE OF CIT VS AMIL LTD. REPORTED I N 321 ITR 508 UPHELD THE TRIBUNAL DECISION THAT PAYMENT OF PF AND ESI MA DE BEYOND THE GRACE PERIOD/DUE DATE ALLOWED UNDER PF & ESI ACT BU T BEFORE THE DUE DATE OF FILING THE INCOME TAX RETURN CANNOT BE DISA LLOWED U/S. 43 OF THE ACT. FURTHER, THE LD. AR ALSO RELIED ON THIS ITAT DECISION IN THE ASSESSEES CASE FOR ASSESSMENT YEAR 2005-06. PER C ONTRA, ON THE ISSUE OF DISALLOWANCE ON PURCHASE OF SOFTWARE LICENSE, TH E LD. DR SUPPORTED THE ORDER OF THE LD. CIT(A). WITH REGARD TO THE DI SALLOWANCE MADE TOWARDS BELATED PAYMENTS OF EMPLOYEES CONTRIBUTION TO PF, THE LD. DR INVITED OUR ATTENTION TO THE PARA 8 OF THE ASSESSME NT ORDER AND SUBMITTED THAT THE LD. OFFICER ONLY QUOTED THE ASSE SSEES SUBMISSIONS THAT THE PAYMENTS WERE MADE BEFORE THE DUE DATE OF FILING RETURN OF INCOME U/S. 139(1), BUT HE HAS NOT EXAMINED THE FAC T AS TO WHETHER THE IMPUGNED AMOUNT WERE PAID BEFORE THE DUE DATE OF FI LING RETURN OF INCOME U/S. 139(1). THEREFORE, HE PLEADED TO DECID E THIS ISSUE AS DEEMED FIT. :-6-: ITA NO.1974/CHNY/2016 5. WE HEARD THE RIVAL SUBMISSIONS. IT IS CLEAR FRO M THE FACT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND EXPORT OF SOFTWARE, PROVIDING CTI (COMPUTER TELEPHONIC INTEGR ATION), SYSTEM INTEGRATION, IT CONSULTING SERVICES TO CUSTOMERS. THE ASSESSEE HAS PURCHASED THE COPYRIGHTED SOFTWARE LICENSE FROM ACQ UEON TECHNOLOGIES INC ., USA OF ACQUEON AIQ AND IVR CONNECTOR AS OFF- THE-SHELF SOFTWARE AND USED THEM TO DEVELOP APPLICATION AS PER THE REQ UIREMENTS OF THE CUSTOMERS. THEREFORE, AS HELD BY THE JURISDICTIONA L HIGH COURT, SUPRA, PURCHASE OF COPYRIGHTED ARTICLES, DOES NOT FALL WIT HIN THIS SCOPE OF SECTION 9(1)(VI) OF THE ACT. THE ASSESSEE HAS ALSO CONSUMED THEM TO DEVELOP THE APPLICATION AND SOLD THEM. IN THE ABSE NCE OF ANY FINDINGS FROM THE REVENUE THAT THE ACQUEON TECHNOLOGIES LTD INC. USA WAS PAID OVER AND ABOVE THE PURCHASE PRICE, ITS TREATMENT TH AT THE IMPUGNED TRANSACTION FALLS U/S. 9(1)(VI) IS NOT VALID AND HE NCE, THE CORRESPONDING GROUNDS OF THE ASSESSEE ARE ALLOWED. 6. WITH REGARD TO THE DELAYED PAYMENT OF THE EMPLOY EES PF CONTRIBUTION, SINCE THE AO HAS NOT EXAMINED AS TO W HETHER THEY WERE REMITTED WITHIN THE DUE DATE OF FILING THE RETURN O F INCOME U/S. 139(1) OF THE ACT, THIS ISSUE IS REMITTED BACK TO THE AO FOR EXAMINATION. IF THE ASSESSEE HAS REMITTED THE SUM BEFORE THE DUE DATE O F FILING THE RETURN :-7-: ITA NO.1974/CHNY/2016 U/S. 139(1), THE AO SHALL ALLOW THE DEDUCTION CLAIM ED BY THE ASSESSEE IN ACCORDANCE WITH THE JURISDICTIONAL HIGH COURT DECIS ION, SUPRA. 7. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON WEDNESDAY, 12 TH FEBRUARY, 2020 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( ! ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, / /DATED: 12 TH FEBRUARY, 2020 JPV '#+0121.+ /COPY TO: 1. %& / APPELLANT 2. #$%& /RESPONDENT 3. * 3+ ) ( /CIT(A) 4. * 3+ /CIT 5. 14#+ /DR 6. 567 /GF