SHINHAN BANK, MUMBAI V. ASST CIT (IT) 4(2)(1), MUMBAI

ITA 1997/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8120 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 29-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SIDDHARTH KUMAR SHAH
• Keywords: Double taxation relief; Retrospective amendment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI C.N. PRASAD , JM ITA NO. 1997 / MUM/20 16 ( ASSESSMENT YEAR : 2011 - 12 ) M/S. SHINHAN BANK EARLIER KNOWN AS CHOUHUNG BANK, MUMBAI 400 020 VS. ASST. CIT 4(2)(1) 1 ST FLOOR, R.NO.119 SCHINDIA HOUSE, N.M. ROAD, BALLARD ESTATE MUMBAI 400 038 PAN/GIR NO. AAACC2144A APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI ALIASGER RAMPURAWALA AND SHRI SIDDHARTHKUMAR SHAH REVENUE BY SHRI SAMUEL DARS E DATE OF HEARING 18/12 /201 7 DATE OF PRONOUNCEME NT 18 / 12 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 2, MUMBAI DATED 14/12/2015 FOR A.Y.2011 - 12 IN THE MATTER OF ORD ER PASSED U/S.143(3) R.W.S.144C OF THE ACT. 2. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE: - GROUND I - APPLICABLE RATE OF TAX THE HON'BLE DISPUTE RESOLUTION PANEL ERRED, IN LAW AND ON FACTS, IN DIRECTING THE ASSISTANT COMMISSIONER OF INCOME - TAX (IT) - 4(2X1), MUMBAI IN REJECTING THE APPELLANT'S CLAIM FOR THE BENEFIT OF THE NON - DISCRIMINATION CLAUSE OF THE INDIA - KOREA DOUBLE TAXATION AVOIDANCE AGREEMENT ('DTAA') AND TAXING THE APPELLANT'S INCOME AT THE RATE 40% (PLUS SURCHARGE AND EDUCATION CESS) INSTE AD OF AT THE RATE APPLICABLE TO A RESIDENT TAX PAYER (I.E 30% PLUS SURCHARGE AND EDUCATION CESS). ITA NO. 1997/MUM/2016 SHINHAN BANK 2 THE APPELLANT THEREFORE, PRAYS THAT THE BENEFIT OF THE ARTICLE 25 OF THE DTAA BE GRANTED AND THAT ITS INCOME BE TAXED AT THE RATE 30% INSTEAD OF 40% (PLUS SUR CHARGE AND EDUCATION CESS). GROUND II - NON - DEDUCTION OF TAXES ON SOFTWARE CHARGES THE HON'BLE DISPUTE RESOLUTION PANEL ERRED, IN LAW AND ON FACTS, IN DIRECTING THE ASSISTANT COMMISSIONER OF INCOME - TAX (IT) - 4(2X1), MUMBAI IN DISALLOWING PAYMENT (OF RS. 2,5 4,4757 - ) OF SOFTWARE CHARGES UNDER SECTION 4O(A)(IA) OF THE ACT, FOR NON DEDUCTION OF TAX. THE APPELLANT PRAYS THAT THE DISALLOWANCE MADE IN RESPECT OF SOFTWARE CHARGES PAID BY THE APPELLANT BE DELETED. YOUR APPELLANT CRAVES LEAVE TO ADD, AMEND, SUBSTITUTE , WITHDRAW, MODIFY, ALTER AND / OR RE - INSTATE THE FOREGOING GROUND OF APPEAL ON OR BEFORE THE TIME OF HEARING. 3. AT THE OUTSET, LEARNED AR PLACED ON RECORD THE ORDER OF THE ITAT NO.1936/MUM/2014 DATED 04/07/2016 FOR A.Y.2009 - 10 IN ASSESSEES OWN CASE WHE REIN ISSUE WITH REGARD TO TAXING ASSESSEES INCOME @40% (PLUS SURCHARGE AND EDUCATION CESS) INSTEAD OF RATE OFFERED BY ASSESSEE AT 30% (PLUS SURCHARGE AND EDUCATION CESS) HAS BEEN DECIDED AGAINST THE ASSESSEE. PRECISE OBSERVATION OF TRIBUNAL WAS AS UNDER: - 2. AT THE OUTSET, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT SO FAR AS THE ISSUE RAISED IN GROUND NO.1, IS CONCERNED, THAT IS WHETHER THE TAX RATE SHOULD BE APPLIED AT THE RATE OF 30% OR 40%, THIS ISSUE STANDS DECIDED AGAINST THE ASSESSEE BY THE TRI BUNAL IN ASSESSEES OWN CASE RIGHT FROM THE ASSESSMENT YEARS 1997 - 98 TO 2006 - 07. THUS, THIS ISSUE WILL BE DECIDED AGAINST THE ASSESSEE. TLD.DR ALSO ADMITTED THE SAME. 3. AFTER CONSIDERING THE AFORESAID STATEMENT OF THE ASSESSEES COUNSEL AND ON PERUSAL OF THE TRIBUNAL ORDER IN ASSESSEES OWN CASE, FOR THE EARLIER YEARS, FIND THAT THIS ISSUE HAS BEEN CONSISTENTLY DECIDED AGAINST THE ASSESSEE WHEREIN IT HAS BEEN HELD THAT ASSESSEES INCOME WOULD BE TAXED AT THE RATE OF 40% PLUS SURCHARGE AND EDUCATION CESS, I NSTEAD OF AT THE RATE APPLICABLE TO RESIDENT TAX PAYERS. THE TRIBUNAL DISCUSSED THE ENTIRE ISSUE IN DETAIL AFTER CONSIDERING THE ASSESSEES SUBMISSIONS ON ARTICLE 25 OF THE DTAA BETWEEN INDIA AND KOREA AND HELD THAT RATE OF TAX WOULD BE @ 40%. ACCORDINGLY, GROUND NO.1 IS DISMISSED. ITA NO. 1997/MUM/2016 SHINHAN BANK 3 4. WITH REGARD TO THE GROUND NO.2, WE FOUND THAT ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE IN ITA NO. 1100/MUM/2015 VIDE ORDER DATED 05/12/2016 FOR A.Y. 2010 - 11 WITH REGARD TO DISALLOWANCE OF PAYMENT OF SOFTWARE CHARGES U/S. 40(A)(IA) FOR NON - DEDUCTION OF TAX. THE PRECISE OBSERVATION OF TRIBUNAL WAS AS UNDER: - 3. REFERRING TO THE GROUND NO.2, WHICH RELATES TO THE NON - DEDUCTION OF TAX ON SOFTWARE CHARGES, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO / DRP CAME TO THE CONC LUSION THAT THE SOFTWARE CHARGES RECEIVED BY THE AS SESSEE HAS TO BE CONSIDERED AS ROYALTY. ACCORDINGLY, AO PROCEEDED TO INVOKE THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT CONSIDERING THE ASSESSEE S FAILURE TO MAKE TDS ON THE SAID SOFTWARE CHARGES. IN THIS REGARD, BRINGING OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 1936/M/2014 (AY 2009 - 2010), DATED 4.7.2016, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID ORDER OF THE TRIBUNAL WAS PASSED SUBSEQUENT TO THE DIRECTIONS OF THE DRP (DATED 30.10.2014) AND THE AOS ORD ER DATED 29.12.2014. BRINGING OUR ATTENTION TO THE CONTENTS OF THE SAID ORDER OF THE TRIBUNAL IN GENERAL AND PARA 4 IN PARTICULAR, WHICH DEALS WITH SIMILAR DISALLOWANCE OF SOFTWARE CHARGES, LD COUNSEL FOR THE ASSESSEE DEMONSTRATED THAT ON IDENTICAL GROUND, THE TRIBUNAL CAME TO THE CONCLUSION STATING THAT THE SAID SOFTWARE CHARGES RECEIVED DID NOT AMOUNT TO ROYALTY. THE CONTENTS OF PARA 8 OF THE SAID ORDER OF THE TRIBUNAL (SUPRA) ARE RELEVANT IN THIS REGARD. FOR THE SAKE OF COMPLETENESS OF THE ORDER, RELEV ANT LINES FROM THE SAID PARA 8 OF THE TRIBUNALS ORDER (SUPRA) ARE EXTRACTED AS UNDER: - 8.......THE CASE OF THE ASSESSEE HAS BEEN THAT IT HAS ONLY PURCHASED SOFTWARE FOR ITS BANKING BUSINESS AND LICENSE WAS GIVEN ONLY FOR USING THE SOFTWARE. THERE IS NO TRANSFER OF ANY COPY RIGHT ALBEIT IT WAS THE TRANSFER OF THE COPY RIGHTED ARTICLE. WITHOUT GOING INTO THE MERITS WHETHER THE SAID PAYMENT WILL FALL WITHIN THE NATURE OF ROYALTY UNDER THE NEWLY AMENDED PROVISION BROUGHT WITH RETROSPECTIVE EFFECT OR NOT, W E ARE OF THE OPINION THAT, AT THE TIME OF MAKING OF THE PAYMENT THERE WAS NO SUCH PROVISION UNDER THE LAW TO TAX SUCH PAYMENT OF COMPUTER SOFTWARE AS ROYALTY..........THUS, WE HOLD THAT THE ASSESSEE WAS NOT OBLIGED TO DEDUCT TDS AT THE TIME OF MAKING THE PAYMENT AND THE LAW WHICH HAS COME INTO STATUTE AFTER FOUR YEARS FROM THE DATE OF PAYMENT CANNOT BE HELD TO BE APPLIED RETROSPECTIVELY AT BEST FOR DEDUCTION OF TDS. THUS, WE HOLD THAT DISALLOWANCE U/S 40(A)(I) FOR NON - DEDUCTION OF TDS CANNOT BE UPHELD.... . 4. CONSIDERING THE ABOVE SETTLED LEGAL POSITION ON THE FACTS OF THE PRESENT CASE, WE ARE OF THE OPINION, GROUND NO.2 HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE. AO IS DIRECTED ACCORDINGLY. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 1997/MUM/2016 SHINHAN BANK 4 5. LEARNED DR FAIRLY CONCEDED THAT BOTH THE GROUNDS ARE COVERED BY THE ORDER OF THE TRIBUNAL. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, APPEAL OF TH E ASSESSEE IS ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 18 / 12 /2017 S D/ - ( C.N. PRASAD ) S D/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 18 / 12 /201 7 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//