M/s. ANSYS Software Private Limited, Bengaluru V. Deputy Commissioner Of Income Tax, Circle- 1(1)(1), Bengaluru

ITA 2039/BANG/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 7924 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 29-03-2021
• Assessment Year: 2010-2011
• Appeal Filed On: 23-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUZAFFAR HUSSAIN
• Keywords: Transfer pricing; Double taxation relief; International transaction; TDS; Set aside
• Section: 234B; 40(a)(ia); 195; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NOS.2036 TO 2039/BANG/2019 ASSESSMENT YEAR: 2007-08 TO 2010-11 M/S. ANSYS SOFTWARE PVT. LTD., KABRA EXCELSIOR, 3 RD FLOOR, NO.6A, 7 TH MAIN, 1 ST BLOCK, KORAMANGALA, BENGALURU-560 034. PAN NO : AADCA 1658 E VS. DCIT, CIRCLE-1(1)(1), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI. NARENDRA SHARMA, ADVOCATE RESPONDENT BY : SHRI.MUZAFFAR HUSSAIN, ADDL. CIT(DR)(ITAT) DATE OF HEARING : 29.03.2021 DATE OF PRONOUNCEMENT : 31.03.2021 O R D E R PER BEENA PILLAI JUDICIAL MEMBER: PRESENT APPEALS HAVE BEEN FILED BY ASSESSEE AGAINST ORDERS DATED 19/07/2019 PASSED BY THE LD.CIT(A)-1, BANGALORE FOR ASSESSMENT YEARS 2007-08 TO 2010-11. AT THE ITA NOS.2036 TO 2039/BANG/2019 PAGE 2 OF 7 OUTSET THE LD.AR SUBMITTED THAT, THE ONLY ISSUE THAT IS CHALLENGED BEFORE THIS TRIBUNAL IS REGARDING DISALLOWANCE MADE UNDER SECTION 40(A)(I) OF THE ACT, FOR NON-DEDUCTION OF TDS ON PAYMENTS MADE BY ASSESSEE TO U.S COMPANY TOWARDS PURCHASE OF SOFTWARE AS ROYALTY. ADMITTEDLY, ALL THE APPEALS UNDER CONSIDERATION HAS COMMON ISSUES AND FACTS ARE IDENTICAL. WE ARE THEREFORE DISPOSING THESE APPEALS BY WAY OF A COMMON ORDER. 2. FOR THE SAKE OF CONVENIENCE WE REPRODUCE GROUNDS OF APPEAL IN ON THE FACTS, FOR ASSESSMENT YEAR 2007-08 AS UNDER: 1. THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME- TAX [APPEALS] -1, BENGALURU, DATED 19/07/2019 FOR THE IMPUGNED ASSESSMENT YEAR 2007 - 08, IN SO FAR AS IT IS AGAINST THE APPELLANT IS AGAINST LAW, EQUITY, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE APPELLANT DENIES ITSELF LIABLE TO BE ASSESSED ON A TOTAL INCOME OVER AND ABOVE THE INCOME RETURNED BY THE APPELLANT OF RS. 3,49,99,041/- ON THE FACTS AND CIRCUMSTANCE OF THE CASE OF THE APPELLANT. 3. THE LEARNED COMMISSIONER OF INCOME-TAX [APPEALS] IS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER WHO APPLIED THE PROVISIONS OF SECTION 40[A][I] OF THE ACT AND DISALLOWED A SUM OF RS. 13,67,53,377/- BEING THE PAYMENT MADE BY THE APPELLANT TO M/S. ANSYS INC. U.S.A. TOWARDS THE PURCHASE OF GOODS AS ROYALTY FOR HAVING NOT DONE TDS ON SUCH PAYMENTS MADE BY THE APPELLANT ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THE LEARNED AUTHORITIES BELOW FAILED TO APPRECIATE THAT THE SOFTWARE IMPORTED BY THE APPELLANT IS A SHRINK-WRAPPED PRODUCT AND THE SAME NOT BEING CUSTOMIZED AND THE SAME IS NOT IN THE NATURE OF ROYALTY AND CONSEQUENTLY NO TAX AMOUNT BE DEDUCTED ON SUCH PAYMENTS MADE BY THE APPELLANT TOWARDS PURCHASES OF SUCH SOFTWARE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NOS.2036 TO 2039/BANG/2019 PAGE 3 OF 7 5. THE LEARNED AUTHORITIES FURTHER FAILED TO APPRECIATE THAT THE TRANSACTIONS IS TREATED AS ONE OF SALE OF GOODS AND CONSEQUENTLY THE PROVISIONS OF SECTION 40[A][I] OF THE ACT IS NOT APPLICABLE TO THE SALE OF GOODS ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. THE LEARNED AUTHORITIES BELOW FAILED TO APPRECIATE THAT THE DISALLOWANCE UNDER SECTION 40 OF THE ACT IS PERMISSIBLE ONLY ON SUCH EXPENDITURES WHICH IS COVERED UNDER THE CATEGORY OF SECTION 30 TO 38 OF THE ACT AND ANY PAYMENT MADE FOR STOCK IN TRADE WHICH COMES UNDER THE PURVIEW OF SECTION 28 OF THE ACT AND CONSEQUENTLY THE DISALLOWANCE PROVISION UNDER SECTION 40 OF THE ACT IS INAPPLICABLE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. THE APPELLANT DENIES ITSELF LIABLE TO BE CHARGED WITH INTEREST UNDER SECTION 234B AND 234C OF THE INCOME TAX ACT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE. THE CALCULATION OF INTEREST UNDER SECTION 234 B IS NOT IN ACCORDANCE WITH LAW AS THE RATE, PERIOD, AMOUNT AND METHOD FOR CALCULATING INTEREST IS NOT DISCERNABLE FROM THE ORDER OF ASSESSMENT AND FURTHER THE INTEREST CALCULATION IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 234 B [1] OF THE ACT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. THE APPELLANT CRAVES LEAVE OF THIS HON'BLE TRIBUNAL TO ADD, ALTER, SUBSTITUTE OR DELETE ANY OR ALL THE GROUNDS OF APPEAL URGED ABOVE ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 9. FOR THE ABOVE AND OTHER GROUNDS MAY TO BE URGED DURING THE HEARING OF THE APPEAL, THE APPELLANT PRAYS BEFORE THIS HON'BLE TRIBUNAL, THAT THE APPEAL BE ALLOWED IN THE INTEREST OF EQUITY AND JUSTICE. BRIEF FACTS OF THE CASE ARE AS UNDER: 2.1. THE ASSESSEE IS A COMPANY AND FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08 ON 09/10/2007 DECLARING TOTAL INCOME OF RS.3,49,99,541/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE WAS ISSUED UNDER SECTION 143(2). IN RESPONSE TO STATUTORY NOTICES, REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD.AO AND CALLED REQUISITE DETAILS AS CALLED FOR. ITA NOS.2036 TO 2039/BANG/2019 PAGE 4 OF 7 2.2. THE LD.AO OBSERVED THAT ASSESSEE HAD INTERNATIONAL TRANSACTION DURING THE RELEVANT PREVIOUS YEAR AND IN ORDER TO DETERMINE ARMS LENGTH PRICE CASE WAS REFERRED TO THE TRANSFER PRICING OFFICER. THE LD.AO OBSERVED THAT, ASSESSEE IS IN THE BUSINESS OF IMPORT AND SALE OF COMPUTER SOFTWARE AND THE MAJOR BUSINESS OF ASSESSEE IS SALE OF SOFTWARE. AT THE TIME OF PASSING OF DRAFT ASSESSMENT ORDER, THE LD.AO CALLED UPON ASSESSEE TO SHOW CAUSE AS TO WHY THE ABOVE PAYMENT SHOULD NOT BE TREATED AS ROYALTY, AND SINCE NO TAX WAS DEDUCTED WHILE MAKING THE PAYMENTS, WHY THE AMOUNT SHOULD NOT BE DISALLOWED BY INVOKING PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 2.3. ASSESSEE FILED VARIOUS SUBMISSIONS HOWEVER THE LD.AO WHILE PASSING THE DRAFT ASSESSMENT ORDER MADE DISALLOWANCE OF RS.14,99,11,553/-. AGGRIEVED BY THE ADDITION MADE BY LD.AO, ASSESSEE PREFERRED APPEAL BEFORE THE LD.CIT(A). 2.4. LD.CIT(A) WHILE CONSIDERING THE ISSUE IN LIGHT OF SUBMISSIONS MADE BY ASSESSEE, UPHELD THE DISALLOWANCE MADE BY THE LD.AO BY FOLLOWING THE DECISION OF HONBLE KARNATAKA HIGH COURT IN ASSESSEES OWN CASE REPORTED IN (2012) 23 TAXMANN.COM 344 FOR ASSESSMENT YEAR 2003-04. THE LD.CIT(A) OBSERVED THAT HONBLE COURT FOLLOWED THE DECISION OF ITS COORDINATE BENCH IN CASE OF CIT VS SAMSUNG ELECTRONICS PVT.LTD. REPORTED IN (2011) 203 TAXMAN 477 . ITA NOS.2036 TO 2039/BANG/2019 PAGE 5 OF 7 AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS IN APPEAL BEFORE US NOW. 2.5. ADMITTEDLY THE ISSUE INVOLVED IN THESE APPEALS HAS BEEN SET AT REST BY THE DECISION OF HONBLE SUPREME COURT IN A RECENT CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PVT.LTD. VS CIT REPORTED IN 2021 SCC ONLINE SC 159 . HONBLE SUPREME COURT WHILE CONSIDERING THE ISSUE OF ROYALTY ON SALE OF SOFTWARE, HAVE ALSO CONSIDERED THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS SAMSUNG ELECTRONICS CO.LTD.(SUPRA) AND VARIOUS OTHER DECISIONS. HONBLE SUPREME COURT HELD AS UNDER: CONCLUSION 168. GIVEN THE DEFINITION OF ROYALTIES CONTAINED IN ARTICLE 12 OF THE DTAAS MENTIONED IN PARAGRAPH 41 OF THIS JUDGMENT, IT IS CLEAR THAT THERE IS NO OBLIGATION ON THE PERSONS MENTIONED IN SECTION 195 OF THE INCOME TAX ACT TO DEDUCT TAX AT SOURCE, AS THE DISTRIBUTION AGREEMENTS/EULAS IN THE FACTS OF THESE CASES DO NOT CREATE ANY INTEREST OR RIGHT IN SUCH DISTRIBUTORS/END-USERS, WHICH WOULD AMOUNT TO THE USE OF OR RIGHT TO USE ANY COPYRIGHT. THE PROVISIONS CONTAINED IN THE INCOME TAX ACT (SECTION 9(1)(VI), ALONG WITH EXPLANATIONS 2 AND 4 THEREOF), WHICH DEAL WITH ROYALTY, NOT BEING MORE BENEFICIAL TO THE ASSESSEES, HAVE NO APPLICATION IN THE FACTS OF THESE CASES. 169.OUR ANSWER TO THE QUESTION POSED BEFORE US, IS THAT THE AMOUNTS PAID BY RESIDENT INDIAN END-USERS/DISTRIBUTORS TO NON- RESIDENT COMPUTER SOFTWARE MANUFACTURERS/SUPPLIERS, AS CONSIDERATION FOR THE RESALE/USE OF THE COMPUTER SOFTWARE THROUGH EULAS/DISTRIBUTION AGREEMENTS, IS NOT THE PAYMENT OF ROYALTY FOR THE USE OF COPYRIGHT IN THE COMPUTER SOFTWARE, AND THAT THE SAME DOES NOT GIVE RISE TO ANY INCOME TAXABLE IN INDIA, AS A RESULT OF WHICH THE PERSONS REFERRED TO IN SECTION 195 OF THE INCOME TAX ACT WERE NOT LIABLE TO DEDUCT ANY TDS UNDER SECTION 195 OF THE INCOME TAX ACT. THE ANSWER TO THIS QUESTION WILL APPLY TO ALL FOUR CATEGORIES OF CASES ENUMERATED BY US IN PARAGRAPH 4 OF THIS JUDGMENT. ITA NOS.2036 TO 2039/BANG/2019 PAGE 6 OF 7 170. THE APPEALS FROM THE IMPUGNED JUDGMENTS OF THE HIGH COURT OF KARNATAKA ARE ALLOWED, AND THE AFORESAID JUDGMENTS ARE SET ASIDE. THE RULING OF THE AAR IN CITRIX SYSTEMS (AAR) (SUPRA) IS SET ASIDE. THE APPEALS FROM THE IMPUGNED JUDGMENTS OF THE HIGH COURT OF DELHI ARE DISMISSED. 2.6. IT HAS BEEN SUBMITTED THAT PRESENT ASSESSEE HAS BEEN ONE OF THE PETITIONER IN THE GROUP CASE, DISPOSED OF BY HONBLE SUPREME COURT BY ORDER DATED 02/03/2021. THE LD.AR HAS FILED THE CASE STATUS FROM THE WEBSITE OF HONBLE SUPREME COURT WHICH HAS BEEN PLACED ON RECORD IN SUPPORT OF THIS SUBMISSION. LD.AR ALSO SUBMITTED THAT SUBSEQUENTLY ON 18/03/2021 HONBLE KARNATAKA HIGH COURT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 IN ITA NO.453 OF 2019 CONSIDERED THE ISSUE IN FAVOUR OF ASSESSEE BY FOLLOWING THE RATIO OF HONBLE SUPREME COURT IN CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PVT.LTD. VS CIT (SUPRA) . RESPECTFULLY FOLLOWING THE RATION LAID DOWN BY HONBLE SUPREME COURT IN CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PVT.LTD. VS CIT (SUPRA), AND HONBLE KARNATAKA HIGH COURT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 IN ITA NO.453 OF 2019 BY ORDER DATED 18/03/2021, WE DIRECT THE DISALLOWANCE TO BE DELETED. AS THE FACTS ARE SAME IS ALL THE APPEALS, THE ABOVE VIEW IS APPLIED TO ASSESSMENT YEARS 2008-10 TO 2010-11 MUTATIS MUTANDIS . ACCORDINGLY, GROUNDS RAISED BY ASSESSEE STANDS ALLOWED. ITA NOS.2036 TO 2039/BANG/2019 PAGE 7 OF 7 IN THE RESULT APPEALS FILED BY ASSESSEE FOR ASSESSMENT YEARS 2007-08 TO 2010-11 STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.03.2021 SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED : 31.03.2021. NS* COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.