PIDILITE INDUSTRIES LTDE, MUMBAI V. ITO TDS 2(5), MUMBAI

ITA 2173/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8410 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 01-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Assessee Lawyers: RONAK G DOSHI
• Section: 133A; 194C; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI JASON P.BOAZ (AM) AND SHRI RAM LAL NEGI ( JM) ITA NO. 2173/MUM/2014 ASSESSMENT YEAR: 2006-07 M/S. PIDILITE INDUSTRIES LTD., 7 TH FLOOR, REGENT CHAMBERS, JAMNALAL BAJAJ MARG, 208, NARIMAN POINT, MUMBAI- 400 021. PAN: AAACP4156B VS. THE ITO (TDS) - 2(5), 706, SMT. K.G. MITTAL AYURVEDIC HOSPITALS BUILDING, CHARNI ROAD, MUMBAI- 400 002. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. RONAK G. DOSHI RESPONDENT BY : SHRI. RAJAT MITTAL DATE OF HEARING: 0 2/01/2017 DATE OF PRONOUNCEMENT: 17/02/20 17 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST IMPUGNED ORDER DATED 28/01/2014 PASSED BY THE CIT(APPEALS)-14, MUM BAI, FOR THE ASST. YEAR 2006-07, WHEREBY THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST ORDER DATED 25/03/2011 PASSED U/S 201(1)/201(1A)/206C/206C (6)/6(A)/206C(7) OF THE IN COME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT SURVEY ACTION WAS CARRIED OUT AT THE PREMISES OF THE ASSESSEE COMPANY ON 26/09/2008 U/S 133A OF THE ACT. DURING THE COURSE OF SURVEY, VARIOUS ASPECTS OF TDS COMPLI ANCE WERE EXAMINED 2 ITA NO. 2173/MUM/2014 ASSESSMENT YEAR: 2006-07 /VERIFIED, PERTAINING TO THE F.Y. 2008-09 (UP TO 25 /09/2008) AND EARLIER FINANCIAL YEARS 2005-06 TO 2007-08. IT WAS NOTICED THAT THE ASSESSEE COMPANY HAD NOT DEDUCTED TAX AT SOURCE IN RESPECT OF PURCHA SE OF TRADING GOODS ON PAYMENT MADE TO VARIOUS PARTIES AND CONTRACT PAYMEN TS DURING THE FINANCIAL YEAR 2005-06. ON THE BASIS OF DETAILS SUBMITTED BY THE ASSESSEE IN RESPONSE TO THE NOTICES U/S 201(1) AND 201(1A) OF THE ACT, THE A.O DECLARED THE ASSESSEE COMPANY AS ASSESSEE IN DEFAULT UNDER SECTION 201(1) R.W.S. 194C FOR NON DEDUCTING OF THE TDS OF PAYMENT MADE ON ACCOUNT OF PURCHASE OF TRADING GOODS OF RS. 28,95,41,788/- AND COMPUTED TAX AT RS. 65,61,017/-. THE AO FURTHER HELD THAT THE COMPANY IS ALSO LIABLE TO PAY INTEREST U/S 201(1A) OF THE ACT. SIMILARLY, SINCE THE ASSESSEE COMPANY HAD SOLD SCRAP WORTH RS. 2,60,74,278/-, THE AO ASKED TO EXPLAIN WHETHER TAX WAS COLLECTED AT SOURCE AS PER THE PROVISIONS OF SECTION 206C AND FURTHER ASKE D TO FURNISH THE DETAILS THEREOF. ON THE BASIS OF EXPLANATION FURNISH BY THE ASSESSEE, A.O HELD THE ASSESSEE LIABLE TO PAY THE BALANCE TAX OF RS. 43,71 5/- ON THE SALE VALUE OF MANUFACTURING SCRAP OF RS. 93,71,514/-U/S 206C(6)/( 6A) OF THE ACT. THE ASSESSEE COMPANY IS FURTHER LIABLE TO PAY INTEREST U/S 206C (7) ON THE TAX PAYABLE. THE A.O ALSO NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE U/ S 194J OF THE ACT ON PURCHASED SOFTWARE OF RS. 19,00,250/-. ACCORDINGLY THE A.O CALCULATED THE TAX AT RS. 1,06,604/- AND ALSO HELD THE ASSESSEE LIABLE TO PAY INTEREST U/S 201(1A) ON THE TAX PAYABLE. 3. AGGRIEVED, THE ASSESSEE CHALLENGED THE ASSESSMEN T ORDER BEFORE THE LD. CIT(A). THE LD. CIT(A) AFTER HEARING THE ASSESSEE C ONFIRMED THE FINDINGS OF THE A.O INTER ALIA HOLDING THAT PURCHASE OF SOFTWARE COMES WITHIN TH E AMBIT OF ROYALTY AND TDS WAS REQUIRED TO BE DEDUCTED U/S 19 4J OF THE ACT ON PURCHASE OF SOFTWARE. STILL AGGRIEVED, THE ASSESSEE IS IN AP PEAL BEFORE THE TRIBUNAL ON THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL:- 3 ITA NO. 2173/MUM/2014 ASSESSMENT YEAR: 2006-07 GROUND NO. I: 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE IN COME TAX OFFICER (TDS)-2(5) (THE A.O) IN TREATING THE APPELLANT AS ASSESSEE IN DEFAULT U/S 201(1)/(1A) OF THE ACT WITHOUT ESTABLI SHING AND PROVING THAT WHETHER THE RECIPIENT HAD NOT PAID TAXES OR NO T DISCHARGED THE TAX LIABILITY ON THE INCOME RECEIVED FROM THE APPE LLANT AS REQUIRED U/S 191 OF THE ACT. 2. THE APPELLANT PRAYS THAT THE ORDER PASSED BY THE A.O BE QUASHED/ANNULLED AND A.O BE DIRECTED TO EXAMINE WHE THER THE TAXES HAVE BEEN PAID BY THE RECIPIENT ON THEIR INCO ME. GROUND NO. II : NON DEDUCTION OF TDS ON PURCHASE OF SOFTWARE RS. 19,00,250/- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A. O IN TREATING THE EXPENSES INCURRED ON PURCHASE OF SOFTWARE OF RS. 19 ,00,250/- AS IN THE NATURE OF ROYALTY AND THEREBY HOLD THAT THE TAX IS REQUIRED TO BE DEDUCTED AT SOURCE U/S 194J OF THE ACT WITHOUT APPR ECIATING THE FACT THAT TAX IS NOT LIABLE TO BE DEDUCTED ON PURCHASE O F SOFTWARE. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O TO CHARGE INT EREST U/S 201(1A) OF THE ACT WITHOUT APPRECIATING THE FACT THAT RECIPIEN TS OF THE INCOME WOULD HAVE PAID TAXES BY WAY OF ADVANCE TAX OR FILE D LOSS RETURN AND HENCE, IN SUCH CASES THERE IS NO LOSS TO THE RE VENUE. 3. THE APPELLANT PRAYS THAT THE A.O BE DIRECTED NOT TO CHARGE INTEREST U/S 201(1A) OF THE ACT IF THE RECIPIENTS OF THE INCOME HAVE FILED LOSS RETURN OR HAVE PAID TAXES BY WAY OF ADVA NCE TAX. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE ASSESSEE DOES NOT WANT TO PRESS GROUND NO I OF THE APPEAL. A CCORDINGLY, WE DISMISS GROUND NO 1 AS NOT PRESSED. AS REGARDS GROUND NO I I THE LD. COUNSEL 4 ITA NO. 2173/MUM/2014 ASSESSMENT YEAR: 2006-07 SUBMITTED THAT THE LD. CIT (A) HAS WRONGLY UPHELD T HE ACTION OF THE A.O AS THE TAX AT SOURCE WAS NOT REQUIRED TO BE DEDUCTED ON PU RCHASE OF SOFTWARE DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE LD. COUNSEL FURTHER POINTED OUT THAT ROYALTY WAS BROUGH T WITHIN THE AMBIT OF SECTION 194J OF THE ACT BY TAXATION LAWS (AMENDMENT ) ACT 2006 W.E.F. 13/07/2006, APPLICABLE FROM FINANCIAL YEAR 2007-08 AND THE ASSESSEES APPEAL PERTAINS TO THE FINANCIAL YEAR 2006-07. SINC E, THE AMENDED PROVISION WAS NOT APPLICABLE DURING THE RELEVANT PREVIOUS YEA R THE IMPUGNED ORDER IS ERRONEOUS AND LIABLE TO BE SET ASIDE. 5. ON THE OTHER HAND THE LD. DEPARTMENTAL REPRESENT ATIVE (DR) RELYING ON THE CONCURRENT FINDINGS OF THE AUTHORITIES BELOW SU BMITTED THAT SINCE ROYALTY COMES UNDER 194J OF THE ACT, THE ASSESSEE WAS REQUI RED TO DEDUCT THE TAX AT SOURCE. HOWEVER, THE LD. DR DID NOT PRODUCE ANY CAS E LAW TO REBUT THE CONTENTION OF THE ASSESSEE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE MATERIAL PLACED ON RECORD IN THE LIGHT OF THE RIVAL SUBMISSI ONS. THE ASSESSEE HAS CHALLENGED THE FINDINGS OF THE LD. CIT(A) THAT PURC HASE OF SOFTWARE IS IN THE NATURE OF ROYALTY AND TDS WAS REQUIRED TO BE DEDUCT ED. WE NOTICE THAT THE LD. CIT(A) HAS RELIED ON THE JUDGMENT OF HONBLE KARNAT AKA HIGH COURT PASSED IN M/S SYNOPSYS INTERNATIONAL LTD. 212 TAXMAN 454 (KAR NATAKA ), WHEREIN IT HAS BEEN HELD THAT PAYMENT MADE FOR SOFTWARE PURCHASE A RE FOR CERTAIN RIGHTS IN COPYRIGHT AND IT MEETS THE DEFINITION OF ROYALTY UN DER THE ACT. NO DOUBT AS PER THE SAID JUDGMENT PURCHASE OF SOFTWARE FALLS WITHIN THE AMBIT OF ROYALTY, HOWEVER, THE SAID DECISION PERTAINS TO THE POST AME NDMENT PERIOD I.E., AFTER BRINGING ROYALTY UNDER SECTION 194J OF THE ACT. THU S THERE IS MERIT IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE, FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION PERTAINS TO THE PRE 5 ITA NO. 2173/MUM/2014 ASSESSMENT YEAR: 2006-07 AMENDMENT PERIOD, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT THE TAX AT SOURCE ON PURCHASE OF SOFTWARE DURING THE RELEVANT FINANCI AL YEAR. WE NOTICE THAT ROYALTY WAS BROUGHT UNDER SECTION 194J OF THE ACT B Y TAXATION LAWS (AMENDMENT) ACT 2006 W.E.F. 13/07/2006, APPLICABLE FROM FINANCIAL YEAR 2007-08 AND THE ASSESSEES APPEAL PERTAINS TO THE FINANCIAL YEAR 2006-07. SINCE, ROYALTY WAS NOT THERE UNDER SECTION 194J OF THE ACT IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION , THE LD. CIT(A) WAS NOT SUPPOSED TO DETERMINE THE QUESTION WHETHER THE PURC HASE OF SOFTWARE MEETS THE DEFINITION OF ROYALTY OR NOT. HENCE IN OUR CON SIDERED VIEW THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) IS ERRONEOUS AND NOT SUSTAINABLE IN LAW. WE, THEREFORE, HOLD THAT THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE U/S 194J OF THE ACT ON PURCHASE OF SOFTWARE AND ACCORDI NGLY DECIDE THIS GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. 7. THE ASSESSEE HAS RAISED THE ALTERNATIVE GROUND W ITHOUT PREJUDICE TO THE GROUND NO I. SINCE, WE HAVE DECIDED THE MAIN GROUND OF THE APPEAL IN FAVOUR OF THE ASSESSEE, THE ALTERNATIVE GROUND HAS BECOME ACA DEMIC. WE, THEREFORE, DO NOT CONSIDER IT NECESSARY TO ADJUDICATE THE SAME SE PARATELY. 8. IN THE RESULT APPEAL FILED BY THE ASSESSEE FOR THE A.Y. 2006-07 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 17 TH FEBRUARY, 2017. SD/- SD/- ( JASON P BOAZ ) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED:17/02/2017 6 ITA NO. 2173/MUM/2014 ASSESSMENT YEAR: 2006-07 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. !' , $ !'% , / DR, ITAT, MUMBAI 6. &' ( / GUARD FILE. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI PRAMILA