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

ITA 2174/MUM/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0455 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 01-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Assessee Lawyers: RONAK DOSHI MS RITU PUNJABI
• Keywords: Capital receipt
• Section: 194C; 201(1); 154

Judgement Text

1 PIDILITE INDUSTRIES LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C,MUMBAI BEFORE SHRI MAHAVIR SINGH(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.2174/MUM/2014 (ASSESSMENT YEAR: 2008-09) & I.T.A NO.3564/MUM/2014 (ASSESSMENT YEAR: 2008-09) M/S PIDILITE INDUSTRIES LTD, 7 TH FLOOR, REGENT CHAMBERS, JAMNALAL BAJAJ MARG, 208, NARIMAN POINT, MUMBAI-21 PAN : AAACP4156B VS ITO (TDS)-2(5), MUMBAI APPELLANT RESPONDENT APPELLANT BY SHRI RONAK DOSHI / MS RITU PUNJABI REVENUE BY SHRI RAJAT MITTAL DATE OF HEARING 13-11-2017 DATE OF PRONOUNCEMENT 31-01-2018 O R D E R PER G MANJUNATHA, AM : THESE APPEALS FILED BY THE ASSESSEE ARE DIRECTED A GAINST SEPARATE BUT IDENTICAL ORDERS OF THE CIT(A)-14, MUMBAI DATED 27-01-2014 AND 21- 03-2014 FOR THE ASSESSMENT YEAR 2008-09. SINCE FAC TS ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THE SE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON O RDER. ITA NO.2714/MUM/2014 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- 2 PIDILITE INDUSTRIES LTD 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 INCOME TAX OF FICER (TDS) - 2(5) ('THE AO') IN TREATING THE APPELLANT AS 'ASSESSEE IN DEFA ULT' U/S. 201 (!)/(! A) OF THE ACT WITHOUT ESTABLISHING AND PROVING THAT WHETHER T HE RECIPIENT HAD NOT PAID TAXES OR NOT DISCHARGED THE TAX LIABILITY ON THE IN COME RECEIVED FROM THE APPELLANT AS REQUIRED U/S. 191 OF THE ACT. 2. THE APPELLANT PRAYS THAT THE ORDER PASSED BY T HE AO BE QUASHED / ANNULLED AND AO BE DIRECTED TO EXAMINE WHETHER THE TAXES HAV E BEEN PAID BY THE RECIPIENT ON THEIR INCOME. GROUND II: TDS ON SOFTWARE EXPENSES OF RS. 13.49.952/- AND PURCHASE OF SOFTWARE OF RS. 16,39,419/- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE INCOME TAX OF FICER (TDS) - 2(5) ('THE AO') IN TREATING THE SOFTWARE EXPENDITURE OF RS. 13 ,49,952/- AS IN THE NATURE OF PROFESSIONAL SERVICES AND THEREBY HOLD THAT TAX IS REQUIRED TO BE DEDUCTED AT SOURCE U7ST194JJ)T-IH& ACT WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAS CORRECTLY, DEDUCTED TDS U/S. 194C OF THE ACT. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN TREATIN G THE EXPENSES INCURRED ON PURCHASE OF SOFTWARE OF RS. 16,39,419/- AS IN THE N ATURE OF ROYALTY AND THEREBY HOLD THAT TAX IS REQUIRED TO BE DEDUCTED AT SOURCE U/S. L94J OF THE ACT. 3. THE APPELLANT PRAYS THAT THE IMPUGNED ORDER O F THE AO BE SET ASIDE. 4. WITHOUT PREJUDICE, ON THE FACTS AND CIRCUMSTA NCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE AO TO CHARGE INTE REST U/S, 201(1A) OF THE ACT WITHOUT APPRECIATING THE FACT THAT RECIPIENTS OF TH E INCOME WOULD HAVE PAID TAXES BY WAY OF ADVANCE TAX OR FILED LOSS RETURN AN D HENCE, IN SUCH CASES THERE IS NO LOSS TO THE REVENUE. 5. THE APPELLANT PRAYS THAT THE AO BE DIRECTED N OT TO CHARGE INTEREST U/S. 201(1 A) OF THE ACT IF THE RECIPIENTS OF THE INCOME HAD FILED OR HAVE PAID TAXES BY WAY OF ADVANCE TAX. GROUND III: TDS ON PAYMENT MADE TOWARDS PURCHASE O F TECHNICAL KNOW-HOW AND COPUR1GHT AMOUNTING TO RS. 5.20,00,0007- 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN TREATING THE APPELLANT AS 'ASSESSEE IN DEFAULT' FOR THE ALLEGED NON DEDUCTION OF TAX AT SO URCE U/S. 194J OF THE ACT ON PAYMENT MADE TOWARDS PURCHASE OF COPY RIGHT AND TEC HNICAL KNOW-HOW AMOUNTING TO RS. 5,20,00,0007- WITHOUT APPRECIATING THE FACTS THAT TDS IS NOT REQUIRED TO BE DEDUCTED ON OUINGHT PURCHASE. 2. XXXXXXXXXXXXXXXXXXXX 3. WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) ERRED IN NOT ADJUDICATING THE LEGAL PLEA OF THE APPELLANT THAT SINCE THE RECIPIENTS OF THE INCOME HAVE FILED RETURN OF INCOME AND APPROPRIATELY ACCOUNTED THE INCOME RE CEIVED FROM THE APPELLANT, THE APPELLANT WOULD NOT BE TREATED AS 'A SSESSEE IN DEFAULT'. 4. DURING THE COURSE OF HEARING, THE LD.AR FOR THE ASS ESSEE SUBMITTED 3 PIDILITE INDUSTRIES LTD THAT HE DID NOT WANT TO PRESS GROUND 1 CHALLENGING THE VALIDITY OF ORDER PASSED U/S 201(1) / 201(1A). THEREFORE, GROUND 1 I S DISMISSED, AS NOT PRESSED. 5. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION F ROM GROUND 2 IS TDS ON SOFTWARE EXPENSES OF RS.13,49,952 AND PURCHA SE OF SOFTWARE OF RS.16,39,419. THE FACTS WITH REGARD TO THE IMPUGNE D DISPUTE ARE THAT DURING THE COURSE OF PROCEEDINGS, THE AO OBSERVED T HAT FROM THE DETAILS OF SOFTWARE EXPENSES FILED BY THE ASSESSEE, THE ASS ESSEE HAS NOT DEDUCTED PROPER TAX AT SOURCE U/S 194J IN RESPECT O F SOFTWARE EXPENSES AND PURCHASE OF SOFTWARE. THOUGH THE ASSESSEE HAS DEDUCTED TDS U/S 194C IN RESPECT OF SOFTWARE EXPENSES IN VIEW OF THE NATURE OF EXPENSE, THE ASSESSEE OUGHT TO HAVE DEDUCTED TDS U/S 194J. THEREFORE, A SHOW CAUSE NOTICE WAS ISSUED AND ASKED THE ASSESSEE AS T O WHY THE ASSESSEE SHALL NOT BE TREATED AS AN ASSESSEE IN DEF AULT U/S 201(1) / 201(1A) OF THE ACT. IN RESPONSE TO SHOW CAUSE NOTI CE, THE ASSESSEE SUBMITTED THAT EXPENDITURE INCURRED UNDER THE HEAD SOFTWARE EXPENSES ARE IN THE NATURE OF ANNUAL MAINTENANCE EXPENSES FO R ROUTINE MAINTENANCE AND RENEWAL OF SOFTWARE FOR WHICH IT HA S RIGHTLY DEDUCTED TDS U/S 194C. THEREFORE, THE QUESTION OF APPLICABI LITY OF SECTION 194J BY TREATING THE SAME AS FEES FOR TECHNICAL SERVICES IS IN CORRECT. INSOFAR AS PURCHASE OF SOFTWARE, THE ASSESSEE SUBMITTED THAT I T HAS PURCHASED COPYRIGHTED SOFTWARE FROM ITS PARTY, NEXT STEP WHIC H DOES NOT REQUIRE 4 PIDILITE INDUSTRIES LTD RENDERING OF ANY MANAGERIAL, TECHNICAL OR EVEN CONS ULTANCY SERVICES, THEREFORE, THE QUESTION OF DEDUCTION OF TAX AT SOUR CE ON PAYMENT MADE FOR PURCHASE OF SOFTWARE DOES NOT ARISE. THE AO, A FTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE OBSERVED THAT EXPENSES INCURRED UNDER SOFTWARE EXPENSES AND PURCHASE OF SOFTWARE AR E IN THE NATURE OF FEES FOR TECHNICAL SERVICES AND ROYALTY AS MENTIONE D IN SECTION 194J AND, THEREFORE, THE ASSESSEE OUGHT TO HAVE DEDUCTED TDS U/S 194J WHEREAS ASSESSEE HAS DEDUCTED TDS U/S 194C IN RESPECT OF SO FTWARE EXPENSES BUT FILED TO DEDUCT TDS FOR PAYMENT MADE FOR PURCHA SE OF SOFTWARE. THEREFORE, THE AO HELD THE ASSESSEE IN DEFAULT AND COMPUTED SHORT DEDUCTION OF TAX AND INTEREST U/S 201(1) / 201(1A). 6. AGGRIEVED BY THE ORDER, ASSESSEE PREFERRED APPEAL B EFORE THE CIT(A) AND REITERATED ITS SUBMISSIONS MADE BEFORE T HE AO. AS REGARDS EXPENSES IT WAS SUBMITTED THAT ALL EXPENSES ARE IN THE NATURE OF ROUTINE MAINTENANCE AND RENEWAL OF SOFTWARE WHICH ARE IN TH E NATURE OF ANNUAL MAINTENANCE EXPENSES COMING WITHIN THE AMBIT OF WO RK AS DEFINED IN SECTION 194C BUT NOT FEES FOR TECHNICAL SERVICES U/ S 194J. THEREFORE, THE AO WAS INCORRECT IN WORKING OUT SHORT DEDUCTION OF TDS AND INTEREST THEREON. INSOFAR AS PURCHASE OF SOFTWARE IT HAS PU RCHASED COPYRIGHTED SOFTWARE, THEREFORE, THE SAME CANNOT BE CONSIDERED AS ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VII) OF THE ACT. THEREFORE , DEDUCTION OF TAX AT SOURCE BY APPLYING PROVISIONS OF SECTION 194J DOES NOT ARISE. IN THIS 5 PIDILITE INDUSTRIES LTD REGARD RELIED UPON VARIOUS DECISIONS INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TATA CONSULTANCY SERVI CES LTD VS CIT 271 ITR 401 AND ITAT, MUMBAI BENCH IN THE CASE OF TUV B AYERN (I) LTD VS DCIT 23 TAXMAN.COM 27. THE ASSESSEE ALSO MADE AN A LTERNATIVE PLEA IN THE LIGHT OF RATIO LAID DOWN BY THE HONBLE SUPR EME COURT IN THE CASE OF HINDUSTAN COCO COLA BEVERAGES LTD VS CIT 293 ITR 22 6 (SC) AND SUBMITTED THAT SINCE THE RECIPIENT OF AMOUNT HAS AL READY PAID TAXES AND THE PROOF OF WHICH HAS BEEN FURNISHED TO THE AO HEN CE, THE AO MAY BE DIRECTED TO EXAMINE THE EVIDENCE FILED BY THE ASSES SEE AND GRANT RELIEF ACCORDINGLY. THE CIT(A), AFTER CONSIDERING RELEVAN T SUBMISSIONS OF THE ASSESSEE AND ALSO RELYING UPON CERTAIN JUDICIAL PRE CEDENTS INCLUDING THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF SAMSUNG ELECTRONICS LTD 345 ITR 494 (KAR) OBSERVED THAT ON PERUSAL OF THE INVOICES FILED BY THE ASSESSEE IT IS NOTICED THAT E XPENSES INCURRED BY THE ASSESSEE ARE IN THE NATURE OF FEES FOR TECHNICAL SE RVICES AND SUCH SERVICES ARE RENDERED BY A PERSON POSSESSING SPECIF IC SKILLS. THEREFORE, THE NATURE OF EXPENSES ARE SQUARELY COMING WITHIN T HE AMBIT OF SECTION 194J. THEREFORE, THE AO WAS RIGHT IN APPLYING THE PROVISIONS OF SECTION 194J TO COMPUTE SHORT DEDUCTION OF TAX; HOWEVER, AL LOWED PARTIAL RELIEF IN RESPECT OF SOFTWARE EXPENSES OF RS.76,686 BY HOLDIN G THAT THESE ARE IN THE NATURE OF ANNUAL MAINTENANCE EXPENSES FOR ROUTI NE MAINTENANCE AND RENEWAL OF SOFTWARE AKIN TO WORKS CONTRACT AS DEFIN ED IN SECTION 194C, 6 PIDILITE INDUSTRIES LTD THEREFORE, THE ASSESSEE HAS RIGHTLY DEDUCTED TAX U/ S 194C. INSOFAR AS ALTERNATIVE ARGUMENTS OF THE ASSESSEE THAT THE RECI PIENTS HAVE ALREADY PAID TAX ON AMOUNT RECEIVED FROM THE ASSESSEE, THE CIT(A) IN THE LIGHT OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF HI NDUSTAN COCO COLA BEVERAGES LTD VS CIT (SUPRA) HELD THAT ONCE TAX IS PAID BY THE DEDUCTEE, THE DEDUCTOR CANNOT BE TREATED AS ASSESSEE IN DEFAU LT FOR THE PURPOSE OF SECTION 201 OF THE ACT. HOWEVER, INTEREST U/S 201( 1A) WILL REMAIN PAYABLE TILL THE DATE OF PAYMENT OF TAXES BY THE DE DUCTEE. THEREFORE, BY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF BENNET COLEMAN LTD VS ITO 157 ITR 812 (BOM) AND IN THE CASE OF CIT VS PREMNATH MOTORS 120 TAXMAN 584 HELD THAT THE ASS ESSEE IS LIABLE TO PAY INTEREST U/S 201(1A) OF THE ACT, THEREFORE, DIR ECTED THE AO TO VERIFY THE EVIDENCE FILED BY THE ASSESSEE AND GRANT RELIEF ACCORDINGLY. 7. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD.AO WAS ERRED IN TREATING SOFTWARE EXPENSES AND PURCHASE OF SOFTWARE FEES FOR TECHNICAL SERVICES WITHOUT APPRECIATING THE FACT THAT EXPENSE S INCURRED UNDER THE HEAD SOFTWARE EXPENSES ARE ROUTINE ANNUAL MAINTENAN CE EXPENSES AND RENEWAL OF SOFTWARE FOR WHICH ASSESSEE HAS RIGHTLY DEDUCTED TDS U/S 194C OF THE ACT. THE LD.AR FURTHER SUBMITTED THAT THE LD.CIT(A) FAIRLY ACCEPTED THE FACT THAT AFORESAID TRANSACTIONS ARE S OFTWARE EXPENSES, CANNOT BE CONSIDERED AS FEES FOR TECHNICAL SERVICES , BUT REQUIRED THE ASSESSEE TO SUBMIT AS TO WHY THE SAID PAYMENT CANNO T BE TREATED AS 7 PIDILITE INDUSTRIES LTD ROYALTY. SINCE THE CIT(A) HAS ACCEPTED THE FACT TH AT THEY ARE NOT IN THE NATURE OF TECHNICAL SERVICES AND THE DEPARTMENT IS NOT IN APPEAL AGAINST SUCH FINDING, IT IS CLEAR THAT SOFTWARE EXPENSES AN D PURCHASE OF SOFTWARE ARE NOT IN THE NATURE OF TECHNICAL SERVICES AND, TH EREFORE, THE AO WAS INCORRECT IN TREATING THE ASSSESSEE AS AN ASSESSEE IN DEFAULT U/S 201 / 201(1A) OF THE ACT. IN THIS REGARD, HE RELIED ON T HE FOLLOWING DECISIONS :- PR. CIT V.M. TECH INDIA (P.) LTD (381 ITR 31) (DEL HI HC) (PARA 12-13) CIT V. VINZAS SOLUTIONS INDIA (P.) LTD. (77 TAXMANN .COM 279) DIT V. INFRASOFT LTD. (264 CTR 329) (DELHI HC) (PAR A 97 TO 100) CIT V. HALLIBURTON EXPORT INC. (ITA NO. 36372016) (DELHI HC) (FOLLOWS INFRASOFT- PARA 5-9) DIT V. ERICSSON A.B. (343 ITR 470) (DELHI HC) GALATEA LIMITED V. DCIT (ITA NO. 749/MUM./2015) (MU M.) DDIT V. SOLID WORKS CORPN. (51 SOT 34) (MUM.) ADDL. DIT V. BAAN GLOBAL BV (ITA NO. 70487MUM/2010) (MUM.) (PARA 11 & 13) SHINHAN BANK V. DDIT (ITA NO. 19367MUM72014) (MUM.) (PARA 8) DDIT V. M7S. RELIANCE INDUSTRIES INDUSTRIES LTD. A ND VICE-VERSA (ITA NO. 19807MUM- 2008 AND OTHERS) (ORDER DATED MAY 18, 2016) CAPGEMINI BUSINESS SERVICES INDIA LTD. V. ACIT (ITA NO. 77797M/2011) (MUM.) THE LD. AR FURTHER SUBMITTED THAT THOUGH VARIOUS TR IBUNAL DECISIONS ARE IN FAVOUR OF THE ASSESSE INSOFAR AS SOFTWARE EXPENS ES AND PURCHASE OF SOFTWARE ARE CONCERNED, THE LD.CIT(A) HAS RELIED UP ON THE DECISION OF 8 PIDILITE INDUSTRIES LTD HONBLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS CO LTD (SUPRA) AND CIT VS SYNOPSIS INTERNATIONAL PVT L TD 212 TAXMAN 454 TO TREAT SOFTWARE EXPENSES AND PURCHASE OF SOFTWARE AS FEES FOR TECHNICAL SERVICES AND ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VII) AND 194J OF THE ACT. BUT THE FACTS REMAIN THAT IN VIEW OF THE CONTRADICTORY VIEWS EXPRESSED BY TWO HIGH COURTS ON THE ISSUE AND FURTH ER IN VIEW OF VIEW EXPRESSED ON THE SUBJECT BY THE JURISDICTIONAL HIGH COURT, THE VIEW FAVOURABLE TO THE ASSESSEE MAY BE TAKEN. IN THIS REGARD RELIED UPON THE DECISION OF SPECIAL BENCH OF ITAT, MUMBAI IN THE CA SE OF NARANG OVERSEAS PVT LTD VS ACIT 114 TTJ 433(MUM)(SB). 8. ON THE OTHER HAND, THE LD.DR STRONGLY SUPPORTED THE ORDER OF CIT(A). THE LD.DR FURTHER SUBMITTED THAT THE AO AS WELL AS CIT(A) HAS BROUGHT OUT CLEAR FACTS TO THE EFFECT THAT EXPENSES INCURRED BY THE ASSESSEE ARE IN THE NATURE OF FEES FOR TECHNICAL SE RVICES WHICH IS LIABLE FOR TDS U/S 194J, THEREFORE, THE AO WAS RIGHT IN TR EATING ASSESSEE AS AN ASSESSEE IN DEFAULT U/S 201(1)/ 201(1A INSOFAR AS P URCHASE OF SOFTWARE IN VIEW OF THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF CIT VS SAMSUNG ELECTRONICS CO LTD (SUPRA), WHERE THE LAW I S VERY CLEAR INSOFAR AS PURCHASE OF COPYRIGHTED SOFTWARE THAT THEY ARE I N THE NATURE OF ROYALTY AND LIABLE FOR TDS U/S 194J. THOUGH THE ASSESSEE I S LIABLE FOR TDS, FAILED TO DEDUCT SUCH TDS, THEREFORE, THE AO WAS RI GHT IN TREATING ASSESSEE IN DEFAULT U/S 201(1) AND 201(1A). 9 PIDILITE INDUSTRIES LTD 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIALS AVAILABLE ON RECORD. WE ALSO HAVE GONE THROUGH THE CASE LAWS RELIED UPON BY THE ASSESSEE IN THE LIGHT OF THE FACTS OF THE PRESENT C ASE. THE AO HAS TREATED ASSESSEE AS AN ASSESSEE IN DEFAULT U/S 201( 1) AND 201(1A) IN RESPECT OF SOFTWARE EXPENSES AND PURCHASE OF SOFTWA RE ON THE GROUND THAT SOFTWARE EXPENSES ARE IN THE NATURE OF FEES FO R TECHNICAL SERVICES AS DEFINED U/S 194J AND PURCHASE OF SOFTWARE IS IN THE NATURE OF ROYALTY AS DEFINED U/S 9(1)VII AND HENCE, ASSESSEE IS LIABLE T O DEDUCT TDS U/S 194J. IT IS THE CONTENTION OF THE ASSESSEE THAT SO FTWARE EXPENSES ARE IN THE NATURE OF ANNUAL MAINTENANCE CONTRACTS FOR ROUT INE MAINTENANCE AND RENEWAL OF SOFTWARE WHICH CANNOT BE CONSIDERED AS F EES FOR TECHNICAL SERVICES LIABLE FOR TDS U/S 194J OF THE ACT. THE A SSESSEE FURTHER CONTENDED THAT PURCHASE OF SOFTWARE IS NOT LIABLE F OR TDS AS IT HAS PURCHASED SOFTWARE AND THE VENDOR HAS LEVIED VAT A T 4% ON THE ABOVE TRANSACTION. THIS SUBSTANTIATES THAT THE TRANSACT ION FOR PURCHASE OF SOFTWARE IS NOT IN THE NATURE OF ANY SERVICE BUT FO R PURCHASE OF GOODS. THE ASSESSEE FURTHER CONTENDS THAT PAYMENT MADE FOR PROCURING COPYRIGHTED SOFTWARE COULD NOT BE TREATED AS PAYMEN T TOWARDS ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VII) OF THE ACT. 10. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE ASSESSEE HAS INCURRED VARI OUS EXPENDITURE UNDER THE HEAD SOFTWARE EXPENSES FOR SERVICE REN DERED FOR PREPARATION 10 PIDILITE INDUSTRIES LTD OF DEVELOPMENT REPORTS, PRODUCT SUPPORT SERVICE FOR ORACLE DATABASE, SOFTWARE PURCHASE FOR ORACLE DATABASE AND TRAINING ORACLE 10G FORMS / REPORTS. THE ASSESSEE ALSO INCURRED ANNUAL MAINTEN ANCE AND REPAIR SERVICES OF SOFTWARE. THE ASSESSEE HAS DEDUCTED TD S U/S 194C ON ALL PAYMENTS MADE UNDER THE HEAD SOFTWARE EXPENSES. ACCORDING TO THE ASSESSEE, THE NATURE OF EXPENSES ARE IN THE NATURE OF WORKS AS DEFINED U/S 194C, THEREFORE, IT HAS RIGHTLY DEDUCTED TDS U/ S 194C. WE DO NOT FIND ANY MERIT IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE CIT(A) HAS GIVEN RELIEF TO THE EXTENT OF RS.76,680 IN RESPECT OF PAYMENT MADE FOR ANNUAL MAINTENANCE AND REPAIR SERVICE WHIC H ARE IN THE NATURE OF WORKS DEFINED U/S 194C. INSOFAR AS OTHER EXPENS ES INCURRED BY THE ASSESSEE, ON PERUSAL OF DETAILS WE FIND THAT THE AS SESSEE HAS PAID FOR SERVICES RENDERED ON PL / SQL REPORTS DEVELOPMENT T O MAIA INTELLIGENCE PVT LTD WHICH ARE DEFINITELY IN THE NATURE OF FEES FOR TECHNICAL SERVICES. WE FURTHER OBSERVE THAT THE ASSESSEE HAS PAID AMOUN T TO ORACLE INDIA PVT LTD FOR UPGRADATION AND RENEWAL OF ORACLE DATAB ASE STANDARD EDITION AND PROJECT SUPPORT SERVICES FOR WHOLE YEAR. THE A SSESSEE ALSO INCURRED EXPENDITURE ON TRAINING ON ORACLE 10G FORM S / REPORTS. ALL THESE EXPENSES ARE IN THE NATURE OF SPECIALISED SER VICES RENDERED BY PERSONS POSSESSING SPECIAL SKILLS, THEREFORE, CANNO T BE CONSIDERED AS ROUTINE ANNUAL MAINTENANCE CONTRACTS. THEREFORE, W E ARE OF THE CONSIDERED VIEW THAT THE AO WAS RIGHT IN TREATING T HE EXPENSES UNDER THE 11 PIDILITE INDUSTRIES LTD HEAD FEES FOR TECHNICAL SERVICES WHICH ATTRACTS TDS U/S 194J OF THE ACT. 11. INSOFAR AS PURCHASE OF SOFTWARE, THE ASSESSEE HAS P URCHASED COPYRIGHTED SOFTWARE FROM NEXT STEP INDUSTRIES LTD. ON PERUSAL OF THE INVOICE COPY FURNISHED BY THE ASSESSEE, IT IS SEEN THAT LICENCE FOR IBM LOTUS SOMETIME AUTHORISED USER ANNUAL SW MAINTENANC E RENEWAL AND FOR OTHER SERVICES. ON FURTHER VERIFICATION OF DET AILS FILED BY THE ASSESSEE WE NOTICE THAT THE ASSESSEE HAS PURCHASED LICENCE T O USE SOFTWARE BUT NOT COPYRIGHTED SOFTWARE WHICH INVOLVES A COPYRIGHT UNDER THE COPYRIGHT ACT AND IS COVERED UNDER THE DEFINITION OF ROYALTY AS DEFINED U/S 9(1)(VI) OF THE ACT. FURTHER, RIGHTS IN SOFTWARE ARE IN THE NATURE OF COPYRIGHT AND PAYMENTS FOR LICENSING OF SOFTWARE IS ROYALTY UNDER THE ACT. THE SOFTWARE IS SUPPLIED THROUGH CD NORMALLY, WHICH CAN BE USED AS COPYRIGHT WITHOUT ANY AUTHORITY TO ALTER OR MODIFY THE SOFTWARE DESIG N BY THE SUPPLIER. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE A MOUNT PAID FOR PURCHASE OF SOFTWARE IS IN THE NATURE OF ROYALTY WH ICH ATTRACTS TDS U/S 194J OF THE ACT. THIS LEGAL PROPOSITION IS FURTHER SUPPORTED BY THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF CIT VS SAMSUNG ELECTRONICS CO LTD (SUPRA), WHEREIN IT WAS HELD THAT ANY SOFTWARE PURCHASED / ASSETS BOUGHT IS THE RIGHT TO USE THE COPYRIGHTED MATERIAL THAT IS ROYALTY EVEN UNDER THE RESTRICTIVE MEANING OF ROYALTY. THEREFORE, WE ARE OF THE VIEW THAT THE AMOUNT PAID BY THE ASSESSEE FOR 12 PIDILITE INDUSTRIES LTD PURCHASE OF SOFTWARE ARE IN THE NATURE OF ROYALTY W HICH ATTRACTS TDS U/S 194 OF THE ACT. THE CIT(A), AFTER CONSIDERING THE MATERIAL HAS RIGHTLY UPHELD THE ACTION OF THE AO IN TREATING SOFTWARE PU RCHASED WITHIN THE MEANING OF SECTION 194J OF THE ACT. THOUGH THE ASS ESSEE HAS RELIED UPON VARIOUS DECISIONS OF TRIBUNAL, ON PERUSAL OF D ECISIONS CITED BY THE ASSESSEE, WE FIND THAT THOSE DECISIONS ARE RENDERED UNDER DIFFERENT FACTS AND ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEE S CASE WHEREAS THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF CIT VS SAMSUNG ELECTRONICS CO LTD (SUPRA), IS DIRECTLY ON THE ISSUE, THEREFORE, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THE AR GUMENTS OF THE ASSESSEE THAT PURCHASE OF SOFTWARE IS NOT LIABLE FO R TDS U/S 194J. 12. COMING TO THE ALTERNATE ARGUMENT OF THE ASSESSEE. T HE ASSESSEE MADE AN ALTERNATE ARGUMENT IN THE LIGHT OF JUDGEMEN T OF HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN COCO COLA BE VERAGES LTD VS CITG (SUPRA) AND SUBMITTED THAT SINCE THE RECIPIENT S HAVE ALREADY PAID TAX ON THE AMOUNT RECEIVED FROM THE ASSESSEE, AGAIN HOLDING THE ASSESSEE AS AN ASSESSEE IN DEFAULT WOULD AMOUNT TO DOUBLE TAXATION ON SAME AMOUNT WHICH IS NOT PERMISSIBLE. WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN COCO COLA BE VERAGES LTD VS CITG (SUPRA) HAS HELD THAT ONCE THE RECIPIENTS HAVE PAID TAX, THEN THE ASSESSEE CANNOT BE CONSIDERED ASSESSEE IN DEFAULT U /S 201(1). HOWEVER, FOR THE PURPOSE OF LEVY OF INTEREST U/S 20 1(1A), TILL THE DATE OF 13 PIDILITE INDUSTRIES LTD PAYMENT OF TAX BY THE RECIPIENT, THE ASSESSEE IS LI ABLE TO PAY INTEREST U/S 201(1A). THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE NEEDS TO BE EXAMINED BY THE AO IN THE LIGHT OF THE EVIDEN CE FILED BY THE ASSESSEE AND IF THE RECIPIENT HAS PAID TAX ON THE A MOUNT RECEIVED FROM THE ASSESSEE, THEN THE AO IS DIRECTED TO GRANT RELI EF TO THE ASSESSEE U/S 201(1) FOR SHORT DEDUCTION OF TDS. HOWEVER, INTERE ST U/S 201(1A) IS STILL PAYABLE AND HENCE, THE AO IS DIRECTED TO COMPUTE IN TEREST U/S 201(1A) OF THE ACT. 13. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S NON DEDUCTION OF TAX AT SOURCE ON PAYMENTS MADE FOR PURCHASE OF C OPYRIGHTS AND TECHNICAL KNOW HOW. DURING THE YEAR, THE ASSESSEE HAS PAID A SUM OF RS.5,20,00,000 TOWARDS ACQUISITION OF COPYRIGHTS AN D TECHNICAL KNOW HOW WITHOUT DEDUCTION OF TAX AT SOURCE. THE AO TRE ATED ASSESSEE IN DEFAULT IN RESPECT OF PAYMENT MADE FOR PURCHASE OF COPYRIGHTS AND TECHNICAL KNOW HOW ON THE GROUND THAT SINCE THE REC IPIENT M/S HARD CASTLE & WOOD MANUFACTURING CO HAS NOT OFFERED THE INCOME UNDER THE HEAD CAPITAL GAINS AND ALSO CLAIMED THE SAME AS E XEMPT BEING CAPITAL RECEIPT, THE PAYMENT MADE BY THE ASSESSEE TOWARDS P URCHASE OF COPYRIGHTS AND TECHNICAL KNOW HOW DID NOT FALL WITH IN THE SCOPE OF EXCLUSION PROVIDED UNDER EXPLANATION 2 TO SECTION 9 (1)(VII) AND THEREFORE, LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 194J OF T HE ACT AND HENCE, TREATED ASSESSEE IN DEFAULT U/S 201(1) / 201(1A) OF THE ACT AND 14 PIDILITE INDUSTRIES LTD COMPUTED SHORT DEDUCTION OF TAX AT SOURCE AND INTER EST THEREON. THE ASSESSEE CARRIED THE MATTER BEFORE CIT(A), BUT COUL D NOT SUCCEED. THE CIT(A) CONFIRMED THE FINDING OF THE AO BY HOLDING T HAT SINCE THE RECIPIENT HAS CLAIMED THE CONSIDERATION AS CAPITAL RECEIPT NO T CHARGEABLE TO TAX UNDER THE HEAD CAPITAL GAINS, THE SAME IS OUTSIDE THE PURVIEW OF EXCLUSION PROVIDED BY EXPLANATION 2 TO SECTION 9(1) (VII) FOR THE ACT. 14. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) WAS ERRED IN CONFIRMING THE ACTION OF THE AO IN TREATIN G ASSESSEE IN DEFAULT FOR SHORT DEDUCTION OF TAX AND INTEREST U/S 201(1) AND 201(1A) IN RESPECT OF PAYMENT MADE FOR PURCHASE OF COPYRIGHTS AND TECH NICAL KNOWHOW WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS MADE PAYMENT FOR OUTRIGHT PURCHASE OF COPYRIGHTS AND TECHNICAL KNOWH OW WHICH IS EVIDENT FROM THE FACT THAT THE DEED OF ASSIGNMENT CLEARLY S PECIFIED THAT THE ASSESSEE HAS ACQUIRED THE COPYRIGHTS AND TECHNICAL KNOWHOW WITH A FULL RIGHTS AND THE INTEREST. THE LD. AR FURTHER SUBMITT ED THAT THE ASSESSEE HAS ACQUIRED COPYRIGHT AND KNOWHOW WITH ITS TITLE A ND INTEREST AND NOT MERELY THE RIGHT TO USE COPYRIGHTS AND TECHNICAL KN OWHOW ; THEREFORE, THE PAYMENTS MADE FOR PURCHASE OF COPYRIGHTS AND TECHNI CAL KNOWHOW ARE OUTSIDE THE SCOPE OF SECTION 194J FOR THE PURPOSE O F DEDUCTION OF TAX AT SOURCE. IN THIS REGARD HE RELIED UPON THE DECISION OF KOLKATA BENCH OF ITAT IN THE CASE OF SAREGAMA (I) LTD. VS. ACIT (ITA NO. 1813/KOL/2009) AND SUBMITTED THAT OUTRIGHT PURCHASE OF COPYRIGHT D OES NOT CONSTITUTE 15 PIDILITE INDUSTRIES LTD ROYALTY AND HENCE THE QUESTION OF REDUCTION OF TAX AT SOURCE U/S 194J DOES NOT ARISE. THE ASSESSEE RELIED UPON THE FOLLOW ING JUDGMENT. CIT V. DAVY ASHMORE INDIA LTD. (190 ITR 626) (CAL.) CIT V. MAGGRONIC DEVICES (P) LTD. (329 ITR 442) (HP ) (PARA 14) CIT V. KLAYMAN PORCELAIN LTD (229 ITR 735) (AP HC) (PARA 6) CIT V. ANDHRA PETROCHEMICALS LTD (373 ITR 207) (AP) (PARA 28) M/S. SAREGAMA (I) LTD. V. ACIT(LTANO. 1813 /KOL/2009) (KOL.) (PARA 10) ITO V. HEUBACH COLOR (P.) LTD. (69 SOT 173) (AHM.) (PARA 6). THIS IS SUBSEQUENTLY AFFIRMED BY THE HON'BLE GUJARAT HIGH COURT IN THE C ASE OF CIT V. CREATIVE INFOCITY LTD.(82 TAXMANN.COM 356) DCIT V. V. RAMA KRISHNA (41 ITR(T) 157) (HYD.) (PAR A 15) > DDIT V. TATA CHEMICALS LTD, (20 SOT 210) (MUM.)(PARA 6) > ABHISHEK DEVELOPERS V. ITO (24 SOT 45) (BANG.) (PARA 6.6) PRO-QUIP CORPORATION V. CIT (255 ITR 354) (DELHI AAR) 15. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ER OF LD. CIT(A). THE LD. DR FURTHER SUBMITTED THAT SINCE THE RECIPIE NTS HAVE NOT PAID TAX ON CONSIDERATION RECEIVED FOR PURCHASE OF COPYRIGHT S AND KNOWHOW UNDER THE HEAD CAPITAL GAINS, PAYMENTS MADE ARE N OT COMING WITHIN THE EXCLUSION PROVIDED UNDER EXPLANATION 2 TO SECTION 9 (1)(VII) OF THE ACT, THEREFORE, THE ASSESSEE WAS REQUIRED TO DEDUCT TDS U/S 194J OF THE ACT. 16. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIALS AVAILABLE ON RECORD. THE ASSESSEE HAS MADE PAYMENT FOR PURCH ASE OF COPYRIGHTS AND TECHNICAL KNOW OF RS.5,20,00,000 TO M/S HARD CA STILE & WOOD MFG CO LTD. AS PER THE DEED OF ASSIGNMENT OF COPYRIGHT S AND TECHNICAL KNOWHOW, THE ASSESSEE HAS PURCHASED COPYRIGHTS AND TECHNICAL KNOWHOW ALONG WITH TITLE AND INTEREST ON OUTRIGHT B ASIS. THE AO HAS TREATED PAYMENT MADE FOR PURCHASE OF COPYRIGHTS AND TECHNICAL 16 PIDILITE INDUSTRIES LTD KNOWHOW AS ROYALTY FOR ACQUIRING COPYRIGHTS AND TEC HNICAL KNOWHOW WITHIN THE MEANING OF SECTION 9(1)(VII) OF THE ACT AND HELD THE ASSESSEE LIABLE FOR TDS U/S 194J OF THE ACT. ACCORDING TO THE AO, SINCE THE RECIPIENT HAS NOT PAID TAX ON CONSIDERATION RECEIVE D FROM THE ASSESSEE AND ALSO CLAIMED EXEMPTION BEING CAPITAL RECEIPT, T HE PAYMENTS ARE NOT COMING WITHIN THE AMBIT OF EXCLUSION PROVIDED UNDER EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. IT IS THE CONTENTION OF THE ASSESSEE THAT PAYMENT MADE FOR PURCHASE OF COPYRIGHTS AND TECHNIC AL KNOWHOW IS NOT ROYALTY FOR ACQUISITION OF RIGHT TO USE COPYRIGHTS AND TECHNICAL KNOWHOW BUT PAYMENT MADE FOR OUTRIGHT PURCHASE OF COPYRIGHT S AND TECHNICAL KNOWHOW WHICH IS EVIDENT FROM THE FACT THAT THE DEE D OF ASSIGNMENT OF COPYRIGHTS AND TECHNICAL KNOWHOW IS WITH ABSOLUTE A ND EXCLUSIVE RIGHT AND INTEREST. THE ASSESSEE FURTHER CONTENDED THAT PAYMENTS MADE FOR PURCHASE OF COPYRIGHTS AND TECHNICAL KNOWHOW ARE IN THE NATURE OF CAPITAL RECEIPTS ASSESSED / ASSESSABLE UNDER THE HE AD CAPITAL GAINS AND THE RECIPIENT HAS SHOWN THE RECEIPTS IN ITS RET URN AS CAPITAL RECEIPTS, THEREFORE, THE SAID PAYMENTS ARE COMING WITHIN THE AMBIT OF EXCLUSION PROVIDED UNDER EXPLANATION 2 TO SECTION 9(1)(VII) O F THE ACT. 17. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL AVAILABLE ON RECORD, WE FIND MERIT IN THE ARGUMENT OF THE ASSESS EE FOR THE REASON THAT ON PERUSAL OF DEED OF ASSIGNMENT OF COPYRIGHTS AND TECHNICAL KNOWHOW, WE FIND THAT THE ASSESSEE HAS PURCHASED COPYRIGHTS WITH EXCLUSIVE RIGHT 17 PIDILITE INDUSTRIES LTD AND INTEREST. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT PAYMENT MADE BY THE ASSESSEE FOR OUTRIGHT PURCHASE OF COPYR IGHTS AND TECHNICAL KNOWHOW DOES NOT CONSTITUTE ROYALTY WITHIN THE MEAN ING OF ROYALTY AS DEFINED IN SECTION 9(1)(VII) AND NOT LIABLE FOR TDS U/S 194J OF THE ACT. WE FURTHER NOTICE THAT THE PAYMENTS MADE BY THE ASS ESSEE ARE COMING WITHIN THE EXCLUSION PROVIDED UNDER EXPLANATION 2 T O SECTION 9(1)(VII) OF THE ACT FOR THE REASON THAT THE RECIPIENT HAS CLAIM ED CONSIDERATION RECEIVED FROM THE ASSESSEE AS CAPITAL RECEIPT NOT L IABLE TO TAX. BUT THE FACT REMAINS THAT ONCE THE RECEIPT IS COMING WITHIN THE MEANING OF CAPITAL RECEIPT, WHETHER IT IS LIABLE FOR TAX UNDER THE HEA D CAPITAL GAINS OR NOT AND SUCH RECEIPT IS CONSIDERED BY THE ASSESSEE IN I TS RETURN OF INCOME THEN CERTAINLY, THE PAYMENTS MADE FOR PURCHASE OF C OPYRIGHTS AND KNOW HOW ARE COMING WITHIN THE AMBIT OF EXCLUSION PROVID ED UNDER EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. THE AO AS WELL AS THE CIT(A) HAS GIVEN A NARROW MEANING TO THE WORD CHAR GEABLE UNDER THE HEAD CAPITAL GAINS SO AS TO MEAN THAT IF THE RECIP IENT HAS OFFERED THE INCOME UNDER THE HEAD CAPITAL GAINS THEN THE PAYM ENTS ARE COMING WITHIN THE AMBIT OF EXCLUSION WITHOUT APPRECIATING THE FACTS THAT WHETHER OR NOT TAXES HAVE BEEN PAID ON RECEIPTS EVEN IF SUC H PAYMENT IS IN THE NATURE OF CAPITAL RECEIPT WHICH IS NOT LIABLE TO TA X UNDER THE PROVISIONS OF THE ACT AND THE ASSESSEE HAS DISCLOSED SUCH A RECEI PT IN HIS BOOKS OF ACCOUNT, THEN THE AO IS INCORRECT IN TREATING THE P AYMENTS WITHIN THE 18 PIDILITE INDUSTRIES LTD MEANING ROYALTY AS DEFINED U/S 9(1)(VII) OF THE ACT . THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE PAYMENTS MADE BY THE A SSESSEE FOR OUTRIGHT PURCHASE OF COPYRIGHT AND TECHNICAL KNOWHO W IS NOT COMING WITHIN THE DEFINITION OF ROYALTY AS DEFINED U/S 9(1 )(VII) OF THE ACT AND THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX U/S 194J OF TH E ACT, HENCE WE DIRECT THE AO TO DELETE ADDITION MADE ON ACCOUNT OF SHORT DEDUCTION OF TAX AT SOURCE AND INTEREST U/S 201(1)/201(1A) OF THE ACT. 18. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED, FOR STATISTICAL PURPOSE. ITA NO. 3564/MUM/2014 19. IN THIS CASE, THE ASSESSEE HAS CHALLENGED THE O RDER OF THE CIT(A)- 14, MUMBAI PASSED U/S 154 OF THE ACT, REJECTING THE PLEA TAKEN BY THE ASSESSEE IN THE LIGHT OF JUDGMENT OF THE HONBLE SU PREME COURT IN THE CASE OF HINDUSTAN COCO COLA BEVERAGES PVT. LTD. VS. CIT (SUPRA) THAT THE RECIPIENT HAS PAID TAXES ON THE AMOUNT RECEIVED FROM THE ASSESSEE AND HENCE THE ASSESSEE CANNOT BE CONSIDERED AS AN A SSSESSEE IN DEFAULT U/S 201(1) OF THE ACT. SINCE WE HAVE ALREAD Y HELD THAT PAYMENT MADE BY THE ASSESSEE FOR OUTRIGHT PURCHASE OF COPYR IGHT AND TECHNICAL KNOWHOW IS NOT LIABLE FOR TDS U/S 194J CONSEQUENTLY , THE ASSESSEE CANNOT BE CONSIDERED AS ASSESSEE IN DEFAULT U/S 201 (1)/201(1A) OF THE ACT AND HENCE, THE APPEAL FILED BY THE ASSESSEE AGA INST THE ORDER OF CIT(A) BECOMES INFRUCTUOUS. THEREFORE, THE APPEAL F ILED BY THE ASSESSEE 19 PIDILITE INDUSTRIES LTD IS DISMISSED AS INFRUCTUOUS. 20. IN THE RESULT, APPEAL FILE BY THE ASSESSEE IN I TA NO. 2174/MUM/2014 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND APPEA L IN ITA NO. 3564/MUM/2014 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2018. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : JANUARY, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR PS, ITAT, MUMBAI