M/s. Lanika Solutions Private Limited, Bangalore V. The Income Tax Officer, Ward- 4(1)(1), Bangalore

ITA 2530/BANG/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 4256 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-02-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 16-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Double taxation relief; TDS
• Section: 143(3); 244A; 234B; 201(1); 195; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.2530/BANG/2019 ASSESSMENT YEAR : 2013-14 LANIKA SOLUTIONS PVT. LTD., TF-04, GOLD SIGNATURE, NO.95, MOSQUE ROAD, FRAZER TOWN, BENGALURU-560 005. PAN AABCL 6504 E VS. THE INCOME-TAX OFFICER, WARD-4(1)(1), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI PADAMCHAND KHINCHA, C.A RESPONDENT BY : SHRI PRIYADARSHI MISHRA, ADDL. CIT (DR) DATE OF HEARING : 02-02-2021 DATE OF PRONOUNCEMENT : 12-02-2021 O R D E R PER BEENA PILLAI, JUDICIAL MEMBER: PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAIN ST ORDER DATED 29/11/2019 PASSED BY LD.CIT(A) ON FOLLOWING GROUNDS OF APPEAL: 1 .0 GENERAL GROUND: 1.1 THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A) FOR SHORT HEREINAFTER] IS BAD IN LAW AND LIABLE TO BE QUASHED. 2.0 DISALLOWANCE UNDER SECTION 40(A)(I): 2.1 THE LEARNED INCOME TAX OFFICER, WARD 4(1)(1), B ANGALORE [ITO FOR SHORT HEREINAFTER] HAS ERRED IN TREATING PAYMENTS OF RS 1 ,34,48,461/- MADE FOR PAGE 2 OF 6 ITA NO.2530/BANG/2019 IMPORT OF TRADED SOFTWARE PRODUCTS AND UPGRADES AS PAYMENTS BY WAY OF ROYALTY AND DISALLOWING THE SAID SUM U/S 40(A)(I) O F THE INCOME TAX ACT 1961 FOR NOT DEDUCTING TDS UNDER SECTION 195 AND TH E LEARNED CIT(A) HAS ERRED IN CONFIRMING THE SAID DISALLOWANCE. 2.2 THE LEARNED CIT(A) HAS ERRED IN REJECTING THE C LAIM OF THE APPELLANT THAT THE SOFTWARE PRODUCTS AND UPGRADES WERE IMPORT ED FOR RESALE BY WAY OF TRADE AND NOT FOR THE PURPOSE OF 'USE' BY THE AP PELLANT. 23 THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THE SUBMISSIONS MADE BY THE APPELLANT THAT PAYMENTS MADE FOR IMPORT OF TRADED SOFTWARE (AMOUNTING TO RS 1,34,48,461/-) CANNOT BE REGARDED ROYALTY AS PER ITS DEFINITION UNDER EXPLANATION 2 TO SECTION 9(L)(VI) READ WITH EXPLANATION 3 TO 5 UNDER THE ACT OR UNDER THE DOUBLE TAXATION AVOIDA NCE AGREEMENTS AND THEREFORE THE PAYMENTS WERE NOT LIABLE FOR DEDUCTIO N OF TDS U/S 195 AND CONSEQUENTLY NOT LIABLE FOR DISALLOWANCE U/S 40(A)( I) OF THE ACT. THE ADDITION SHOULD BE THEREFORE DELETED IN ENTIRETY. 3.0 NON APPLICATION OF NON-DISCRIMINATION CLAUSE 3.1 ASSUMING WITHOUT ADMITTING THAT THE SOFTWARE PA YMENTS WERE LIABLE FOR TDS, THE LEARNED CIT(A) HAS ERRED IN NOT RESTRI CTING THE DISALLOWANCE IF ANY U/S 40(A)(I) TO 30% OF THE EXPENSE DUE TO INVOC ATION OF NON- DISCRIMINATION CLAUSE UNDER THE DTAA BY THE APPELLA NT. 3.2 THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THA T DUE TO NON- DISCRIMINATION CLAUSE UNDER THE DTAA, THE DISALLOWANCE UNDER SECTION 40(A )(I), IF ANY, WILL BE RESTRICTED TO 30% OF THE EXPENDITURE. 4.0 LEVY OF INTEREST U/S 234B 4.1 THE LEARNED ITO HAS ERRED IN LEVYING INTEREST U/S 234B AMOUNTING TO RS 11,26,476/- AND THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE SAME. 5.0 LEVY OF INTEREST U/S 234D: THE LEARNED ITO HAS ERRED IN LEVYING INTEREST U/S 2 34D AMOUNTING TO RS.1,25,510/- AND THE LEARNED CIT(A) HAS ERRED IN C ONFIRMING THE SAME. 6.0 PRAYER:- IN VIEW OF THE ABOVE AND OTHER GROUNDS TO BE ADDUCED AT THE TIME OF HEARING, THE APPELLANT PRAYS THAT THE ORDER PASSED BY THE LEARNED CIT (A) BE QUASHED OR IN THE ALTERNATIVE, DISALLOWA NCE UNDER SECTION 40(A)(I) BE DELETED OR RESTRICTED TO 30% OF THE EXP ENDITURE. THE APPELLANT PRAYS ACCORDINGLY. 2. AT THE OUTSET, THE LD.AR SUBMITTED THAT THE ISSU E RAISED IN THE PRESENT APPEAL IS AGAINST DISALLOWANCE MADE UND ER SECTION 40(A)(I) AMOUNTING TO RS.1,34,48,461/- FOR NON-DEDU CTION OF TDS UNDER SECTION 195 IN RESPECT OF PAYMENTS MADE TO NO N-RESIDENT FOR PURCHASE OF SOFTWARE LICENSES. HE SUBMITTED THA T FOR THE VERY PAGE 3 OF 6 ITA NO.2530/BANG/2019 SAME ASSESSMENT YEAR, ORDER UNDER SECTION 201(1) AN D 201(1A) WAS PASSED ON 29/02/2016 HOLDING ASSESSEE TO BE AN ASSESSEE IN DEFAULT FOR NON-DEDUCTION OF TDS UNDER SECTION 195 IN RESPECT OF PAYMENTS MADE TO NONRESIDENTS AMOUNTING TO RS.1,63,12,695/- FOR PURCHASE OF SOFTWARE LICENSES. 3. THE LD.AR SUBMITTED THAT, AS APPEAL FILED AGAINS T THE ORDER UNDER SECTION 201(1) AND 201(1A) WAS PENDING BEFORE THE LD.CIT(A), ASSESSEE OPTED FOR VIVAD SE VISHWAS ACT 2020 IN RESPECT OF THE ALLEGED PENALTY AND INTEREST LEVIED THEREON. ASSESSEE ALSO RECEIVED FORM 3 ON 05/01/2021. THE LD .AR THUS SUBMITTED THAT ASSESSEE HAS WITHDRAWN THE APPEAL FI LED AGAINST ORDER U/S 201(1) & 201(1A) OF THE ACT BEFORE LD.CIT (A) AND THAT THE AMOUNT HAVE BEEN SETTLED UNDER VSV ACT 2020. 4. THE LD.AR SUBMITTED THAT AS PER CIRCULAR NO.9 OF 2020 DATED 22/04/2020 ISSUED BY CBDT, IF ASSESSEE SETTLE S TDS LIABILITIES DUE TO NON DEDUCTION OF TDS UNDER VIVAD SE VISHWAS ACT 2020, AGAINST AN ORDER UNDER SECTION 201, THE D EDUCTOR SHALL BE ENTITLED TO GET CONSEQUENTIAL RELIEF OF ALLOWABL E EXPENDITURE UNDER PROVISO TO SECTION 40(A)(I)/(IA) OF THE ACT I N THE YEAR IN WHICH THE TAX WAS REQUIRED TO BE DEDUCTED. HE PLACE D RELIANCE ON QUESTION NO.31 IN THE CBDT CIRCULAR PLACED IN THE C OMPILATION FILED BEFORE US. HE THUS SUBMITTED THAT, IN VIEW OF THE ABOVE, DISALLOWANCE MADE UNDER SECTION 40(A)(I) AMOUNTING TO RS.1,34,48,461/- FOR THE YEAR UNDER CONSIDERATION I S TO BE DELETED AND THE APPEAL IS TO BE ALLOWED. 5. THE LD.SR.DR RELIED ON ORDERS PASSED BY AUTHORIT IES BELOW. PAGE 4 OF 6 ITA NO.2530/BANG/2019 6. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 7. WE NOTE THAT, ASSESSEE HAS ALREADY RECEIVED FORM 3 RESPECT OF DEMAND RAISED UNDER SECTION 201 ON 05/01/2021 AN D THAT ASSESSEE HAS PAID THE SAME VIDE RECEIVED ACKNOWLEDG EMENT DATED 08/01/2021. THE LD.AR PLACED RELIANCE ON CBDT CIRCU LAR NO.9 DATED 22/04/2020. THE RELEVANT EXTRACT OF QUESTION NO.31 IN CBDT CIRCULAR NO.9 OF 2020 DATED 22/04/2020 IS AS U NDER: WHERE ASSESSEE SETTLES TDS LIABILITY AS DEDUCLOR O F TDS UNDER VIVAD SE VISHWA (I.E AGAINST ORDER U/S 201), WHEN WILL BE EN TITLED TO GET CONSEQUENTIAL RELIEF OF EXPENDITURE ALLOWANCE UNDER PROVISO TO SECTION 40(A)(I)/(IA)? IN SUCH CASES, THE DEDUCTOR SHALL HE ENTITLED TO GE T CONSEQUENTIAL RELIEF OF ALLOWABLE EXPENDITURE UNDER PROVISO TO SECTION 40(A )(I)/(IA) IN THE YEAR I IN WHICH THE TAX WAS REQUIRED TO BE DEDUCTED. TO ILLUSTRATE, LET US ASSUME THAT THERE ARE TWO APP EALS PENDING; ONE AGAINST THE ORDER UNDER SECTION 201 OF THE ACT FOR NON-DEDUCTION OF 'IDS AND ANOTHER ONE AGAINST THE ORDER UNDER SECTION 143 (3) OF THE ACT FOR DISALLOWANCE UNDER SECTION 40(A)(I)/(IA) OF THE ACT , THE DISALLOWANCE UNDER SECTION 40 IS WITH RESPECT TO SAME ISSUE ON WHICH O RDER UNDER SECTION 201 HAS BEEN ISSUED. IF THE DISPUTE IS SETTLED WITH RES PECT TO ORDER UNDER SECTION 201, ASSESSEC WILL NOT BE REQUIRED TO PAY A NY TAX ON THE ISSUE RELATING TO DISALLOWANCE UNDER SECTION 40(A)(I)/(IA ) OF THE ACT, IN ACCORDANCE WITH THE PROVISION OF SECTION 40(A)(I)/( IA) OF THE ACT. IN CASE. IN THE ORDER UNDER SECTION 143(3) THERE AR E OTHER ISSUES AS WELL, AND THE APPELLANT WANTS TO SETTLE THE DISPUTE WITH RESPECT TO ORDER UNDER SECTION 143(3) AS WELL, THEN THE DISALLOWANCE UNDER SECTION 40(A)(I)/(IA) OF THE ACT RELATING TO THE ISSUE ON WHICH HE HAS ALREA DY SETTLED LIABILITY UNDER SECTION 201 WOULD BE IGNORED FOR CALCULATING DISPUTED TAX. IF THE ASSESSEE HAS CHALLENGED THE ORDER TINDER SEC TION 201 ON MERITS AND HAS WON IN THE SUPREME COURT OR THE ORDER OF ANY AP PELLATE AUTHORITY BELOW SUPREME COURT ON THIS ISSUE IN FAVOUR OF THE ASSESSEE HAS NOT BEEN CHALLENGED BY THE DEPARTMENT ON MERIT (NOT BECAUSE APPEAL WAS NOT FILED ON ACCOUNT OF MONETARY LIMIT FOR FILING OF APPEAL A S PER APPLICABLE CBDT CIRCULAR), THEN IN A CASE WHERE DISALLOWANCE UNDER SECTION 40(A)(I)/(IA) OF THE ACT IS IN CONSEQUENCE OF SUCH ORDER UNDER SECTI ON 201 AND IS PART OF DISPUTED INCOME AS PER ORDER UNDER SECTION 143(3) I N HIS CASE, SUCH DISALLOWANCE WOULD HE IGNORED FOR CALCULATING DISPU TED TAX, IN ACCORDANCE WITH THE PROVISO TO SECTION 40(A)(I)/(IA) OF THE AC T. PAGE 5 OF 6 ITA NO.2530/BANG/2019 IT IS CLARIFIED THAT IF THE ASSESSEC HAS MADE PAYME NT AGAINST THE ADDITION REPRESENTING SECTION 40(A)(I)/(IA) DISALLOWANCE, TH E ASESSEE SHALL NOT ENTITLED TO INTEREST UNDER SECTION 244A OF THE ACT ON AMOUNT REFUNDABLE 8. ON PERUSAL OF FOLLOWING PARAGRAPH, IT IS CLEAR T HAT DEDUCTOR SHALL BE ENTITLED TO GET CONSEQUENTIAL RELIEF OF AL LOWABLE EXPENDITURE UNDER PROVISO TO SECTION 40(A)(I)/(IA): TO ILLUSTRATE, LET US ASSUME THAT THERE ARE TWO AP PEALS PENDING; ONE AGAINST THE ORDER UNDER SECTION 201 OF THE ACT FOR NON-DEDUCTIO N OF TDS AND ANOTHER ONE AGAINST THE ORDER UNDER SECTION 143(3) OF THE ACT F OR DISALLOWANCE UNDER SECTION 40(A)(I)/(IA) OF THE ACT, THE DISALLOWANCE UNDER SE CTION 40 IS WITH RESPECT TO SAME ISSUE ON WHICH ORDER UNDER SECTION 201 HAS BEEN ISS UED. IF THE DISPUTE IS SETTLED WITH RESPECT TO ORDER UNDER SECTION 201, ASSESSEC W ILL NOT BE REQUIRED TO PAY ANY TAX ON THE ISSUE RELATING TO DISALLOWANCE UNDER SEC TION 40(A)(I)/(IA) OF THE ACT, IN ACCORDANCE WITH THE PROVISION OF SECTION 40(A)(I)/( IA) OF THE ACT. 9. IN VIEW OF THE ABOVE, THE LD.AO IS DIRECTED TO G IVE CONSEQUENTIAL RELIEF AS THE DISPUTE IS SETTLED WITH RESPECT TO ORDER UNDER SECTION 201 AND THAT ASSESSEE IS NOT REQUIRED TO PAY ANY TAX ON THE ISSUE RELATING TO DISALLOWANCE UNDER SEC TION 40(A)(I)/(IA) OF THE ACT. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY, 2021 SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 12 TH FEBRUARY, 2021. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE PAGE 6 OF 6 ITA NO.2530/BANG/2019 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -2-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -2-2021 JM/AM 4. DRAFT DISCUSSEDAPPROVED BY SECOND MEMBER. -2-2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -2-2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -2-2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -2-2021 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -2-2021 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS