Autodesk Asia Pte Limited, Bangalore V. Assistant Commissioner of Income Tax (International Taxation), Circle-1(1), Bangalore

ITA 27/BANG/2021

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3234 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2017-2018
• Appeal Filed On: 28-01-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Retrospective amendment; Additional evidence; Advance ruling; Tax effect; TDS; Set aside
• Section: 143(3); 234B; 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(IT)A NO.27/BANG/2021 ASSESSMENT YEAR : 2017-18 M/S AUTODESK ASIA PVT. LTD., 3, FUSIONOPOLIS WAY, #10-21 SYMIOSIS SINGAPORE 138 633. PAN AAFCA 6398 D VS. THE ASST. COMMISSIONER OF INCOME-TAX, (INTL. TAXATION), CIRCLE-1(1), BENGALURU. APPELLANT RESPONDENT REVENUE BY : SHRI SHISHIR SRIVASTAVA, CIT ASSESSEE BY : SMT. TANMAYEE RAJKUMAR, ADVOCATE DATE OF HEARING : 06-04-2021 DATE OF PRONOUNCEMENT : 14-06-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS FILED BY ASSESSEE AGAINST ORDER DATED 31/11/2020 PASSED BY THE ITO (INTL. TAXATION), CIRC LE-1, BANGALORE FOR ASSESSMENT YEARS 2017-18 ON FOLLOWING GROUNDS OF APPEAL:- PAGE 2 OF 9 IT(IT)A NO.27/BANG/2021 SL. NO. GROUNDS OF APPEAL TAX EFFECT (IN INR) 1 ASSESSMENT BAD IN LAW AND ON FACTS THE ASSESSMENT ORDER DATED 30 NOVEMBER 2020 PASSED BY THE ASSISTANT COMMISSIONER OF INCOME-TAX (INTERNATIONAL TAXATION), CIRCLE-1(1) ['THE AO'] UNDER SECTION 143(3) READ WI TH SECTION 144C(5) OF THE INCOME-TAX ACT, 1961 (THE ACT), IS B AD IN LAW AND ON FACTS. 2 ERRONEOUS DEMANDS THE AO HAS ERRED IN: A) DETERMINING THE TOTAL INCOME OF THE APPELLANT AT INR 22478,83,221; B) DETERMINING A TAX PAYABLE OF INR 24,31,08,570 AS PER COMPUTATION RECEIVED ALONG WITH THE ORDER OF THE SU BJECT ASSESSMENT YEAR; C) LEVYING INTEREST UNDER SECTION 234B OF THE ACT O F INR 61,67,876; AND D) RAISING A DEMAND OF INR 2,01,85,811 UPON THE APP ELLANT. 3 ERRONEOUS TREATMENT OF THE CONSIDERATION RECEIVED F OR SALE OF SOFTWARE AS ROYALTY INR 24,31,08,570 3.1 THE AO AND THE DISPUTE RES OLUTION PANEL ('DRP') HAVE ERRED IN NOT HOLDING THAT CONSIDERATION RECEIVED BY THE APPE LLANT WOULD NOT QUALIFY AS 'ROYALTY' UNDER ARTICLE 12 OF THE DO UBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND SINGAPORE ('T HE DTAA') AND UNDER THE PROVISIONS OF THE ACT. 3.2 THE AO AND THE DRP HAVE ERRED IN NOT HOLDING THAT T HE DEFINITION OF 'ROYALTY' UNDER THE DTAA HAS NOT UNDERGONE ANY C HANGE DESPITE THE RETROSPECTIVE AMENDMENT MADE VIDE FINAN CE ACT, 2012, TO SECTION 9(1)(VI) OF THE ACT. 3.3 THE AO AND THE DRP HAVE ERRED IN HOLDING THAT THE D EFINITION OF 'ROYALTY' UNDER THE ACT AND THE DTAA ARE PARI-MATER IA. 3.4 THE AO AND THE DRP ERRED IN NOT HOLDING THAT THE CO NSIDERATION RECEIVED BY THE APPELLANT WAS NOT FOR TRANSFER OF C OPYRIGHT TO THE DISTRIBUTORS OR END-USERS BUT FOR SALE OF SOFTWARE PRODUCT/ COPYRIGHTED PRODUCT. 3.5 THE AO AND THE DRP ERRED IN NOT HOLDING THAT THE AP PELLANT DOES NOT HOLD COPYRIGHT IN THE SOFTWARE, DESPITE THE FAC T THAT IT HAD ONLY DISTRIBUTION/ LIMITED RIGHTS OF THE COPYRIGHTE D PRODUCT. 3.6 THE AO AND THE DRP FAILED TO APPRECIATE THAT ACCESS TO SOFTWARE WHEREIN A SUBJECT MATTER OF COPYRIGHT IS EMBEDDED, WITHOUT THE RIGHT TO EXPLOIT THE COPYRIGHT, DOES NOT AMOUNT TO USE OR RIGHT TO USE THE COPYRIGHT IN THE COPYRIGHTED WORK. 3.7 THE AO AND THE DRP HAVE ERRED IN HOLDING THAT THE A PPELLANT HAD EFFECTIVELY SOLD THE SOFTWARE TO END-USERS, EVE N WHERE THE APPELLANT HAD ENTERED INTO AGREEMENT WITH THE DISTR IBUTORS/ RESELLERS WHO IN TURN HAD SOLD THE SOFTWARE TO THE END USERS. PAGE 3 OF 9 IT(IT)A NO.27/BANG/2021 3.8 THE AO AND THE DRP HAVE ERRED IN NOT FOLLOWING CERT AIN DECISIONS RENDERED BY THE DELHI HIGH COURT, THE AUTHORITY FOR ADVANCE RULING AND VARIOUS BENCHES OF THE TRIBUNAL 4 ERRONEOUS CONCLUSION ON APPLICABILITY OF ARTICLE 24 OF THE DTAA 4.1 THE 40 HAVE ERRED IN CONCLUDING THAT THE PROVISIONS OF ARTICLE 24 OF THE DTAA ARE APPLICABLE TO THE FACTS OF THE APPE LLANT. 4.2 WITHOUT PREJUDICE TO THE GROUND 4.1 ABOVE, THE 40 E RRED IN COMPUTING TAX ON AN INCORRECT CONSIDERATION AND BY APPLYING AN INCORRECT RATE. 5 SHORT GRANT OF CREDIT FOR TAX DEDUCTED AT SOURCE (T DS) INR 30,17,582 5.1 THE AO HAS ERRED IN RESTRICTING THE TOS CREDIT TO T HE EXTENT OF INR 229,090,635 THEREBY RESULTING TO SHORT GRANT OF TDS CREDIT OF INR 3,017,582. 6 INTEREST UNDER SECTION 234B OF THE ACT 6.1 CONSEQUENTIALLY, THE AO HAS ERRED IN LEVYING INTERE ST UNDER SECTION 234B OF ACT AMOUNTING TO INR 6,167,876. INR 61,67,876 7 INITIATION OF PENALTY 7.1 THE AU HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 270A OF THE I ACT 8 RELIEF 8.1 THE APPELLANT PRAYS THAT THE AU BE DIRECTED TO GRAN T ALL SUCH RELIEF ARISING FROM THE PRECEDING GROUNDS AS ALSO A LL RELIEF CONSEQUENTIAL THERETO. TOTAL TAX EFFECT INR 25,22,94,028 BRIEF FACTS OF THE CASE ARE AS UNDER:- 2. THE ASSESSEE IS A SINGAPORE BASED COMPANY. IT W AS SUBMITTED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF DISTRIBUTION OF COMPUTER SOFTWARE AND PROVIDING ANC ILLARY SERVICES TO ITS INDIAN DISTRIBUTORS/CUSTOMERS. IN CERTAIN CASES ASSESSEE ALSO SOLD HARDWARE TO INDIAN PARTIES. IT IS SUBMITTED THAT THE SALE OF SOFTWARE/HARDWARE WAS MADE OUTSIDE INDIA, AND THE SALE PROCEEDS OF THE SALE/ANCILLARY SERVICES FR OM THE INDIAN DISTRIBUTORS/CUSTOMERS WERE RECEIVED BY ASSESSEE OU TSIDE INDIA. PAGE 4 OF 9 IT(IT)A NO.27/BANG/2021 2.1 FOR YEAR UNDER CONSIDERATION, THE ASSESSEE FILE D RETURN OF INCOME DECLARING NIL TAXABLE INCOME. THE RETURN WA S SELECTED FOR SCRUTINY. THE LD.AO OBSERVED THAT ASSESSEE RECE IVED RS.232,34,01,380/- AS CONSIDERATION TOWARDS DISTRIB UTION OF COMPUTER SOFTWARE/HARDWARE AND ANCILLARY SERVICES T O INDIAN DISTRIBUTORS/CUSTOMERS. THE LD.AO WHILE PASSING D RAFT ASSESSMENT ORDER HELD THAT THE CONSIDERATION SO REC EIVED AMOUNTS TO ROYALTY U/S 9(1)(VI) OF THE ACT AND ART 12 OF INDIA- SINGAPORE DTAA. 2.2 THE LD.AO ALSO PROPOSED TO TAX THE CONSIDERATIO N RECEIVED FROM INDIAN DISTRIBUTORS/CUSTOMERS FOR SALE OF HARD WARE AS ROYALTY ON THE BASIS THAT HARDWARE AND SOFTWARE ARE INSEPARABLE AND THAT THE SOFTWARE CANNOT FUNCTION IN THE OBSCEN E OF HARDWARE. 2.3. ON FILING OBJECTION BEFORE THE DRP, IT WAS HEL D AS UNDER:- 2.1.16 THE ASSESSEE HAS NOT BEEN ABLE TO PROVE SO B EFORE THIS PANEL TOO AND HENCE, WE REJECT THIS GROUND OF THE ASSESSEE AS WELL. THE ASSESSEE FILED ADDITIONAL EVIDENCE IN THE FORM OF A LETTER I SSUED BY THE SINGAPORE TAX AUTHORITIES. ON PERUSAL OF THIS LETTER, WE NOTE THAT IT MERELY STATES THAT THE ASSESSEE DECLARED ITS INCOME ON ACCRUAL BA SIS. THERE IS NO INFORMATION OR EVIDENCE BEFORE US TO INDICATE THAT THE IMPUGNED RECEIPTS WERE REMITTED INTO SINGAPORE AND SUBJECTED TO TAX. THE ASSESSEE ALSO FAILED TO FURNISH ANY INFORMATION TO INDICATE THAT THE IMPUGNED RECEIPTS FROM INDIA ARE INCLUDED IN ITS RETURN FOR THE RELEV ANT YEAR. THEREFORE, WE DO NOT FIND ANY MERIT IN THE PLEAS RAISED. ACCORDIN GLY, THESE ARE REJECTED. THE ASSESSEE ALSO RAISED A PLEA THAT IT SHOULD BE A LLOWED RELIEF AS IN THE DRP ORDER FOR THE LAST YEAR. BUT, WE NOTE, THAT ISS UE IN REGARD TO WHICH RELIEF WAS ALLOWED BY DRP IN THE EARLIER YEAR, IS N OT PRESENT IN THE DRAFT ASSESSMENT ORDER FOR THE SUBJECT YEAR. IN THE EARLI ER YEAR, THE ASSESSING OFFICER HAD ADOPTED DIFFERENTIAL RATE OF TAX FOR TH E REMITTANCES MADE. SUCH AN ISSUE IS NOT PRESENT FOR THIS YEAR, AS SEEN FROM THE DRAFT ASSESSMENT ORDER. ACCORDINGLY, THIS PLEA IS ALSO RE JECTED. PAGE 5 OF 9 IT(IT)A NO.27/BANG/2021 2.4. THE DRP RELIED DECISION OF HONBLE KARNATAKA HIGH COURT IN CSE OF M/S SYNOPSIS INTERNATIONAL PVT. LTD. IN ITA NO.11-15/2008 BY ORDER DATED 3/8/2010 AND SAMSUNG ELECTRONICS LTD . REPORTED IN 2011-TIL-43-HC-KAR-INTLI. THE LD.AO ON RECEIPT OF DRP DIRECTION PASSED FINAL ASSESSMENT ORDERS IN ALL YEA RS UNDER CONSIDERATION. 3. AGGRIEVED BY THE ORDER OF LD.AO ASSESSEE IS IN A PPEAL. 4. ADMITTEDLY, THE ISSUE INVOLVED IN PRESENT APPEAL S 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 SOFTWAR E HAVE CONSIDERED THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS SAMSUNG ELECTRONICS CO LTD. (SUPRA) AND VARIOUS OTHER DECISIONS. 5. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. WE NOTE THAT HONBLE SUPREME COURT CONSIDERED THE ISSUE BY OBSERVING AS UNDER:- '3. ONE GROUP OF APPEALS ARISES FROM A COMMON JUDGM ENT OF THE HIGH COURT OF KARNATAKA DATED 15.10.2011 REPORTED AS CIT V. SAMSUNG ELECTRONICS CO. LTD., (2012) 345 ITR 494, BY WHICH THE QUESTION WHICH WAS POSED BEFORE THE HIGH COURT, WAS ANSWERED STATI NG THAT THE AMOUNTS PAID BY THE CONCERNED PERSONS RESIDENT IN I NDIA TO NON-RESIDENT, FOREIGN SOFTWARE SUPPLIERS, AMOUNTED TO ROYALTY AND AS THIS WAS .SO, THE SAME CONSTITUTED TAXABLE INCOME DEEMED TO ACCRUE IN INDIA UNDER SECTION 9(1)(VI) OF THE INCOME TAX ACT, 1961 ['INCOME TAX A CT'], THEREBY MAKING IT INCUMBENT UPON ALL SUCH PERSONS TO DEDUCT TAX AT SO URCE AND PAY SUCH TAX DEDUCTIBLE AT SOURCE ['I'DS'] UNDER SECTION 195 OF THE INCOME TAX ACT. THIS JUDGMENT DATED 15.10.2011 HAS BEEN RELIED UPON BY THE SUBSEQUENT PAGE 6 OF 9 IT(IT)A NO.27/BANG/2021 IMPUGNED JUDGMENTS PASSED BY THE HIGH COURT OF KARN ATAKA TO DECIDE THE SAME QUESTION IN FAVOUR OF THE REVENUE. THE APPEALS BEFORE US MAY BE GROUPED INTO FOUR CATE GORIES: I) THE FIRST CATEGORY DEALS WITH CASES IN WHICH COM PUTER SOFTWARE IS PURCHASED DIRECTLY BY AN END-USER, RESIDENT IN INDI A, FROM A FOREIGN, NON- RESIDENT SUPPLIER OR MANUFACTURER. II) THE SECOND CATEGORY OF CASES DEALS WITH RESIDEN T INDIAN COMPANIES THAT ACT AS DISTRIBUTORS OR RESELLERS, BY PURCHASIN G COMPUTER SOFTWARE FROM FOREIGN, NON-RESIDENT SUPPLIERS OR MANUFACTURE RS AND THEN RESELLING THE SAME TO RESIDENT INDIAN END-USERS. III) THE THIRD CATEGORY CONCERNS CASES WHEREIN THE DISTRIBUTOR HAPPENS TO BE A FOREIGN, NON-RESIDENT VENDOR, WHO, AFTER PURCH ASING SOFTWARE FROM A FOREIGN, NON-RESIDENT SELLER, RESELLS THE SAME TO R ESIDENT INDIAN DISTRIBUTORS OR END-USERS. IV) THE FOURTH CATEGORY INCLUDES CASES WHEREIN COMP UTER SOFTWARE IS AFFIXED ONTO HARDWARE AND IS SOLD AS AN INTEGRATED UNIT/ EQUIPMENT.' HON'BLE SUPREME COURT, CONSIDERED VARIOUS ARGUMENTS ADVANCED BY THE REVENUE AS WELL AS THE ASSESSEE'S AND CAME TO THE C ONCLUSION 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 C LEAR 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 AGREEM ENTS/EULAS IN THE FACTS OF THESE CASES DO NOT CREATE ANY INTEREST OR RIGHT IN SUCH DISTRIBUTORS/END-USERS, WHICH WOULD AMOUNT TO THE U SE OF OR RIGHT TO USE ANY COPYRIGHT. THE PROVISIONS CONTAINED IN THE INCO ME TA 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 N ON-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 JUDGM ENT. PAGE 7 OF 9 IT(IT)A NO.27/BANG/2021 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 (AJAR) (SUPRA) IS SET ASIDE. THE APPEALS FROM THE IMPUGNED JUDGMENTS OF THE HIGH COU RT OF DELHI ARE DISMISSED.' 6. WE NOTE THAT CSE OF PRESENT ASSESSEE FALLS WITHI N THE SECOND AND FORTH CATEGORY ANALYSED BY HONBLE SUPREME COURT . RESPECTFULLY FOLLOWING THE ABOVE VIEW BY HONBLE SUPREME COURT IN CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE P VT. LTD. VS. CIT (SUPRA). WE HOLD THAT PURCHASE OF SOFTWARE IN THE PRESENT FACTS DOES NOT AMOUNT TO GIVE RISE TO ANY TAXABLE INCOME IN INDIA AS A RESULT OF WHICH PROVISIONS OF SEC.195 OF THE ACT AR E NOT ATTRACTED. THE ASSESSEE DOES NOT HAVE ANY OBLIGATION TO DEDUCT TAX AT SOURCE. THEREFORE, PROVISIONS OF SEC.9(1)(VI) ALON G WITH EXPLANT6ION 2 IS NOT APPLICABLE TO PRESENT ASSESSEE S. ACCORDINGLY WE ALLOW THE APPEAL IN TERMS OF GROUND NO.3 ALONG WITH ITS SUB-GROUND. ALL OTHER GROUNDS BECOME S ACADEMIC. IN THE RESULT ALL APPEALS FILED BY ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JUNE, 2021 SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 14 TH JUNE, 2021. /VMS/ PAGE 8 OF 9 IT(IT)A NO.27/BANG/2021 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 9 OF 9 IT(IT)A NO.27/BANG/2021 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -6-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -6-2021 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -6-2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -6-2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -6-2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -6-2021 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -6-2021 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