M/s. e-Infochips Limited, Ahmedabad V. The Income Tax Officer(Intl.Taxn.)-II, Ahmedabad

ITA 2804/AHD/2013

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8325 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 21-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 02-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Double taxation relief; TDS
• Section: 201(1); 195; 201; 192; 119

Judgement Text

ITA NO. 2804/AHD/2013 ASSESSMENT YEAR 2009 - 10 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD BENCH D , AHMEDABAD [CORAM : JUSTICE P P BHATT, PRESIDENT , AND PRAMOD KUMAR , VICE PRESIDENT ] ITA NO. 2804 /AHD/201 3 ASSESSMENT YEAR 20 09 - 10 E INFOCHIPS LIMITED .....APPELLANT 11/A - B, CHANDRA COLONY BEHIND CARGO MOTORS, OFF C G ROAD ELLISBRIDGE, AHMEDABAD 380 009 [PAN: AA CCS1310E ] VS INCOME TAX OFFICER INTERNATIONAL TAXATION - II , AHMEDABAD ..........RESPONDENT APPEARANCES BY S N SOPARKAR AND PARIN SHAH FOR THE APPELLANT VINOD TANWANI FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : DECEMBER 20, 201 9 DATE OF PRONOUNC EMENT : MARCH 12 TH , 2020 ORDE R PER BENCH : 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 30 TH SEPTEMBER, 2019 PASSED BY THE LEARNED CIT(A), IN THE MATTER OF TAX WITHHOLDING LIABILITY OF THE ASSESSEE UNDER SECTION 201 OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 20 09 - 10 . 2. GRIEVANCE OF THE ASSESSEE, IN SUBSTANCE, IS THAT THE LEARNED CIT(A) ERRED IN UPHOLDING THE TAX WITHHOLDING LIABILITY OF RS 3,61,463 OF THE ASSESSEE IN RESPECT OF P AYMENT OF US $ 54,288 TO MAGNA DESIGN AUTOMATION INC, USA, TO WARDS THE PURCHASE OF SOFTWARE. ITA NO. 2804/AHD/2013 ASSESSMENT YEAR 2009 - 10 PAGE 2 OF 5 3. THE ISSUE IN APPEAL LIES IN A NARROW COMPASS OF MATERIAL FACTS. THE ASSESSING OFFICER (TDS) NOTICED THAT THE ASSESSEE HAS MADE A PAYMENT OF US $ 54,288 (EQUIVALENT TO RS 23,07,240 AT THE RELEVANT POINT OF TIME) TOWARDS P URCHASE OF SOFTWARE FROM A UNITED STATES BASED COMPANY BY THE NAME OF MAGMA DESIGN AUTOMATION INC, BUT THE ASSESSEE HAS NOT WITHHELD THE TAX AT SOURCE. HE R E JECTED THE PLEA OF THE ASSESSEE THAT SINCE THE PAYMENT FOR SOFTWARE IS SIMPLY A PAYMENT FOR PURCHAS E OF A COPYRIGHTED ARTICLE, IT CANNOT BE TREATED AS ROYALTY UNDER SECTION 9(1)(VI) OF THE INCOME TAX ACT 1961 AND ARTICLE 12 OF INDIA USA DOUBLE TAXATION AVOIDANCE AGREEMENT, AND SINCE THE INCOME EMBEDDED IN THE PAYMENT IS NOT TAXABLE IN INDIA, THE ASSESSE E DID NOT HAVE ANY TAX WITHHOLDING OBLIGATIONS UNDER SECTION 195 OF THE ACT. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE COPYRIGHT SUBSISTS IN THE COMPUTER PROGRAM, SINCE IT IS A LITERARY AS WELL AS SCIENTIFIC WORK AND SINCE IT IS ALSO A PATENT, I NNOVATION AND PROCESS, THE SOFTWARE IS COVERED BY THE DEFINITION OF ROYALTY UNDER SECTION 9(1)(VI) AS ALSO UNDER ARTICLE 12 OF INDO US DTAA. HE FOUND SUPPORT FROM THE JUDICIAL PRECEDENTS IN THE CASES OF GRACEMAC CORPORATION VS ADIT [(2010) 7 TAXMANN.139 (DEL)] AND CIT VS SAMSUNG ELECTRONICS CO LTD[TS - 696 - HC - 2011 (KAR)] AND AAR RULING IN THE CASE OF MILLENNIUM IT SOFTWARE VS DIT MUMBAI. IT WAS IN THIS BACKDROP THAT THE DEMANDS WERE RAISED UNDER SECTIONS 201(1) AND 201(1A) R.W.S. 195 OF THE ACT. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. LEARNED CIT(A) ALSO REFERRED TO AND RELIED UPON A DECISION OF THE TRIBUNAL, IN A BUNCH OF 119 APPEALS IN THE CASES OF DDIT VS RELIANCE INFOCOM LTD , IN SUPPORT OF HIS STAND, AN D IN SUPPORT OF CONFIRMING THE IMPUGNED DEMANDS. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE AND THE APPLICABLE LEGAL POSITI ON. 5. WE FIND THAT THE DECISION OF A COORDINATE BENCH, IN THE CASE OF DDIT VS RELIANCE INFOCOM LTD (SUPRA), WHICH WAS RELIED UPON BY THE LEARNED CIT(A), HAS BEEN SUBSEQUENTLY RECALLED BY THE SAID BENCH, VIDE ORDER DATED 18 TH NOVEMBER 2016. IN THE SAID OR DER, WHILE RECALLING ITS EARLIER DECISION IN FAVOUR OF THE ASSESSEE, THE COORDINATE BENCH HAS OBSERVED AS FOLLOWS: ITA NO. 2804/AHD/2013 ASSESSMENT YEAR 2009 - 10 PAGE 3 OF 5 . WE HAVE NOTICED THAT THE ASSESSEES HAVE SUBMITTED THAT THE SOFTWARE PURCHASED BY THEM IS SPECIFIC TO RUN THE HARDWARE AND HENCE IT WAS NOT A CASE OF SHRINK WRAPPED SOFTWARE. FURTHER THE HONBLE DELHI HIGH COURT HAS HELD IN THE CASE OF ERICSSON (SUPRA) THAT THE SOFTWARE WOULD NOT BE ROYALTY, EVEN IT WAS SUPPLIED SEPARATELY. ALL THESE POINTS SUPPORT THE CASE O F THE ASSESSEE THAT THE TRIBUNAL HAS MISREAD THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF ERICSSON (SUPRA). WE ALSO NOTICE THAT THE TRIBUNAL HAS COMMITTED AN ERROR IN NOT APPRECIATING THE FACTS PREVAILING IN THE INST ANT CASES. HENCE WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEES THAT THE IMPUGNED ORDER OF THE TRIBUNAL SUFFERS FROM MISTAKE APPARENT FROM RECORD. 20. IN VIEW OF THE FOREGOING REASONS ALONE, WE ARE OF THE VIEW THAT THE IMPUGNED ORDERS PASSED IN RELIANCE GROUP CASES DESERVE TO BE RECALLED . 6. THE VERY FOUNDATION OF LEARNED CIT(A)S ORDER THUS DOES NOT HOLD GOOD IN LAW. 7. ON MERITS, WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY HONBLE DELHI HIGH COURT, IN THE CASE OF DIT VS ERICSSON AB [2011] 16 TAXMANN.COM 371 (DELHI) , WHEREIN THEIR LORDSHIPS HAVE, INTER ALIA, APPRECIATED THE FACT THAT DISTINCTION HAS TO BE MADE BETWEEN THE ACQUISITION OF A 'COPYRIGHT RIGHT' AND A 'COPYRIGHTED ARTICLE' , AND HELD THAT THE SALE OF A COPYRIGHTED ARTICLE WILL NOT LEAD TO TAXATION AS ROYALTY. THAT IS ALSO THE CONSISTENT POSITION BEING TAKEN BY THE COORDINATE BENCHES. AS FOR THE DECISIONS OF HONBLE KARNATAKA HIGH COURT, IN FAVOUR OF THE REVENUE, WE MAY ONLY REFER TO THE FOLLOWING OBSERVA TIONS MADE BY A COORDINATE BENCH IN THE CASE OF TEJ INTERNATIONAL PVT LTD VS DCIT [ [2001] 118 TAXMAN 59 (DELHI)(MAG.) ]: ITA NO. 2804/AHD/2013 ASSESSMENT YEAR 2009 - 10 PAGE 4 OF 5 . IT WILL BE WHOLLY INAPPROPRIATE TO CHOOSE VIEWS OF ONE OF THE HIGH COURTS BASED ON OUR PERCEPTIONS ABOUT REASONABLENESS OF THE RESPECTIVE VIEWPOINTS AS SUCH AN EXERCISE WILL DE FACTO AMOUNT TO SITTING IN JUDGMENT OVER THE VIEWS OF THE HIGH COURTS SOMETHING DIAMETRICALLY OPPOSED TO THE VERY BASIC PRINCIPLES OF HIERARCHICAL JUDICIAL SYSTEM. WE HAVE TO, WITH OUR HIGHEST RESPECT OF BO TH THE HONBLE HIGH COURTS, ADOPT AN OBJECTIVE CRITERION FOR DECIDING AS TO WHICH OF THE HONBLE HIGH COURT SHOULD BE FOLLOWED BY US. 8. WE FIND GUIDANCE FROM THE JUDGMENT OF HONBLE SUPREME COURT IN THE MATTER OF CIT V. VEGETABLE PRODUCTS LTD. [1973] CTR (SC) 177 : [1972] 88 ITR 192 (SC) HONBLE SUPREME COURT HAS LAID DOWN A PRINCIPLE THAT 'IF TWO REASONABLE CONSTRUCTIONS OF A TAXING PR OVISION ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADOPTED. THIS PRINCIPLE HAS BEEN CONSISTENTLY FOLLOWED BY THE VARIOUS AUTHORITIES AS ALSO BY THE HONBLE SUPREME COURT ITSELF. IN ANOTHER SUPREME COURT JUDGMENT, PETRON ENGG. CONSTR UCTION (P.) LTD. &ANR. V. CBDT &ORS. [1988] 75 CTR (SC) 20 : [1989] 175 ITR 523 (SC), IT HAS BEEN REITERATED THAT THE ABOVE PRINCIPLE OF LAW IS WELL ESTABLISHED AND THERE IS NO ADOPT ABOUT THAT. HONBLE SUPREME COURT HAD, HOWEVER, SOME OCCASION TO DEVIATE FROM THIS GENERAL PRINCIPLE OF INTERPRETATION OF TAKING STATUTE WHICH CAN BE CONSTRUED AS EXCEPTION TO THIS GENERAL RULE. IT HAS BEEN HELD THAT THE RULE OF RESOLVING AMBIGUITIES IN FAVOUR OF TAX PAYER DOES NOT APPLY TO DEDUCTIONS, EXEMPTIONS AND EXCEPTIONS WHICH ARE ALLOWABLE ONLY WHEN PLAINLY AUTHORISED. THIS EXCEPTION, LAID DOWN IN LITTMAN V. BARRON 1952 (2) AIR 393 AND FOLLOWED BY APEX COURT IN MANGALORE CHEMICALS & FERTILIZERS LTD. V. DY. COMMR. OF CCT [1992] SUPPL. (1) SCC 21 AND NOVOPA INDIA LTD. V. C CE & C 1994 (73) ELT 769 (SC), HAS BEEN SUMMED UP IN THE WORDS OF LORD LOHEN, 'IN CASE OF AMBIGUITY, A TAXING STATUTE SHOULD BE CONSTRUED IN FAVOUR OF A TAX - PAYER DOES NOT APPLY TO A PROVISION GIVING TAX - PAYER RELIED IN CERTAIN CASES FROM A SECTION CLEARLY IMPOSING LIABILITY'. THIS EXCEPTION, IN THE PRESENT CASE, HAS NO APPLICATION. THE RULE ITA NO. 2804/AHD/2013 ASSESSMENT YEAR 2009 - 10 PAGE 5 OF 5 OF RESOLVING AMBIGUITY IN FAVOUR OF THE ASSESSEE DOES NOT ALSO APPLY WHERE THE INTERPRETATION IN FAVOUR OF ASSESSEE WILL HAVE TO TREAT THE PROVISIONS UNCONSTITUTIONAL, AS HELD IN THE MATTER OF STATE OF M.P. V. DADABHOYS NEW CHIRMIRYPONRI HILL COLLIERY CO. LTD. AIR 1972 (SC) 614. 8. IN VIEW OF THE ABOVE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE PLEA OF THE ASSESSEE AND DIRECT THE ASSESSIN G OFFICER DELETE THE TAX WITHHOLDING LIABILITY OF RS 3,61,463 OF THE ASSESSEE IN RESPECT OF PAYMENT OF US $ 54,288 TO MAGNA DESIGN AUTOMATION INC, USA, TOWARDS THE PURCHASE OF SOFTWARE. THE ASSESSEE GETS THE RELIEF ACCORDINGLY 9 . IN THE RESULT, THE APPEA L IS ALLOWED. ORDER PRONOUNCED UNDER RULE 34(4) OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1962, BY PLACING THE LIST OF PRONOUNCEMENTS BEING PLACED ON THE NOTICE BOARD. SD/ - SD/ - JUSTICE P P B HATT PRAMOD KUMAR ( PRESIDENT) ( VICE - PRESIDENT) D ATED THE 12 TH DAY OF MARCH , 20 20 COPIES TO : (1) THE APPELLANT (2) THE RESPONDEN T (3) CIT (4) CIT(A) ( 5 ) DR (6) GUARD FILE BY ORDER ASSISTANT/DEPUTY REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD