DASSAULT SYSTEMS SOLDWORKS CORPORATION, CHENNAI V. DDIT (IT) 2(1)(2), MUMBAI

ITA 319/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6570 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2013-2014
• Appeal Filed On: 12-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NISHANT SOMAIYA
• Assessee Lawyers: ANANTHA KRISHNAN
• Keywords: Set aside
• Section: 264; 192

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI PAWAN SINGH , JM ITA NO. 319 / MUM/20 1 8 & ITA NO.320/MUM/2018 ( ASSESSMENT YEAR : 2013 - 14 & 2014 - 15 ) M/S. DESSAULT SYSTEMES SOLIDWORKS CORPORATION C/O. DELOITTE HASKINS AND SELLS LLP, 7 TH FLOOR ASV RAMANA TOWERS, 57, VENKATNARAYANA ROAD CHENNAI 600 017 VS. THE DY. COMMISSIONER OF INCOME - TAX (INTERNATIONAL TAXATION) 2 (1)(2) MUMBAI PAN/GIR NO. AAFCS8787E ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY SHRI ANANTHA KRISHNAN REVENUE BY SHRI NISHANT SOMAIYA DATE OF HEARING 25 / 02 /201 9 DATE OF PRONOUNCEMENT 25 / 02 /201 9 / O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF DRP - 1, MUMBAI DATED 02 /08/2017 FOR A.Y.2013 - 14 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 144C(13) OF THE IT ACT, 1961. 2. COMMON GRIEVANCE OF THE ASSESSEE IN BOTH THE YEARS RELATE TO TAXABILITY OF RECEIPTS TOWARDS SALE OF SOFTWARE PRODUCTS AS ROYALTY UNDER EXPLANAT ION - 2 T O SECTION 9(I)(VI) OF THE IT ACT. ITA NO. 319& 320/MUM/2018 M/S. DASSAULT SYSTEM E S SOLIDWORKS CORPORATION 2 3. AT THE OUTSET, LD. AR PLACED ON RECORD SERIES OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2003 - 04 ORDER DATED 15/12/2009, A.Y. 2005 - 06 ORDER DATED 01/04/2010, A.Y.2006 - 07 ORDER DATED 08/02/2012, A.Y. 2007 - 08 ORDER DATED 31/03/2016, A.Y.2009 - 10 ORDER DATED 31/03/2016 AND A.Y.2011 - 12 ORDER DATED 28/02/2017 WHEREIN EXACTLY SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE AND IT WAS HELD THAT RECEIPTS TOWARDS SALE OF SOFTWARE PRODUCTS WAS NOT LIABLE TO TAX AS ROYALTY. T HE PRECISE OBSERVATION OF THE TRIBUNAL FOR THE A.Y.2011 - 12 ORDER DATED 28/02/2017 READS AS UNDER: - ISSUE NO.1 TO 7: - 4. ISSUE NO. 1 TO 7 ARE INTERCONNECTED, THEREFORE, ARE BEING TAKEN UP TOGETHER FOR ADJUDICATION. UNDER THESE ISSUES, IT IS TO BE DETERMINED THAT THE RECEIPT FROM THE SALE OF SOFTWARE PRODUCTS TO CLIENTS IN INDIA THROUGH ITS DISTRIBUTOR / RESELLER AMOUNTING TO USD 6.05 MILLIONS IS IN THE NATURE OF ROYALTY OR NOT. THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE C ASE OF THE ASSESSEE HAS DULY BEEN COVERED BY THE DECISION OF THE HONBLE INCOME TAX APPELLATE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.Y.2002 - 03 IN ITA NO. 3095/MUM/2007 ORDER DATED 15TH DECEMBER 2009 AND FOR THE A.Y.2005 - 06 IN ITA NO.5097/MUM/2008 OR DER DATED 1ST APRIL 2010 AND FOR A.Y.2006 - 07 IN ITA NO.3219/MUM/2010 ORDER DATED 08.02.2012 AND FOR A.Y.2007 - 08 IN ITA NO.8721/MUM/2010 ORDER DATED 31.03.2016 AND FOR A.Y.2009 - 10 IN ITA NO.7790/MUM/2012 ORDER DATED 31.03.2016. THEREFORE, IN THE SAID CIRCUM STANCES, THE ORDER PASSED BY THE ASSESSING OFFICER ON THE DIRECTION OF THE DRP IS WRONG AGAINST LAW AND FACTS AND IS LIABLE TO BE SET ASIDE AND THE RECEIPT IS NOT LIABLE TO BE TREATED AS ROYALTY. IT IS ALSO ARGUED THAT WHEN NO PATENT RIGHT WAS SOLD HOWEVER COMPUTER PROGRAMS WERE SOLD WHICH COULD NOT BE TAXED IN VIEW OF THE PROVISION U/S.9(1) OF THE ACT THEREFORE IN THE SAID CIRCUMSTANCES THE AMOUNT IN QUESTION IS NOT LIABLE TO BE TREATED AS ROYALTY. HOWEVER, ON THE OTHER HAND, THE LEARNED REPRESENTATIVE OF THE DEPARTMENT HAS REFUTED THE SAID CONTENTIONS AND ARGUED THAT THE HONBLE KARNATAKA HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE REVENUE IN THE CASES OF CIT VS. SYNOPSIS INTERNATIONAL OLD LTD., 212 TAXMAN 0454 (KAR. HC), DATED 03.08.2010, CIT V. SA MSUNG ELECTRONICS CO. LTD. & OTHERS, (2011) 345 ITR 0494, KAR HC, DATED 15.10.2011, CIT V. WIPRO LTD. (2011), 355 ITR 0284 (KAR) / 203 TAXMAN 621 (KAR.) HC, DATED 15.10.2011 AND CIT VS. CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS (P) LTD., (2014) 48 TAXMANN.COM 264 (KAR), DATED 09.06.2014. IT IS ALSO SPECIFICALLY ARGUED THAT THE JURISDICTIONAL TRIBUNAL IN CASE OF THE DIT(IT) VS. RELIANCE INFOCOMM LTD. (MUM TRIB) DATED 06.09.2013 HAS FOLLOWED THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SYNOPSIS INTERNATIONAL OLD LTD., 212 TAXMAN 0454 (KAR. HC), DATED 03.08.2010 AND CIT ITA NO. 319& 320/MUM/2018 M/S. DASSAULT SYSTEM E S SOLIDWORKS CORPORATION 3 VS. SAMSUNG ELECTRONICS CO. LTD. & OTHERS, (2011) 345 ITR 0494, KAR HC, DATED 15.10.2011. THEREFORE, IN THE SAID CIRCUMSTANCES THE ORDER PASSED BY THE ASSESSING O FFICER IS JUSTIFIABLE WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. KEEPING IN VIEW OF THE ARGUMENT ADVANCED BY THE PARTIES AND PERUSED THE RECORD CAREFULLY, IT IS APPARENT ON RECORD THAT THE SAID ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE INCOME TAX APPELLATE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.Y.2002 - 03 IN ITA NO. 3095/MUM/2007 ORDER DATED 15TH DECEMBER 2009 AND FOR THE A.Y.2005 - 06 IN ITA NO.5097/MUM/2008 ORDER DATED 1ST APRIL 2010 AND FOR A.Y.2006 - 07 IN ITA NO.3219/MUM/2010 ORDER DATED 08.02.2012 AND FOR A.Y.2007 - 08 IN ITA NO.8721/MUM/2010 ORDER DATED 31.03.2016 AND FOR A.Y.2009 - 10 IN ITA NO.7790/MUM/2012 ORDER DATED 31.03.2016. ON APPRAISAL OF THE LATEST ORDER FOR THE A.Y.2009 - 10, WE FOUND THAT THE HONB LE INCOME TAX APPELLATE TRIBUNAL CONSIDERED THE ORDER PASSED BY THE HONBLE KARNATAKA HIGH COURT WHICH WAS FAVOUR OF THE ASSESSEE. IN THE SAID ORDER, THE DISCUSSION IN THIS REGARD IS HEREBY REPRODUCED BELOW: - 5. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. THERE IS NOTHING MUCH THAT WE CAN ADD TO SUCH A W ELL RESEARCHED AND ERUDITE ORDER EITHER. THE DECISIONS OF NON JURISDICTIONAL HIGH COURTS, IN FAVOUR OF THE REVENUE ON THIS POINT, HAVE ALREADY B EEN DEALT WITH IN THIS ORDER. AS TO WHAT SHOULD BE DONE IN A SITUATION IN WHICH THERE ARE CONFLICTING VIEWS OF HONBLE NON JURISDICTIONAL HIGH COURTS AND IN WHICH WE DO NOT HAVE THE BENEFIT OF GUIDANCE FROM HONBLE JURISDICTIONAL HIGH COURT, WE CAN ONLY AD D, WITH RESPECTFUL CONCURRENCE, THE VIEWS EXPRESSED BELOW BY THE COORDINATE BENCHES: ..IT WILL BE WHOLLY INAPPROPRIATE FOR US TO CHOOSE VIEWS OF ONE OF THE HIGH COURTS BASED ON OUR PERCEPTIONS ABOUT REASONABLENESS OF THE RESPECTIVE VIEWPOINT, AS SUCH AN E XERCISE WILL BE 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 BOTH THE HONLE HIGH COURTS, ADOP T 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 VS. 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 PROVISIONS ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADOPTED. THIS PRINCIPLE HAS BEEN CONSISTENTLY FOLLOWED BY THE VARIOUS AUTHOR ITIES AS ALSO BY THE HONBLE SUPREME COURT ITSELF. IN ANOTHER SUPREME COURT JUDGMENT PETRON ENGG. CONSTRUCTION (P.) LTD. & ANR. VS. CBDT & ORS. (1998) 75 CTR (SC) 20: (1989) 175 ITR 523 (SC), IT HAS BEEN REITERATED THAT THE ABOVE PRINCIPLE OF LAW IS WELL E STABLISHED AND THERE IS NO DOUBT ABOUT THAT. ITA NO.936/M/2015 A.Y.2011 - 12 8 HONBLE SUPREME COURT HAD, HOWEVER, SOME OCCASIONS TO DEVIATE FROM THIS GENERAL PRINCIPLE OF INTERPRETATION OF TAXING STATUTE WHICH CAN BE CONSTRUED AS EXCEPTIONS 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 AUTHORIZED. THIS EXCEPTION, LAIN DOWN IN LITTMAN VS BARRON 1952(2) AIR 393 AN D FOLLOWED BY APEX COURT IN MANGALORE CHEMICALS & FERTILIZERS LTD. VS DY. COMMR. OF CT (1992) SUPPL. (1) SCC 21 AND NOVOPAN INDIA LTD. VS CCE & 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 RELIEF IN ITA NO. 319& 320/MUM/2018 M/S. DASSAULT SYSTEM E S SOLIDWORKS CORPORATION 4 CERTAIN CASES FROM A SECTION CLEARLY IMPOSING LIABILITY. THIS EXCEPTION, IN THE PRESENT CASE, HAS NO APPLICATION. THE RULE OF RESOLVING AMBIGUITY IN FAVOU R 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. VS DADABHOYS NEW CHIRMIRY PONRI HILL COLLIERY CO. LTD. AIR 1972 (SC) 614. [TEJ INTERNATIONAL PVT. LTD. VS. DCIT (2000) 69 TTJ 650 (DEL)] 52. EVEN OTHERWISE, THE REVENUE HAS NOT CITED ANY DIRECT CASE LAW OF THE JURISDICTIONAL HIGH COURT OF BOMBAY BEFORE US. IN THE CASE LAWS CITED BY THE REVENUE OF THE HOMLE KARNATAKA HIGH COURT IN THE MATTER OF CIT VS. SAMSUNG ELECTRONICS COMPANY LTD. (SUPRA) AND CIT VS. SYNOPSIS INTERNATIONAL OLD LTD. (SUPRA) THOUGH A VIEW IN FAVOUR OF THE REVENUE HAS BEEN TAKEN, BUT, THE HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS. INFRASOFT LTD. (SUPRA) WHICH IS A LATTER DECISION AND HAS DISCUSSED THE SAMSUNG CASE ALSO HAS TAKEN THE VIEW IN FAVOUR OF THE ASSESSEE. THE HONBLE DELHI HIGH COURT HAS TAKEN THE IDENTICAL VIEW FAVOURING THE ASSESSEE IN THE CASE OF DIT VS. NOKIA NETWORK (SUPRA) AND IN THE CASE OF DIT VS. ERICSON A.B. (SUPRA) ALSO. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF THE ADDL. COMMISSIONER OF SALES TAX VS/ M/S. ANKIT INTERNATIONAL, SALES TAX APPEAL NO.9 OF 2011 VIDE ORDER DATED 15TH SEPTEMBER, 2011 WHILE RELYING UPON THE DECISION OF THE HONBL E SUPREME COURT IN THE COMMISSIONER OF INCOME TAX V. VEGETABLE PRODUCT LTD. (1973) 88 ITR 192 AND IN MAURI YEAST INDIA PVT. LTD. VS. STTE OF U.P. (2008) 14 VST 259 (SC) : (2008) 5 S.C.C. 680 HAS HELD THAT, IF TWO VIEWS IN REGARD TO THE INTERPRETATION OF A PROVISION ARE POSSIBLE, THE COURT WOULD BE JUSTIFIED IN ADOPTING THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE. RELIANCE CAN ALSO BE PLACED IN THIS REGARD ON THE DECISION OF HONBLE SUPREME COURT IN BIHAR STATE ELECTRICITY BOARD AND ANOTHER VS. M/S. USHA MA RTIN INDUSTRIES AND ANOTHER : (1997) 5 SSC 289. WE ACCORDINGLY ADOPT THE CONSTRUCTION IN FAVOUR OF THE ASSESSEE. [CAPGEMINI BUSINESS SERVICES INDIA LTD. VS. ACIT (TS 100 ITAT 2016 (MUM)] 6. IN VIEW OF THE ABOVE DISCUSSION AND HAVING NOTED THAT THERE IS N O MATERIAL DIFFERENCE IN THE FACTS OF THE CASE FOR THIS YEAR VIS - - VIS THE FACTS OF THE ASSESSMENT YEAR 2006 - 07 AS DISCUSSED ABOVE, RESPECTFULLY FOLLOWING THE VIEWS OF THE COORDINATE BENCHES, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE. IT IS, THEREFORE, HELD THAT THE RECEIPTS OF RS.19,20,14,000/ - ON ACCOUNT OF RECEIPTS FOR SOFTWARE ARE NOT EXIGIBLE TO TAX IN INDIA. THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO DELETE THE IMPUGNED ADDITION OF RS.19,20,14,000/ - . 7. IN THE RESULT, THE APPEAL IS ALLOWED. PRONO UNCED IN THE OPEN COURT TODAY ON 31ST DAY OF MARCH, 2016. 5. HOWEVER, THE PRESENT CASE HAS BEEN DECIDED IN VIEW OF THE LATEST LAW SETTLED BY THE HONBLE DELHI HIGH COURT IN CASE OF ERICSSON AV (343 ITR 470) (DEL.) ON APPRAISAL OF THE ABOVE MENTIONED FIND ING, IT CAME INTO THE NOTICE THAT THE HONBLE DELHI HIGH COURT IN CASE OF DIT VS. INFRASOFT LTD. 264 CTR 329 (DEL.) AND IN CASE OF CIT VS. VEGETABLE PRODUCTS LTD. 88 ITR 192 (SC) HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. SINCE, THE MATTER HAS ALSO BEEN CONSIDERED BY THE HONBLE INCOME TAX APPELLATE TRIBUNAL AND DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE SPECIFICALLY FOR THE A.Y.2002 - 03 IN ITA NO. 3095/MUM/2007 ORDER DATED 15TH DECEMBER 2009 AND FOR THE A.Y.2005 - 06 IN ITA NO.5097/MUM/2008 ORDER DAT ED 1ST APRIL 2010 AND FOR A.Y.2006 - 07 IN ITA NO.3219/MUM/2010 ORDER DATED 08.02.2012 AND FOR A.Y.2007 - 08 IN ITA NO.8721/MUM/2010 ORDER DATED 31.03.2016 AND FOR A.Y.2009 - 10 IN ITA NO.7790/MUM/2012 ORDER DATED 31.03.2016 IN WHICH THE RECEIPT ON ACCOUNT OF SA LE OF SHRINK - WRAP SOFTWARE IS ITA NO. 319& 320/MUM/2018 M/S. DASSAULT SYSTEM E S SOLIDWORKS CORPORATION 5 NOT IN THE NATURE OF ROYALTY HENCE IS NOT LIABLE ITA NO.936/M/2015 A.Y.2011 - 12 12 IN INDIA UN VIEW OF THE PROVISION OF SECTION 9(1)(IV) OF THE ACT AS WELL AS ARTICLE 12(3) OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN IND IA AND U.S.A. IN VIEW OF THE SAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CASE OF THE ASSESSEE IS FULLY COVERED BY THE ABOVE MENTIONED DECISIONS AND THE FINDING OF THE ASSESSING OFFICER IS BASED UPON THE DRP DIRECTION IS WRONG AGAINST LAW AND FACTS AND IS HEREBY ORDERED TO BE SET ASIDE ON THIS ISSUE. IT IS THEREFORE HELD THAT RECEIPT TO THE TUNE OF RS.26,87,30,378/ - ON ACCOUNT OF THE RECEIPT FOR SALE OF SHRINK - WRAP SOFTWARE IS NOT LIABLE TO TAX IN INDIA. THEREFORE, THE ASSESSING OFFICER IS HEREBY DIRECTE D TO DELETE THE FULL ADDITION. ACCORDINGLY, THESE ISSUES ARE DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S HEREBY ORDERED TO BE ALLOWED. 4. WE HAVE GONE THROUGH THE ORDERS OF THE TRIBUNAL AS CITED BY LD. AR AND TRIBUNAL ORDER DATED 28/02/2017, WHEREIN THE TRIBUNAL HAVE HELD THAT RECEIPTS F ROM SALE OF SHRINK - WRAP SOFTWARE IS NOT LIABLE TO TAX IN INDIA ACCORDINGLY, AO WAS DIRECTED TO DELETE THE ADDITION SO MADE ON ACCOUNT OF RECEIPTS FOR SALE O F SHRINK - WRAP SOFTWARE . FACTS AND CIRCUMSTANCES IN BOTH THE YEARS UNDER CONSIDERATION ARE PARIMATERIA, THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DO NOT FIND ANY JUSTIFICATION FOR TAXING THE RECEIPT AS TAXABLE AS ROYALTY. 5. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 / 02 /201 9 SD/ - ( PAWAN SINGH ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI ; DATED 25 / 02 /201 9 KARUNA SR. PS ITA NO. 319& 320/MUM/2018 M/S. DASSAULT SYSTEM E S SOLIDWORKS CORPORATION 6 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//