M/s IBM Singapore Pte Limited , Bangalore V. Deputy Commissioner of Income Tax (Intenational Taxation) Circle-1(2), Bangalore

ITA 3229/BANG/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8007 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 16-08-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 03-12-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; Double taxation relief; TDS
• Section: 234B; 260A; 195; 115A; 13

Judgement Text

ITA NOS.3229 /BANG/2018& ITA NO.3060/BANG/2018 M/S. IBM SINGAPORE PVT. LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL CBENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.3229/BANG/2018 ASSESSMENT YEAR: 2014-15 M/S. IBM SINGAPORE PTE LTD. C/O IBM INDIA PVT. LTD. NO.12, SUBRAMANYA ARCADE BANNERGHATTA MAIN ROAD BANGALORE 560 029 PAN NO : AACCI2917B VS. DEPUTY COMMISSIONER OF INCOME-TAX (INTERNATIONAL TAXATION) CIRCLE-1(2) BANGALORE APPELLANT RESPONDENT ITA NO.3060/BANG/2018 ASSESSMENT YEAR: 2014-15 DEPUTY COMMISSIONER OF INCOME-TAX (INTERNATIONAL TAXATION) CIRCLE-1(1) BANGALORE VS. M/S. IBM SINGAPORE PTE LTD. C/O IBM INDIA PVT. LTD. NO.12, SUBRAMANYA ARCADE BANNERGHATTA MAIN ROAD BANGALORE 560 029 APPELLANT RESPONDENT APPELLANT BY : SHRI SHARATH RAO, A.R. RESPONDENT BY : SHRI PRADEEP KUMAR, D.R. DATE OF HEARING : 16.08.2021 DATE OF PRONOUNCEMENT : 23.08.2021 ITA NOS.3229 /BANG/2018 & ITA NO.3060/BANG/2018 M/S. IBM SINGAPORE PVT. LTD., BANGALORE PAGE 2 OF 13 O R D E R PER BENCH: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 28.9.2018 PASSED BY LD. CIT(A)-12, BANGALORE AND TH EY RELATE TO THE ASSESSMENT YEAR 2014-15. 2. AT THE TIME OF HEARING, THE LD A.R DID NOT PRE SS GROUNDS 2.1 TO 2.10 RELATING TO ASSESSMENT OF AMOUNT RECEIVED AS R EIMBURSEMENT OF EXPENSES TREATING THE SAME AS FEE FOR TECHNICAL SERVICES. ACCORDINGLY, THOSE GROUNDS ARE DISMISSED AS NOT PRE SSED. GROUND NO.1 IS GENERAL IN NATURE. GROUND NOS.3.2 TO 3.15 RELATE TO THE ASSESSMENT OF SALE PROCEEDS RECEIVED ON SALE OF SOF TWARE LICENSES AS ROYALTY INCOME. 3. THE REVENUE IS CONTESTING THE DECISION OF LD CIT(A) IN GRANTING RELIEF IN RESPECT OF INTEREST CHARGED U/S 234B OF T HE ACT. 4. THE ASSESSEE IS A SINGAPORE BASED COMPANY ENG AGED IN THE BUSINESS OF DEALING IN SOFTWARE & HARDWARE PRODUCTS . UNDER THE PROVISIONS OF INDIAN INCOME TAX ACT, THE ASSESSEE I S A NON-RESIDENT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AS SOLD SOFTWARE LICENSES TO ITS ASSOCIATED ENTERPRISE (AE) AND ALSO TO OTHER INDIAN CUSTOMERS. THE ASSESSEE DID NOT OFFER ANY I NCOME ON SUCH SALE FOR TAXATION IN INDIA. THE LD A.R SUBMITTED T HAT THE AE OF THE ASSESSEE, VIZ., M/S IBM INDIA PVT LTD IS THE AUTHOR IZED DISTRIBUTOR OF SOFTWARE LICENSES SOLD BY THE ASSESSEE. IN RESPECT OF SALES MADE TO NON-ASSOCIATED ENTERPRISES, THE LD A.R SUBMITTED TH AT MAJORITY OF SALES WERE MADE TO OTHER DISTRIBUTORS AND IN FEW CASES, IT WAS SOLD ITA NOS.3229 /BANG/2018 & ITA NO.3060/BANG/2018 M/S. IBM SINGAPORE PVT. LTD., BANGALORE PAGE 3 OF 13 TO END USERS ALSO. THE DETAILS OF SALES EFFECTED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION IN INDIA ARE TA BULATED AS UNDER BY THE A.O. SL.NO. NAME OF THE PARTY SALE VALUE (IN RS.) OFFERED FOR TAXATION OR NOT 1. IBM INDIA PVT. LTD. 416,00,24,726 NO 2. NON ASSOCIATED ENTERPRISES 25,94,40,459 NO TOTAL 441,94,65,185 5. THE A.O. TOOK THE VIEW THAT THE ABOVE SAID AGGRE GATE SALE CONSIDERATION OF RS.441.94 CRORES CONSTITUTE ROYAL TY IN THE HANDS OF THE ASSESSEE BOTH UNDER SECTION 9(1)(VI) OF THE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT] AND UNDER DOUBLE TAX ATION AVOIDANCE AGREEMENT (DTAA) ENTERED BETWEEN INDIA AND SINGAPOR E. ACCORDINGLY, HE MADE ADDITION OF RS.441.94 CRORES T O THE TOTAL INCOME RETURNED BY THE ASSESSEE. THE A.O. PLACED H IS RELIANCE ON THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COU RT IN THE CASE OF SAMSUNG ELECTRONICS COMPANY LTD. (345 ITR 494) A ND SYNOPSIS INTERNATIONAL OLD LIMITED (ITA NOS.11-15/2008). TH E LD. CIT(A) ALSO CONFIRMED THE ADDITION AND HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 6. THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAS SOL D ONLY LICENSES TO USE THE SOFTWARE AND IT DID NOT PART WI TH ANY OF ITS RIGHT OVER THE PRODUCTS WITHIN THE MEANING OF COPY RIGHT ACT. HE FURTHER SUBMITTED THAT THE PROVISIONS OF DTAA ENTERED BETWE EN INDIA AND SINGAPORE SHALL GOVERN THESE TRANSACTIONS AND AS PE R THE PROVISIONS OF DTAA, THE SALE RECEIPTS OF SOFTWARE LICENSES CAN NOT BE TAXED AS ROYALTY. FOR ALL THESE PROPOSITIONS, THE LD A.R PLACED HIS RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT I N THE CASE OF ITA NOS.3229 /BANG/2018 & ITA NO.3060/BANG/2018 M/S. IBM SINGAPORE PVT. LTD., BANGALORE PAGE 4 OF 13 ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PVT. LTD. (2021) 125 TAXMANN.COM 42. 7. THE LD A.R SUBMITTED THAT THE TAX AUTHORITIES HAVE PLACED THEIR RELIANCE ON THE DECISIONS RENDERED BY HONBLE KARNA TAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS CO LTD (SU PRA) AND SYNOPSIS INTERNATIONAL OLD LTD (SUPRA). HOWEVER, B OTH THE DECISIONS HAVE BEEN REVERSED BY THE HONBLE SUPREME COURT IN THE CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE P LTD (SUPRA). 8. THE LD A.R FURTHER SUBMITTED THAT THE HONBL E SUPREME COURT HAS DELIVERED ITS DECISION HOLDING THAT THE SOFTWAR E LICENSES CANNOT BE TAXED AS ROYALTY UNDER THE PROVISIONS OF DTAA UN LESS COPY RIGHTS ARE PARTED WITH. THE HONBLE SUPREME COURT HAS EXA MINED SOME AGREEMENTS ENTERED BY SOFTWARE SUPPLIERS WITH THE D ISTRIBUTORS/ END USERS ON SAMPLE BASIS IN THIS REGARD. IT INCLU DED THE AGREEMENTS ENTERED BY THE ASSESSEE WITH ITS DISTRIB UTORS (REFERRED AS RE-MARKETEERS)/ END USERS AND ALSO THE END USERS LICENSE AGREEMENT (EULA) ENTERED BETWEEN THE DISTRIBUTORS A ND THE END USERS. (A) THE AGREEMENT ENTERED BY THE ASSESSEE WITH END USERS HAS BEEN EXTRACTED IN PARAGRAPH 44(I) OF THE ORDER OF HONBLE SUPREME COURT. (B) THE AGREEMENT ENTERED BY THE ASSESSEE WITH IBM INDIA (RE-MARKETEER) HAS BEEN EXTRACTED IN PARAGRAPH 44(I I)A OF ITS ORDER BY HONBLE SUPREME COURT AND ITA NOS.3229 /BANG/2018 & ITA NO.3060/BANG/2018 M/S. IBM SINGAPORE PVT. LTD., BANGALORE PAGE 5 OF 13 (C) THE AGREEMENT ENTERED BY IBM INDIA (R-MARKETEER ) WITH THE END USERS HAS BEEN EXTRACTED IN PARAGRAPH 44(II)B O F THE ORDER. THE LD A.R SUBMITTED THAT THE VERY SAME TERMS AND C ONDITIONS OF GRANTING LICENSE TO USE SOFTWARE CONTINUE DURING TH IS YEAR ALSO. THE HONBLE SUPREME COURT HAS CONCLUDED THAT THE PAYMEN TS MADE BY THE DISTRIBUTORS AND END-USERS TO THE NON-RESIDENT SOFTWARE SUPPLIER PLACED IN SINGAPORE, IS NOT ROYALTY WITH IN THE MEANING OF THE PROVISIONS OF DTAA AND HENCE THE DISTRIBUTORS/E ND USERS ARE NOT LIABLE TO DEDUCT TAX AT SOURCE U/S 195 OF THE A CT FROM THE PAYMENTS MADE TO THE NON-RESIDENT SOFTWARE SUPPLIER LOCATED IN SINGAPORE ON THE REASONING THAT THE DISTRIBUTORS A GREEMENT AND END-USERS LICENSE AGREEMENT IN THE FACTS OF CASES BEFORE HONBLE SUPREME COURT DO NOT CREATE ANY INTEREST OR RIGHT I N SUCH DISTRIBUTORS/END-USERS, WHICH WOULD AMOUNT TO USE O R RIGHT TO USE ANY COPY RIGHT. 9. THE LD A.R SUBMITTED THAT THE ASSESSEE HEREIN IS A SINGAPORE RESIDENT GOVERNED BY THE DTAA ENTERED BETWEEN INDIA AND SINGAPORE. ON THE EXAMINATION OF VERY SAME DTAA PR OVISIONS, THE HONBLE SUPREME COURT HAS HELD THAT THE PAYMENTS GI VEN BY THE DISTRIBUTORS/END USERS TO THE ASSESSEE ARE NOT ROY ALTY WITHIN THE MEANING OF PROVISIONS OF DTAA AND HENCE THERE WAS N O LIABILITY TO DEDUCT TAX AT SOURCE FROM THOSE PAYMENTS U/S 195 OF THE ACT, SINCE NO INCOME IS CHARGEABLE TO TAX IN INDIA. IN THE I NSTANT CASE, THE AO HAS ASSESSED THE SALE PROCEEDS RECEIVED ON SALE OF LICENSES AS ROYALTY. IN VIEW OF THE ABOVE CITED DECISION OF HONBLE SUPREME COURT, THE SALE PROCEEDS RECEIVED ON SALE OF SOFTWA RE LICENSES CANNOT BE ASSESSED AS ROYALTY. ACCORDINGLY, THE LD. A.R. ITA NOS.3229 /BANG/2018 & ITA NO.3060/BANG/2018 M/S. IBM SINGAPORE PVT. LTD., BANGALORE PAGE 6 OF 13 SUBMITTED THAT THE IMPUGNED ADDITION MADE BY THE A. O. AND CONFIRMED BY LD CIT(A) IS LIABLE TO BE DELETED. 10. THE LD. D.R. ON THE CONTRARY, PLACED HIS RELIAN CE ON THE DECISION RENDERED BY LD. CIT(A). 11. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. AS SUBMITTED BY LD. A.R., THE HONBLE SUPREME COURT HAS EXAMINED THE ISSUE WHETHER THE PAYMENTS RECEIVED BY NON-RESIDENT SUPPLIERS FOR SELLING SOFTWARE LICENSES ARE ROYALTY OR NOT IN THE CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE (P) LT D (SUPRA). THE HON'BLE SUPREME COURT EXAMINED THIS QUESTION CONSID ERING FOUR TYPES OF SITUATIONS, WHICH HAS BEEN NARRATED AS UND ER:- 4. THE APPEALS BEFORE US MAY BE GROUPED INTO FOUR CAT EGORIES: (I) THE FIRST CATEGORY DEALS WITH CASES IN WHICH COMPUT ER SOFTWARE IS PURCHASED DIRECTLY BY AN END-USER, RESIDENT IN INDIA, FROM A FOREIGN, NON- RESIDENT SUPPLIER OR MANUFACTURER. (II) THE SECOND CATEGORY OF CASES DEALS WITH RESIDENT IN DIAN COMPANIES THAT ACT AS DISTRIBUTORS OR RESELLERS, BY PURCHASING COMPUTE R SOFTWARE FROM FOREIGN, NON- RESIDENT SUPPLIERS OR MANUFACTURERS AND THEN RESELL ING THE SAME TO RESIDENT INDIAN END-USERS. (III) THE THIRD CATEGORY CONCERNS CASES WHEREIN THE DISTR IBUTOR HAPPENS TO BE A FOREIGN, RESIDENT VENDOR, WHO, AFTER PURCHASING SOFTWARE FROM A FOREIGN, NON- RESIDENT SELLER, RESELLS THE SAME TO RESIDENT INDIAN DISTRIB UTORS OR END -USERS. (IV) THE FOURTH CATEGORY INCLUDES CASES WHEREIN COMPUTER SOFTWARE IS AFFIXED ONTO HARDWARE AND IS SOLD AS AN INTEGRATED UNIT/EQUIPMEN T BY FOREIGN, NON- RESIDENT SUPPLIERS TO RESIDENT INDIAN DISTRIBUTORS OR END-USERS. ITA NOS.3229 /BANG/2018 & ITA NO.3060/BANG/2018 M/S. IBM SINGAPORE PVT. LTD., BANGALORE PAGE 7 OF 13 12. THE HON'BLE SUPREME COURT ANALYSED SAMPLE AGREEMENT S IN RESPECT OF ALL THE FOUR CATEGORIES AND GAVE THE FOLLOWING FINDING: - 45. A READING OF THE AFORESAID DISTRIBUTION AGREEMENT WOULD SHOW THAT WHAT IS GRANTED TO THE DISTRIBUTOR IS ONLY A N ON-EXCLUSIVE, NON- TRANSFERABLE LICENS E TO RESELL COMPUTER SOFTWARE, IT BEING EXPRESSLY STIPULATED THAT NO COPYRIGHT IN THE COMPUTER PROGRA MME IS TRANSFERRED EITHER TO THE DISTRIBUTOR OR TO THE ULTIMATE END- USER. THIS IS FURTHER AMPLIFIED BY STATING THAT APART FROM A RIGHT TO USE THE COMPUTER PROGRAMME BY THE END-USER HIMSELF, THERE IS NO FURT HER RIGHT TO SUB- LICENSE OR TRANSFER, NOR IS THERE ANY RIGHT TO REVE RSE-ENGINEER, MODIFY, REPRODUCE IN ANY MANNER OTHERWISE THAN PERMITTED BY THE LICENS E TO THE END- USER. WHAT IS PAID BY WAY OF CONSIDERATION, THEREFO RE, BY THE DISTRIBUTOR IN INDIA TO THE FOREIGN, NON- RESIDENT MANUFACTURER OR SUPPLIER, IS THE PRICE OF THE COMPUTER PROGRA MME AS GOODS, EITHER IN A MEDIUM WHICH STORES THE SOFTWARE OR IN A MEDIUM BY WHICH SOFTWARE IS EMBEDDED IN HARDWARE, WHICH MAY BE THEN FURTHER RESOLD BY THE DISTRIBUTOR TO THE END- USER IN INDIA, THE DISTRIBUTOR MAKING A PROFIT ON SUCH RESALE. IMPORTANTLY, THE DISTRIBUTOR DOES NOT GET THE RIGHT TO USE THE PRODUCT AT ALL . 46. WHEN IT COMES TO AN END- USER WHO IS DIRECTLY SOLD THE COMPUTER PROGRAMME, SUCH END- USER CAN ONLY USE IT BY INSTALLING IT IN THE COMPUTER HARDWARE OWNED BY THE END-USER AND CANNOT IN ANY MANNER REPRODUCE THE SAME FOR SALE OR TRANSFER, CON TRARY TO THE TERMS IMPOSED BY THE EULA. 47. IN ALL THESE CASES, THE 'LICENSE' THAT IS GRANTED VIDE THE EULA, IS NOT A LICENS E IN TERMS OF SECTION 30 OF THE COPYRIGHT ACT, WHIC H ITA NOS.3229 /BANG/2018 & ITA NO.3060/BANG/2018 M/S. IBM SINGAPORE PVT. LTD., BANGALORE PAGE 8 OF 13 TRANSFERS AN INTEREST I N ALL OR ANY OF THE RIGHTS CONTAINED IN SECTIONS 14(A) AND 14(B) OF THE COPYRIGHT ACT, BUT IS A 'LIC ENS E' WHICH IMPOSES RESTRICTIONS OR CONDITIONS FOR THE USE OF COMPUTER SOFTWARE. THUS, IT CANNOT BE SAID THAT ANY OF THE EULAS THAT WE ARE CO NCERNED WITH AR E REFERABLE TO SECTION 30 OF THE COPYRIGHT ACT, INASM UCH AS SECTION 30 OF THE COPYRIGHT ACT SPEAKS OF GRANTING AN INTEREST IN ANY OF THE RIGHTS MENTIONED IN SECTIONS 14(A) AND 14(B) OF THE COPYRI GHT ACT. THE EULAS IN ALL THE APPEALS BEFORE US DO NOT GRANT ANY SUCH RIGHT OR INTEREST, LEAST OF ALL, A RIGHT OR INTEREST TO REPR ODUCE THE COMPUTER SOFTWARE. IN POINT OF FACT, SUCH REPRODUCTION IS EX PRESSLY INTERDICTED, AND IT IS ALSO EXPRESSLY STATED THAT NO VESTIGE OF COPYRIGHT IS AT ALL TRANSFERRED, EITHER TO THE DISTRIBUTOR OR TO THE EN D- USER. A SIMPLE ILLUSTRATION TO EXPLAIN THE AFORESAID POSITION WILL SUFFICE. IF AN ENGLISH PUBLISHER SELLS 2000 COPIES OF A PARTICULAR BOOK TO AN INDIAN DISTRIBUTOR, WHO THEN RESELLS THE SAME AT A PROFIT, NO COPYRIGHT IN THE AFOR ESAID BOOK IS TRANSFERRED TO THE INDIAN DISTRIBUTOR , EITHER BY WAY OF LICENS E OR OTHERWISE, INASMUCH AS THE INDIAN DISTRIBUTOR ONLY MAKES A PROFIT ON THE SALE OF EACH BOOK. IMPORTANTLY, THE RE IS NO RIGHT IN THE INDIAN DISTRIBUTOR TO REPRODUCE THE AFORESAID BOOK AND THEN SELL COPIES OF THE SAME. ON THE OTHER HAND, IF AN ENGLIS H PUBLISHER WERE TO SELL THE SAME BOOK TO AN INDIAN PUBLISHER, THIS TIM E WITH THE RIGHT TO REPRODUCE AND MAKE COPIES OF THE AFORESAID BOOK WIT H THE PERMISSION OF THE AUTHOR, IT CAN BE S AID THAT COPYRIGHT IN THE BOOK HAS BEEN TRANSFERRED BY WAY OF LICENS E OR OTHERWISE, AND WHAT THE INDIAN PUBLISHER WILL PAY FOR, IS THE RIGHT TO REPRODUCE T HE BOOK, WHICH CAN THEN BE CHARACTERISED AS ROYALTY FOR THE EXCLUSIVE RIGHT TO REPRODUCE THE BOOK IN THE TERRITORY MENTIONED BY THE LICENSE. ITA NOS.3229 /BANG/2018 & ITA NO.3060/BANG/2018 M/S. IBM SINGAPORE PVT. LTD., BANGALORE PAGE 9 OF 13 13 AFTER ANALYSING THE PROVISIONS OF INCOME TAX ACT, PROVISIONS OF DTAA, THE RELEVANT AGREEMENTS ENTERED BY THE ASSESSEES WITH NON- RESIDENT SOFTWARE SUPPLIERS, PROVISIONS OF COPY RIGHT ACTS, THE CIRCULARS ISSUE D BY CBDT, VARIOUS CASE LAWS RELIED UPON BY THE PARTIES, THE HON'BLE SUPREM E COURT CONCLUDED AS UNDER:- CONCLUSION 168 . GIVEN THE DEFINITION OF ROYALTIES CONTAINED IN AR TICLE 12 OF THE DTAAS MENTIONED IN PARAGRAPH 41 OF THIS JUDGMENT, I T IS CLEAR THAT THERE IS NO OBLIGATION ON THE PERSONS MENTIONED IN SECTION 195 OF THE INCOME-TAX ACT TO DEDUCT TAX AT SOURCE, AS THE DIST R IBUTION AGREEMENTS/EULAS IN THE FACTS OF THESE CASES DO NOT CREATE ANY INTEREST OR RIGHT IN SUCH DISTRIBUTORS/END- USERS, WHICH WOULD AMOUNT TO THE USE OF OR RIGHT TO USE ANY COPYRIGHT. THE PROVISIONS CONTAINED IN THE INCOME-TAX 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 THES E CASES. 169 . OUR ANSWER TO THE QUESTION POSED BEFORE US, IS TH AT THE AMOUNTS PAID BY RESIDENT INDIAN END-USERS/DISTRIBUTORS TO N ON- RESIDENT COMPUTER SOFTWARE MANUFACTURERS/SUPPLIERS, AS CONSI DERATION FOR THE RESALE/USE OF THE COMPUTER SOFTWARE THROUGH EULAS/D ISTRIBUTION AGREEMENTS, IS NOT THE PAYMENT OF ROYALTY FOR THE U SE 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 P ERSONS 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 WI LL APPLY TO ALL FOUR CATEGORIES OF CASES ENUMERATED BY US IN PARAGRAPH 4 OF THIS JUDGMENT. ITA NOS.3229 /BANG/2018 & ITA NO.3060/BANG/2018 M/S. IBM SINGAPORE PVT. LTD., BANGALORE PAGE 10 OF 13 14. WE ALSO NOTICE THAT THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRO NICS CO LTD (SUPRA) HAS BEEN REVERSED BY HONBLE SUPREME COURT IN PARAGRAPH 101-102 OF ITS ORDER. SIMILARLY, THE DECISION REND ERED IN THE CASE OF SYNOPSIS INTERNATIONAL OLD LTD (SUPRA) BY HONBLE K ARNATAKA HIGH COURT HAS BEEN REVERSED IN PARAGRAPH 103 109 OF I TS ORDER. BEFORE US, THE LD. A.R. SUBMITTED THAT THE TERMS OF AGREEMENTS REMAIN THE SAME DURING THE YEAR UNDER CONSIDERATION ALSO. ACCORDINGLY, AS PER THE DECISION RENDERED BY HONBL E SUPREME COURT IN THE CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PVT. LTD. (SUPRA), SALE PROCEEDS RECEIVED BY THE ASSESSE E ON SALE OF SOFTWARE LICENSES CANNOT BE CATEGORIZED AS ROYALTY WITHIN THE MEANING OF PROVISIONS OF DTAA. ACCORDINGLY, WE SE T ASIDE THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE AND DIRECT THE A .O. TO DELETE THE ADDITION MADE AS ROYALTY INCOME. 15. IN THE APPEAL FILED BY THE REVENUE, FOLLOWING G ROUNDS HAVE BEEN URGED: 1. THE HON'BLE CIT(A) HAS ERRED IN HOLDING THAT THE AS SESSEE IS ENTITLED TO ADOPT PROVISION OF SECTION 115A(1)(B)( ) OF THE INC OME TAX FOR COMPUTING THE TAX PAYABLE ON ROYALTY INCOME RECEIVED IN PURSU ANCE OF AGREEMENTS ENTERED INTO AFTER 1.6.2005 AND PROVISIONS OF ARTIC LE 12 OF THE INDO-US DTAA FOR COMPUTING THE TAX PAYABLE ON ROYALTY INCOM E RECEIVED IN PURSUANCE OF AGREEMENTS ENTERED INTO AFTER 1.6.2005 . 2. THE HON'BLE CIT(A) HAS ERRED IN HOLDING THAT THE AS SESSEE CAN AVAIL THE BENEFITS OF SEC. 90(2), WHEN IT IS NOT LEGALLY PERM ISSIBLE FOR THE ASSESSEE TO HAVE A MIX OF BOTH DTAA AND A PORTION OF THE INCOME TAX ACT IN ORDER TO MINIMIZE THAT TAX 3. THE HON'BLE CIT(A) HAS ERRED IN HOLDING THAT THE AS SESSEE BEING NON-RESIDENT IS NOT LIABLE FOR PAYMENT OF ADVANCE TAX AS ITS TOT AL CHARGEABLE INCOME IS LIABLE FOR TDS U/S 195, AND HENCE NOT LIABLE FOR LEVY OF I NTEREST U/S 234B OF THE IT ACT. ITA NOS.3229 /BANG/2018 & ITA NO.3060/BANG/2018 M/S. IBM SINGAPORE PVT. LTD., BANGALORE PAGE 11 OF 13 4. THE HON'BLE CIT(A) HAS FAILED TO APPRECIATE THAT TH E DEDUCTION OF TAX AT SOURCE U/S 195, AND PAYMENT OF ADVANCE TAX U/S 210 ARE NOT MUTUALLY EXCLUSIVE. 5. THE HON'BLE CIT(A) HAS FAILED TO APPRECIATE THAT SE C. 209 IS A COMPUTATION SECTION OF ADVANCE TAX ON ASSESSMENT OF FUTURE TAX LIABILITY AND THESE WORDS WOULD NOT HAVE BEEN CONSTRUED TO ME AN THAT NEITHER THE ADVANCE TAX PROVISIONS ARE APPLICABLE TO THE CASES COVERED U/S 195 NOR THE ASSESSEE ARE AT LIBERTY TO EVADE THEIR TAX LIAB ILITY EVEN THOUGH TDS IS EFFECTED. 6. THE HON'BLE CIT(A) HAS ERRED IN HOLDING THAT THE AS SESSEE IS NOT LIABLE FOR LEVY OF INTEREST U/S 234 EVEN THOUGH CHARGING O F INTEREST IS MANDATORY AND CONSEQUENTIAL AS PER THE STATUS. 7. THE CIT(A) FAILED TO CONSIDER THE FACT THAT THE DEC ISION OF THE ITAT HAS NOT BEEN ACCEPTED AND APPEALS U/S 260A HAS ALREADY BEEN FILED AND THE SAME IS PENDING BEFORE THE HON'BLE HIGH COURT OF KARNATAKA. 8. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING IT IS PRAYED THAT THE ORDER OF THE CIT(A) M AY BE ANNULLED AND THAT OF THE AO BE RESTORED. 16. GROUND NOS.1 & 2 RELATE TO TAXABILITY OF RECEIP TS ON SALE OF SOFTWARE LICENSES AS ROYALTY INCOME. WE HAVE ALREA DY HELD, FOLLOWING THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE P VT. LTD. (SUPRA) THAT THE RECEIPTS ON SALE OF SOFTWARE IS NOT TAXABL E AS ROYALTY. HENCE, ABOVE SAID GROUNDS URGED BY REVENUE ARE LIAB LE TO BE DISMISSED. 17. GROUND NOS.3 TO 6 RELATE TO CHARGEABILITY OF IN TEREST U/S 234B OF THE ACT. THE LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE ON THIS ISSUE WITH THE FOLLOWING OBSERVATIONS: ITA NOS.3229 /BANG/2018 & ITA NO.3060/BANG/2018 M/S. IBM SINGAPORE PVT. LTD., BANGALORE PAGE 12 OF 13 35. INTEREST U/S 234B (GROUND 4.3 TO 4.5 ) THE APPELLANT IS AGGRIEVED THAT THE AO HAS LEVIED I NTEREST U/S 234B. THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE B Y THE DECISION OF HON'BLE ITAT IN THE CASE OF IBM CORPORATION (ITA NO. 01/BANG/2014). THE RELEVANT EXTRACT IS REPRODUCED H EREAFTER: WITH REGARD TO THE REVENUE GROUNDS OF APPEAL, IT IS CLEAR FROM THE ABOVE THAT THE CIT (A) ON DUE APPLICATION OF THE RA TIOS OF VARIOUS HIGH COURTS HELD THAT ' INTEREST U/S 234B CANNOT BE LEVIED ON AN ASSESSEE WHO IS NOT LIABLE TO PAY ADVANCE TAX AT AL L AND THE AMOUNT RECEIVED BY THE NONRESIDENT IS SUBJECT TO 10 0 PERCENT TAX DEDUCTION AT SOURCE. THE ASSESSEE FILED ITS RETURN AND TAX LIABILITY OF RS 10.94 CRORES WAS DETERMINED U/S 115A OF THE A CT. THE LIABILITY WAS FULLY DISCHARGED BY WAY OF TDS CREDIT OF RS 10.94 CRORES. HENCE IN ABSENCE OF ANY RULINGS IN FAVOUR O F THE REVENUE ON THE POINT, THE VIEW EXPRESSED BY VARIOUS HIGH CO URTS NECESSARILY HAS TO BE FOLLOWED IN THE INSTANT CASE. THE ISSUE BEING SIMILAR, THE LEVY OF INTEREST U/S. 234 B BY THE AO IS STRUCK DOWN. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE ITAT BANGALORE, THIS GROUND IS ALLOWED. 18. WE HEARD THE PARTIES ON THIS ISSUE. THE LD. A. R. SUBMITTED THAT THE LD. CIT(A) HAS FOLLOWED THE DECISION RENDE RED BY THE COORDINATE BENCH ON THE ISSUE OF CHARGEABILITY OF I NTEREST U/S 234B OF THE ACT. IN ANY CASE, IF THE TRIBUNAL DELETES T HE ADDITION MADE BY A.O. TREATING SALE PROCEEDS AS ROYALTY INCOME, THEN THE QUANTUM OF INTEREST CHARGEABLE U/S 234B OF THE ACT WILL COME D OWN DRASTICALLY. HE FURTHER SUBMITTED THAT THE TDS CREDIT AVAILABLE WITH THE ASSESSEE WILL BE MORE THAN THE TAX, IF ANY, PAYABLE BY THE ASSESSEE AND HENCE THERE WAS NO LIABILITY FOR THE ASSESSEE T O PAY ADVANCE TAX. IN THAT EVENT, NO INTEREST U/S 234B OF THE A CT SHALL BE PAYABLE BY THE ASSESSEE. 19. WE HEARD LD. D.R. ON THIS ISSUE AND PERUSED THE RECORD. WE FIND MERIT IN THE SUBMISSIONS OF THE LD. A.R. FIRS T OF ALL, THE LD. CIT(A) HAS FOLLOWED THE DECISION RENDERED BY COORDI NATE BENCH ON ITA NOS.3229 /BANG/2018 & ITA NO.3060/BANG/2018 M/S. IBM SINGAPORE PVT. LTD., BANGALORE PAGE 13 OF 13 AN IDENTICAL ISSUE. SECONDLY, THE ADDITION RELATIN G TO SALE OF SOFTWARE HAS BEEN DELETED BY US IN THE EARLIER PARA GRAPH. THIRDLY, ACCORDING TO THE LD. A.R., IT IS NOT LIABLE TO PAY ADVANCE TAX AT ALL, SINCE THE TDS CREDIT AVAILABLE WITH IT IS MORE THAN TAX PAYABLE BY IT. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT NO IN TERFERENCE IN THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE IS CALLED FOR. 20. GROUND NOS. 7 & 8 ARE GENERAL IN NATURE. 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD AUG, 2021 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 23 RD AUG, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.