Mentor Graphics Ireland Ltd., New Delhi V. ACIT, CIRCLE- 2(2)(1), International Taxation, New Delhi

ITA 3966/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8182 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2014-2015
• Appeal Filed On: 16-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL GULATI CIT DR
• Keywords: Double taxation relief; Initiation of penalty proceedings; TDS
• Section: 271(1)(c); 234B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI , !' $%&'()*+,-+! BEFORE MS. SUSHMA CHOWLA, VP & SHRI PRASHANT MAHARI SHI, AM [THROUGH VIDEO CONFERENCIN G] . / ITA NO.3966/DEL/2017 / ) ) / ASSESSMENT YEAR 2014-15 MENTOR GRAPHICS IRELAND LTD., B-92, 9 TH FLOOR, HIMALAYA HOUSE, 23, KASTURBA GANDHI MARG, NEW DELHI-110001. PAN-AAGCM6365H .......... 01 /APPELLANT VS THE ACIT, CIRCLE-2(2)(1), INTERNATIONAL TAXATION, NEW DELHI-110002. . $201 / RESPONDENT 0134+ / APPELLANT BY : SH. TARANDEEP SINGH, ADV. $20134+ / RESPONDENT BY : SH. SATPAL GULATI, CIT DR 3&, / DATE OF HEARING : 06.07.2020 56 3&, / DATE OF PRONOUNCEMENT: 09 .07.2020 +% / ORDER PER SUSHMA CHOWLA,VP THE PRESENT APPEAL FILED BY ASSESSEE IS AGAINST ORD ER OF DCIT, CIRCLE- 2(2)(1), NEW DELHI DATED 06.04.2017 RELATING TO ASS ESSMENT YEAR 2014-15 AGAINST THE ORDER PASSED UNDER SECTION 144C(3)/143( 3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2 ITA NO.3966/DEL/2017 ASSESSMENT YEAR 2014-15 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- 1. THAT ON FACTS AND IN LAW, THE ORDERS PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(2)(1), INTERNA TIONAL TAXATION, NEW DELHI [HEREINAFTER REFERRED AS THE 'AO'] AND THE DI SPUTE RESOLUTION PANEL -2 [HEREINAFTER REFERRED AS THE 'DRP'] ARE BAD IN LAW AND VOID AB-INITIO. 2. THAT ON THE FACTS AND IN LAW, AO / DRP HAVE ERRE D IN HOLDING / UPHOLDING THAT THE CONSIDERATION RECEIVED BY THE AP PELLANT FROM SUPPLY/DISTRIBUTION OF ITS COPYRIGHTED SOFTWARE PRO DUCTS IS CHARGEABLE TO TAX IN INDIA AS INCOME FROM 'ROYALTY' AS DEFINED IN ARTICLE 12 OF AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION BETWEEN INDIA AND IRELAND ('AADT). 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, AO/DRP HAVE ERRED IN HOLDING/UPHOLDING THAT THE CON SIDERATION RECEIVED BY THE APPELLANT FOR SUPPLY/DISTRIBUTION OF ITS COP YRIGHTED SOFTWARE PRODUCTS IS FOR GRANT OF 'RIGHT TO USE' THE COPYRIG HT IN THE SOFTWARE AND HENCE, QUALIFIES AS ROYALTY. 4. THAT ON FACTS AND IN LAW, THE DRP ERRED IN OBSER VING THAT THE DISTRIBUTORS OF THE APPELLANT RECEIVE THE SOFTWARE AND THEN TRANSMIT THE SAME ONWARDS TO THE END CUSTOMERS. 5. ON THE FACTS AND IN LAW, LOWER AUTHORITIES HAVE ERRED IN NOT FOLLOWING JUDICIAL PRECEDENTS CITED BY THE APPELLANT, INCLUDI NG THE DECISIONS PRONOUNCED BY THE JURISDICTIONAL HIGH COURT. 6. ON THE FACTS AND IN LAW, THE AO HAS ERRED IN LEV YING INTEREST UNDER SECTION 234A AND 234B OF THE ACT. 7. THAT ON THE FACTS AND IN LAW, AO HAS ERRED IN NO T GRANTING THE CREDIT OF. TAX DEDUCTED AT SOURCE (TDS') OF RS.58,05,595/- . 8. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE AND IN LAW, ASSESSING OFFICER HAS ERRED IN INITIATING PENALTY P ROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT AGAINST THE APPELLANT. 3. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS A GAINST ORDER OF THE AUTHORITIES BELOW IN HOLDING THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE FROM SUPPLY/DISTRIBUTION OF ITS COPYRIGHTED SOFTWAR E PRODUCTS IS CHARGEABLE TO 3 ITA NO.3966/DEL/2017 ASSESSMENT YEAR 2014-15 TAX IN INDIA AS INCOME FROM ROYALTY AS DEFINED IN ARTICLE 12 OF AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION BETWEEN INDIA AND IREL AND (AADT). 4. THE ASSESSEE IS ALSO AGGRIEVED BY THE ORDER OF T HE ASSESSING OFFICER IN HOLDING THAT THE CONSIDERATION RECEIVED BY THE ASS ESSEE FOR SUPPLY/DISTRIBUTION OF ITS COPYRIGHTED SOFTWARE PRODUCTS IS FOR GRANT O F RIGHT TO USE THE COPYRIGHT IN THE SOFTWARE AND HENCE, QUALIFIES AS ROYALTY. 5. THE LD.AR FOR THE ASSESSEE AFTER TAKING US THROU GH THE DRAFT ASSESSMENT ORDER ELABORATELY AND OBSERVATIONS OF THE DRP, POIN TED OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS SIMILAR IN FACTS AN D ISSUE AS ARISING IN ASSESSMENT YEAR 2013-14, IN ASSESSEES OWN CASE. O UR ATTENTION WAS DRAWN TO PAGE 88 OF THE COMPILATION WHEREIN DRAFT ASSESSMENT ORDER IS PLACED AND IT IS REFERRED BY THE ASSESSING OFFICER THAT SIMILAR FACT S AND ISSUE HAD ARISEN IN ASSESSMENT YEAR 2013-14. THE LD.AR FOR THE ASSESSE E FURTHER POINTED OUT THAT THE ASSESSING OFFICER/DRP HAD RELIED ON THE RATIO L AID DOWN BY THE HONBLE KARNATAKA HIGH COURT IN SAMSUNG ELECTRONICS COMPANY LTD. 345 ITR 494 (KAR.) & SYNOPSIS INTERNATIONAL OLD LTD. 212 TAXMAN 454 (KAR.). RELIANCE PLACED UPON THE DECISIONS OF HONBLE DELHI HIGH COU RT IN DIT VS INFRASOFT LTD. [2013] 220 TAXMAN 273 (DEL.) AND DIT VS ERICSON A.B ., NEW DELHI [2012] 343 ITR 470 (DEL.) WAS DISTINGUISHED BY THE ASSESSING O FFICER ON THE GROUND THAT SLP WAS PENDING BEFORE THE HONBLE SUPREME COURT. THE LD.AR FOR THE ASSESSEE TOOK US THROUGH THE ORDER OF THE TRIBUNAL WHEREIN RELIANCE HAS BEEN PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN DIT VS ERICSON A.B., NEW 4 ITA NO.3966/DEL/2017 ASSESSMENT YEAR 2014-15 DELHI (SUPRA) AND DIT VS INFRASOFT LTD. (SUPRA) TO COME TO A FINDING THAT USE OF COPYRIGHTED PRODUCT IS NOT ROYALTY. 6. THE LD.CIT DR FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. HOWEVER, HE FAIRLY ADMITTED THA T SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2013-14. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE IS A COMPANY IN CORPORATED IN IRELAND AND DURING THE YEAR UNDER CONSIDERATION IT WAS IN RECEI PT OF CERTAIN SUM TOWARDS SALE OF SOFTWARE AND PROVISION FOR SUPPORT SERVI CES FROM ITS INDIAN DISTRIBUTORS. IT IS UNDISPUTED THAT THE AMOUNT RECE IVED BY THE ASSESSEE FROM PROVISION OF SUPPORT SERVICES WAS BEEN OFFERED TO TAX ON GROSS BASIS AS PER ARTICLE 12 OF INDIA-IRELAND DOUBLE TAXATION AVOIDAN CE AGREEMENT (DTAA). IT IS ALSO NOT IN DISPUTE THAT THERE IS NO PERMANENT ESTA BLISHMENT (PE) OF THE ASSESSEE IN TERMS OF ARTICLE 5 OF DTAA IN INDIA. 8. HOWEVER, AS FAR AS THE AMOUNT RECEIVED ON SALE O F SOFTWARE IS CONCERNED, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAME NEEDS TO BE TAXED AS INCOME FROM ROYALTY AS PER THE PROVISIONS OF SECT ION 9(1)(VI) OF THE ACT AND ARTICLE 12 OF THE DTAA BETWEEN INDIA AND IRELAND. THE EVIDENCES WERE SUBMITTED BY THE ASSESSEE TO ESTABLISH ITS CASE OF SALE OF ONLY COPYRIGHTED PRODUCT AND WHEREIN COPYRIGHT REMAINED WITH THE ASS ESSEE AND SAME WAS NOT TRANSFERRED TO ITS DISTRIBUTOR OR USER. THE ASSESS ING OFFICER HOWEVER, HELD OTHERWISE AND THE DRP REJECTED THE OBJECTIONS OF TH E ASSESSEE AND THE 5 ITA NO.3966/DEL/2017 ASSESSMENT YEAR 2014-15 ASSESSING OFFICER PASSED FINAL ASSESSMENT ORDER, AG AINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 9. WE FIND SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.6693/DEL/2016 RELATING TO ASSESSMENT YEAR 20 13-14 AND VIDE ORDER DATED 26.11.2018, THE ISSUE WAS DECIDED IN FAVOUR O F THE ASSESSEE. THE FACTUAL ASPECT WAS NOTED BY THE TRIBUNAL VIDE PARA 2 ONWARD S AT PAGE 2 OF THE ORDER. THE FINDINGS OF THE ASSESSING OFFICER WHICH ARE SIM ILAR AS IN THE CAPTIONED ASSESSMENT YEAR ARE REPRODUCED IN PARA 2.1 ONWARDS AT PAGE 4 TO 7 OF THE TRIBUNALS ORDER ALONGWITH THE FINDINGS OF THE DRP IN PARA 2.2 AT PAGES 8 TO 9 OF THE ORDER. THE CONTENTIONS OF THE ASSESSEE AND TH E RELIANCE PLACED ON THE DECISIONS OF JURISDICTIONAL HIGH COURT AS AGAINST T HE DECISION OF KARNATAKA HIGH COURT (SUPRA) AND RELIED UPON THE ORDER OF ASS ESSING OFFICER/DRP, TRIBUNAL NOTED THE CONTENTION OF THE ASSESSEE THAT THE DECISION OF HONBLE KARNATAKA HIGH COURT HAS BEEN DISAGREED BY JURISDIC TIONAL HIGH COURT IN INFRASOFT LTD. (SUPRA) IN PARAS 98 & 99 OF THE JUDG EMENT. FURTHER, REFERENCE WAS ALSO MADE TO THE DECISION OF HONBLE DELHI HIGH COURT IN DIT VS NOKIA NETWORK OY 358 ITR 259 (DEL.). THE TRIBUNAL VIDE P ARA 5 AT PAGE 12 OF THE ORDER DATED 26.11.2018, RELIED ON THE DECISION OF H ONBLE JURISDICTIONAL HIGH COURT IN ERICSON A.B. (SUPRA), AND THEREAFTER, REFE RRED TO THE FINDINGS OF THE HONBLE HIGH COURT IN INFRASOFT LTD. (SUPRA) AND VI DE PARAS 5.2. AND 5.3 AT PAGES 18 & 19 HELD AS UNDER:- 5.2 WE FIND THAT TREATY PROVISIONS BETWEEN INDIA A ND IRELAND UNAMBIGUOUSLY REQUIRE THAT THE USE OF COPYRIGHT IS TO BE TAXED IN THE SOURCE COUNTRY. IN THE PRESENT CASE, THE PAYMENT HA S BEEN MADE BY ASSESSEE FOR USE OF 'COPYRIGHTED MATERIAL' RATHER T HAN FOR THE USE OF 6 ITA NO.3966/DEL/2017 ASSESSMENT YEAR 2014-15 COPYRIGHT. THE FACTS OF THE PRESENT CASE ARE IDENTI CAL WITH THE FACTS BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT. NONE OF THE LOWER AUTHORITIES HAVE FACTUALLY DOUBTED THE CONTENTION OF THE ASSESSEE TH AT IT HAS RECEIVED CONSIDERATION FOR THE TRANSFER OF A COPYRIGHTED PRO DUCT AND NOT FOR THE TRANSFER OF COPYRIGHTS IN THE COMPUTER SOFTWARE PRO GRAMME. THE DISTINCTION BETWEEN THE TRANSFER OF A COPYRIGHT AND THE TRANSFE R OF A COPYRIGHTED PRODUCT IS PROMINENT. THE SOLE CONTENTION OF THE AS SESSING OFFICER AND THE LD DRP IS THAT THE DEPARTMENT IS IN APPEAL AGAINST THE DECISIONS OF THE JURISDICTIONAL HIGH COURT BEFORE THE HONBLE APEX C OURT. THE AO HAS RELIED UPON THE DECISION OF THE HONBLE KARNATAKA HIGH COU RT IN CASE OF SAMSUNG ELECTRONICS (SUPRA) AND GRACEMACCORPN (SUPRA). THES E DECISIONS ARE NOT BEING CONSIDERED AS THE ISSUE IS EXTENSIVELY DEALT WITH BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASES OF ERICSSON A.B. AND INFRASOFT LTD (SUPRA) WHICH ARE BINDING ON THIS TRIBUNAL. ONCE IT IS NOT IN DISPUTE THAT THERE IS NO TRANSFER OF ANY COPYRIGHT IN THE COMPUT ER SOFTWARE BY THE ASSESSEE TO ITS CUSTOMERS, WE OBSERVE THAT ALL THE ARGUMENTS PUT FORTH BY THE AO AND THE ASSESSEE ARE CONSIDERED AND ANSWERED BY THE JURISDICTIONAL HIGH COURT IN THESE DECISIONS. FURTH ER, THE DELHI HIGH COURT IN INFRASOFT (SUPRA) HAS SPECIFICALLY EXPRESSED ITS DISAGREEMENT WITH THE VIEW TAKEN BY THE HONBLE KARNATAKA HIGH COURT IN T HE CASE OF SAMSUNG ELECTRONICS CO LTD. (SUPRA). HENCE, THE DECISIONS R ELIED BY THE ASSESSING OFFICER IN THE CASE OF SAMSUNG ELECTRONICS AND GRAC EMACCORPN. (SUPRA) DOES NOT HELP THE CASE OF THE REVENUE, AS WE ARE UN DER THE JURISDICTION OF THE HON'BLE DELHI HIGH COURT. 5.3 ACCORDINGLY, RESPECTFULLY FOLLOWING DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF INFRASOFT LTD. (SUPRA) AN D ON THE BASIS OF DISCUSSIONS ABOVE WE HOLD THAT RECEIPTS DERIVED BY THE ASSESSEE FROM SALE OF SOFTWARE IS NOT IN NATURE OF ROYALTY AS DEFINED UNDER ARTICLE 12 OF INDIA-IRELAND DTAA. SINCE TREATY PROVISIONS ARE MORE BENEFICIAL, AN ADJUDICATION ON NATURE OF RECEIPTS VIS A VIS PROVIS IONS OF SECTION 9(1)(VI) IS NOT REQUIRED. GROUNDS NOS. 1 TO 4 ARE ACCORDINGLY A LLOWED. 10. THE ISSUE ARISING IN THE PRESENT APPEAL IS IDEN TICAL TO THE ISSUE RAISED IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2013-14 AND APPLYING THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN INFRASOFT LTD. (SUPRA), WE HOLD THAT THE RECEIPT FROM SALE OF SOFTWARE BY THE ASSESSEE W AS NOT IN THE NATURE OF ROYALTY UNDER ARTICLE 12 OF DTAA BETWEEN INDIA A ND IRELAND. SINCE THE TREATY PROVISIONS ARE MORE BENEFICIAL, THERE IS NO MERIT I N ADJUDICATING THE ISSUE VIS-- VIS AMENDED PROVISIONS OF SECTION 9(1)(VI) OF THE A CT. THE GROUND OF APPEAL NOS. 1 TO 5 RAISED BY THE ASSESSEE ARE THUS ALLOWED . 7 ITA NO.3966/DEL/2017 ASSESSMENT YEAR 2014-15 11. THE GROUND OF APPEAL NO.6 RAISED BY THE ASSESSE E IS AGAINST THE LEVY OF INTEREST U/S 234A & 234B OF THE ACT, IS CONSEQUENTI AL AND THE SAME IS DISMISSED. 12. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.7 BY THE ASSESSEE FOR NON- GRANTING OF CREDIT OF TDS HAS NOT BEEN ARGUED BEFOR E US; HENCE, THE SAME IS ALSO DISMISSED. 13. THE GROUND OF APPEAL NO.8 RAISED BY THE ASSESSE E AGAINST THE INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT, IS PRE-MATURE; HENCE, THE SAME IS DISMISSED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH JULY, 2020. SD/- SD/- (PRASHANT MAHARISHI) (SUSHMA CHOWLA) +, - / ACCOUNTANT MEMBER ! / VICE PRESIDENT / DATED : 09 TH JULY, 2020 * AMIT KUMAR * +%3$/&7(8+(&9 COPY OF THE ORDER IS FORWARDED TO : 1. 01 / THE APPELLANT 2. $201 / THE RESPONDENT 3. :& ; < / THE CIT(A) 4. = :& / THE PR. CIT 5. 6. (>?$/&/ * * / DR, ITAT, DELHI ?)@9 GUARD FILE. +% / BY ORDER , 2(&$/& // TRUE COPY // ' AB-C , * ASSISTANT REGISTRAR, ITAT, DELHI