M/s Teekays Interior Solutions Pvt Ltd, Bangalore V. Commissioner of Income Tax, Bangalore

ITA 400/BANG/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4168 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 21-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Bonafide belief; Earning of tax free income; Retrospective amendment; Cost of acquisition; Revenue expenditure; TDS
• Section: 14A; 40(a)(ia)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH ES C , BANGALORE BEFORE SHRI N.V.VASUDEVAN, VP & SHRI B.R.BASKARAN , AM ITA NO. 400 / BANG /201 7 : ASST.YEAR 201 1 - 201 2 M/S.TEEKAYS INTERIOR SOLUTIONS PRIVATE LIMITED 22, VENKATESWAMY NAIDU ROAD, KO RAMANGALA BENGALURU 560 051. PAN : AAACT5905G . VS. THE DY.COMMISSIONER OF INCOME - TAX, CIRCLE 12(4) BENGALURU. (APPELLANT) (RESPONDENT) APPELLANT BY : SMT.SHEETAL, ADVOCATE RESPONDENT BY : SHRI P.V.PRADEEPKUMAR, ADDL.CIT DATE OF HEARING : 22.01.20 19 DATE OF PRONOUNCEMENT : 15 .02.2019 O R D E R PER B.R.BASKARAN, AM : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 18.11.2016 PASSED BY THE LEARNED CIT(A) - 7, BENGALURU AND IT RELATES TO ASSESSMENT YEAR 2011 - 2012 . 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION RENDERED BY THE LEARNED CIT(A) ON THE FOLLOWING ISSUES: - (A) DISALLOWANCE MADE U/S 14A OF THE ACT. (B) DISALLOWANCE OF PURCHASE COST OF SOFTWARE U/S 40(A)(IA) OF THE ACT . (C) DISALLOWANCE OF INTEREST LEVIED ON LATE REMITTANCE OF TDS. (D) NON - GRANTING OF TDS CREDIT. ITA NO. 400 / BANG /201 7 . M/S.TEEKAYS INTERIOR SOLUTIONS PVT.LTD . 2 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF UNDERTAKING WORK S CONTRACT FOR INTERIOR DECORATIONS. THE FIRST ISSUE RELATES TO DISALLOWANCE MADE U/S 14A OF THE ACT. DURING THE CO U R SE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.14.79 LAKHS AND CLAIMED THE SAME AS EXEMPT. THE ASSESSEE DID NOT DISALLOW ANY EXPENDITURE U/S 14A OF THE ACT. HENCE, THE ASSESSING OFFICER COM PUTED THE DISALLOWANCE AS PER THE PROVISIONS OF SECTION 14A OF THE ACT, BY APPLYING RULE 8D OF THE INCOME - TAX RULES AT RS.26.35 LAKHS AND DISALLOWED THE SAME. IN THE APPELLATE PROCEEDINGS, THE LEARNED CIT(A) CONFIRMED THE SAME. 4. WE HEARD PARTIES ON THIS ISSUE AND PERUSED THE RECORD. THE LEARNED AR SUBMITTED THAT TH E ASSESSEE HAD SOLD ITS VACANT PIECE OF LAND TO M/S.ITC LIMITED AND RECEIVED A SUM OF RS.21.40 CRORES AS SALE PROCEEDS . THE ASSESSEE HAS INVE STED A SUM OF RS.14 CRORE IN T HE SCHEMES OF MUTUAL F UND, WHICH HAS GENERATED DIVIDEND INCOME OF RS.14.79 LAKH. THE LEARNED AR FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT USED ANY LOAN FUNDS FOR MAKING THE IMPUGNED INVESTMENT. FURTHER THE OWN FUNDS AVAILABLE WITH THE ASSESSEE IS ALSO IN EXCESS OF VALUE OF IN VESTMENT. ACCORDINGLY, BY PLACING RELIANCE ON THE DECISION RENDERED BY THE HON BLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. KARNATAKA STATE INDUSTRIAL & INFRASTRUCTURE DEVELOPMENT CORPORATION LIMITED [(2016) 65 TAXMANN.COM 295 (KAR.)] , T HE LEARNED AR CONTENDED THAT NO DISALLOWANCE COULD BE MADE OUT OF INTEREST EXPENDITURE. THE LEARNED AR ALSO PLACED RELIANCE ON THE DECISION RENDERED BY THE HON BLE ITA NO. 400 / BANG /201 7 . M/S.TEEKAYS INTERIOR SOLUTIONS PVT.LTD . 3 SUPREME COURT IN THE CASE OF PR.CIT V. SINTEX INDUSTRIES LTD. [(2018) 93 TAXMANN.COM 24 (SC)] TO CONTEND THAT NO DISALLOWANCE OUT OF INTEREST AND ADMINISTRATIVE EXPENSES U/S 14A OF THE ACT COULD BE MADE WHEN THE ASSESSEE HAS UTILIZED ITS SURPLUS FUND S FOR MAKING MINOR INVESTMENT. 5. ON THE CONTRARY, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE WAS HAVING MIXED FUNDS AND HENCE IT CANNOT BE SAID THAT THE ASSESSEE HAS INVESTED ONLY NON - INTEREST BEARING FUNDS FOR MAKING THE INVESTMENT. THE LEARNED DR PLACED RELIANCE ON THE DECISION RENDERED BY THE HON BLE SUPREME COURT IN THE CASE OF MAX I NVESTMENTS 91 TAXMANN.COM 154. 6. WE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE AND PERUSED THE RECORD. FROM THE FINANCIAL STATEMENT S FURNISHED BY THE ASSESSEE, WE NOTICED THAT THE ASSESSEE IS HAVING OWN FUNDS OF RS.1212 LAKH AND RS.2636 LAKH AS AT THE BE GINNING AND AT THE END OF THE CURRENT FINANCIAL YEAR. THE INVESTMENT MADE BY THE ASSESSEE STANDS AT RS.1051 LAKH AND RS.1057 LAKH DURING THE SAME PERIOD. THUS IT IS SEEN THAT THE OWN FUNDS AVAILABLE WITH THE ASSESSEE IS IN EXCESS OF THE VALUE OF INVESTMENT AND HENCE THE DECISION RENDERED BY THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA STATE INDUSTRIAL & INFRASTRUCTURE DEVELOPMENT CORPORATION LIMITED (SUPRA) SHALL APPLY TO THE FACTS OF THE PRESENT CASE. HENCE, THE DISALLOWANCE OUT OF INTEREST EX PENDITURE IS NO CALLED FOR. THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS USED THE MIXED FUNDS. HOWEVER, FROM THE SUBMISSION MADE BY THE ASSESSEE, ITA NO. 400 / BANG /201 7 . M/S.TEEKAYS INTERIOR SOLUTIONS PVT.LTD . 4 WE NOTICED THAT THE ASSESSEE HAS MADE THE IMPUGNED INVESTMENT OUT OF THE SALE PROCEEDS OF LAND SOLD TO M/S.I TC LIMITED. HENCE, WE NOTICED THAT THE ASSESSEE IS ABLE TO SHOW THE NEXUS BETWEEN THE FUNDS UTILIZED AND THE INVESTMENT MADE. 7. WITH REGARD TO THE DISALLOWANCE MADE OUT OF ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) OF THE I.T.RULES, THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION RENDERED BY THE HON BLE SUPREME COURT IN THE CASE OF SYNTEX INDUSTRIES LIMITED (SUPRA) IN ORDER TO CONTEND THAT NO DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSE SHOULD BE MADE. WE NOTICED THAT THE HON BLE SUPREME COURT HAS DISM ISSED THE SLP AND DID NOT RENDER ANY DECISION. FURTHER THE FACTS AVAILABLE IN THE CASE OF SYNTEX INDUSTRIES LIMITED (SUPRA) SHOW THAT THE ASSESSEE HAD MADE MINOR INVESTMENTS OUT OF SURPLUS FUNDS, WHILE IN THE INSTANT CASE THE ASSESSEE HAS NOT SHOWN THAT IT HAD SURPLUS FUNDS AND FURTHER INVESTMENTS MADE BY IT COULD BE REGARDED AS MINOR IN NATURE. HENCE, IN OUR VIEW, THE ASSESSEE CANNOT TAKE SUPPORT OF THE ABOVE SAID DECISION. 8. HOWEVER, WE NOTICED THAT THE ASSESSEE HAS MADE INVESTMENT IN MUTUAL FUNDS U NITS WHICH DOES NOT INVOLVE USE OF MUCH OF ADMINISTRATIVE CAPABILITIES. ACCORDINGLY, WE ARE OF THE VIEW THAT THE PROVISIONS OF RULE 8D(2)(III) SHOULD NOT BE APPLIED TO THE FACTS OF THE PRESENT CASE. SINCE THE ASSESSEE HAS RECEIVED EXEMPT INCOME, SOME DISA LLOWANCE IS CALLED FOR TO MEET THE REQUIREMENTS OF SEC.14A OF THE ACT. ACCORDINGLY, WE DIRECT THE A.O. TO MAKE LUMP SUM DISALLOWANCE OF ITA NO. 400 / BANG /201 7 . M/S.TEEKAYS INTERIOR SOLUTIONS PVT.LTD . 5 RS.25,000 / - TOWARDS ADMINISTRATIVE EXPENSES AND , IN OUR VIEW , THE SAME WOULD MEET THE REQUIREMENTS OF SEC.14A OF THE AC T . 9 . THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATES TO DISALLOWANCE OF EXPENDITURE CLAIMED TOWARDS SOFTWARE PURCHASE. THE ASSESSEE HAD PURCHASED A SOFTWARE NAMED AUTOCAD VERSION 2011 AT A COST OF RS.1,10,775 AND CLAIMED THE SAME AS REVENUE EXPENDITURE . THE A.O. , HOWEVER, HELD THE SAME TO BE CAPITAL IN NATURE. THE A.O. ALSO NOTICED THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE U/S 194J OF THE ACT. ACCORDINGLY, HE PROCEEDED TO DISALLOW THE DEPRECIATION BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) O F THE ACT. IN THE APPELLATE PROCEEDINGS, THE LEARNED CIT(A) TOOK SUPPORT OF THE DECISION RENDERED BY THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF M/S.SAMSUNG ELECTRONICS COMPANY LIMITED [(2011) 203 TAXMANN.COM 477 (KAR.)] AND HELD THAT THE PAYMENT MADE FOR PURCHASE OF SOFTWARE IS IN THE NATURE OF ROYALTY. ACCORDINGLY, HE DIRECTED THE A.O. TO TREAT THE EXPENDITURE ON PURCHASE OF SOFTWARE AS REVENUE IN NATURE. SINCE THE ASSESSEE HAS FAILED TO DEDUCT TAX AT SOURCE ON THE SAID PAYMENT, THE LEARNED CIT(A) CON FIRMED THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT. 10 . SINCE THE REVENUE HAS NOT FILED ANY APPEAL CHALLENGING THE ORDER PASSED BY LD CIT(A), THE ISSUE THAT REQUIRES CONSIDERATION IS WHETHER THE DISALLOWANCE OF COST OF SOFTWARE U/S 40(A)(IA) OF THE ACT IS JUSTIFIED OR NOT. THE LD A.R SUBMITTED THAT THE DECISION HOLDING THAT THE PAYMENT MADE ITA NO. 400 / BANG /201 7 . M/S.TEEKAYS INTERIOR SOLUTIONS PVT.LTD . 6 TOWARDS PURCHASE OF SOFTWARE IS IN THE NATURE OF ROYALTY ATTRACTING TDS PROVISIONS, WAS RENDERED BY THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRO NICS COMPANY LTD. (SUPRA) ON 15.10.2011, WHEREAS THE IMPUGNED TRANSACTION OF PURCHASE OF SOFTWARE HAS TAKEN PLACE BEFORE 31.03.2011. THE LD A.R SUBMITTED THAT THE LAW RELATING TO NATURE OF SOFTWARE PURCHASES WAS PRONOUNCED BY THE HON BLE HIGH COURT ONLY ON 15.10.2011, WHERE AS THE IMPUGNED TRANSACTION HAS TAKEN PLACE PRIOR TO THAT. SHE SUBMITTED THAT BEFORE THE DECISION OF HON BLE HIGH COURT, THE ASSESSEE WAS UNDER BONAFIDE BELIEF WITH THE SUPPORT OF CERTAIN CASE LAWS THAT THERE WAS NO REQUIREMENT TO DEDUC T TAX AT SOURCE FROM THE PAYMENT MADE TOWARDS SOFTWARE PURCHASES. ACCORDINGLY, BY PLACING HER RELIANCE ON THE DECISION RENDERED BY THE CO - ORDINATE BENCH IN THE CASE OF ALLEGIS SERVICES INDIA PVT. LTD. V. DCIT [(2017) 51 CCH 0083], THE LEARNED AR SUBMITTED THAT THE LIABILITY TO DEDUCT TAX AT SOURCE, IN THE FACTS OF THE PRESENT CASE, CANNOT BE FASTENED UPON THE ASSESSEE RETROSPECTIVELY. 1 1 . WE HEARD THE LEARNED DR AND PERUSED THE RECORD. WE NOTICED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE CO - ORDINATE BENCH IN THE CASE OF ALLEGIS SERVICES INDIA PVT. LTD. (SUPRA) AND IDENTICAL DISALLOWANCE MADE WAS DELETED BY THE CO - ORDINATE BENCH ON THE REASONING THAT THE TDS LIABILITY CANNOT BE FASTENED UPON THE ASSESSEE RETROSPECTIVELY. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE OPERATING PORTION OF THE ORDER PASSED BY THE CO - ORDINATE BENCH: - 4 . G R O U N D N OS. 2 T O 5 A R E R E GA R D IN G D I S AL L O W A N C E UN D ER S E CT I O N ITA NO. 400 / BANG /201 7 . M/S.TEEKAYS INTERIOR SOLUTIONS PVT.LTD . 7 40 ( A )( I A) O F TH E I N C O ME TAX A CT , 1 9 6 1 ( I N S H O R T ' T H E A C T ' ) O F P A Y ME N T T O WA R D S SOF T WA R E LI C E N S ES T R E A T E D B Y TH E ASS E S S I N G OF F I C ER AS R O Y A L T Y FO R WA N T O F T D S . T H E A S S E S S EE H AS AL S O R AI S E D A D D I T I O N AL G R O U ND S W H I C H ARE AS U N D ER : CORPORATE TAX MATTERS 21 . W I T H O U T P R E J UD I C E T O T H E G R O U N D S 2 T O 4 , T H E L E A R N E D C I T ( A ) H A S F A I L E D T O A P P R E C I A T E T H A T D U RI N G T H E F I N AN C I A L Y EA R 2 0 08 - 0 9 R E L E V A N T T O T H E A S S E SSM E N T Y EA R 2 0 09 - 10 , T H E A P P E LL A N T W A S N O T LI AB L E T O W I T H HO L D T A X O N T H E P A YM E N T S M A D E A S T H E R E W A S N O P R O V I S I O N U N D E R T H E A C T M A N D A T I N G T H E DE DU C T I O N O F T A X A T S OU R C E O N T H E PA Y M E N T S M A D E O N P U R C HA S E O F C O M PU T E R S O F T W A R E A N D T H E R E W E R E M A N Y F A V O R AB L E J U D I C I A L P R E C E D E N CE I N C L U D I N G T H E J U RI S D I C T I O N A L T RI B U N A L R U LI N G S. 22 . W I T H O U T P R E J UD I CE T O T H E G R O U ND S 2 T O 4 , T H E L EA R N E D C I T ( A ) E RR E D I N N O T A P P R E C I A T I N G T H E F A CT T HA T E X P L A N A T I O N 5 T O S E C T I O N 9 ( 1 )( V I ) W A S I N S E R T E D V I D E F I NAN C E A C T , 2 0 1 2 W I T H E FF E CT F R O M 1 J U N E 1 9 7 6 A N D W A S H I T B Y T H E D O C T RI N E O F I M P O SS I B ILI T Y O F PE R F O R M A N C E . T H E A D D I T I O N AL G R O U N D S R AI S E D B Y T H E A S S E S S EE ARE N O T N E W I SS U ES B U T AN A D D I T I O N AL P L EA / A R G U M E N T R AI S E D B Y T H E A S S E S S EE R EGAR D IN G T H E D I S A L L O W A N C E MA D E B Y TH E ASS E S S I N G OF F I C E R U N D ER S E C T I O N 40 ( A ) ( I A) O F TH E A C T . T H ERE F O R E I N V I E W O F TH E F A C T T H AT T H E S U B S T A N T I AL I S S U E H AS B EEN R AI S ED I N T H E M A I N GR O UN D , T H E A D D I T I O N AL G R O U ND S R A I S ED B Y T H E A S S E S S EE O N T H E S AME I SS U E ARE A D M I T T E D FO R C O N S I D ERA TI O N A N D A D J U D I C A T I O N A L O N G W I T H T H E G R O UN D N OS. 2 T O 5 . 5 . T H E L E A R N E D A UT H O RI S E D R E P R E S E N T A T I VE O F T H E A S S E S S EE H AS S U B M I TT E D TH A T P R I O R T O T H E D E C I S I O N O F H O N ' B L E J U RI S D I C T I O N AL H I GH C O U R T I N T H E C A S E O F C I T V S . S A M S UNG E L E CT R O N I CS C O. L T D . 3 2 0 I TR 20 9 , T H E A S S E S S EE WAS U N D ER TH E B O N A F I D E B E L I EF T H AT TH E P A Y M E N T O N A C C O UN T O F SOF T WA R E LI C E N S ES D O ES N O T F ALL U N D ER T H E D E FI N I T I O N O F R O YA L T Y A N D TH E R E F O R E T H E A S S E S S EE WAS U ND E R N O O B L I GA T I O N T O D E D U C T T AX AT SO U R C E O N T H E S A I D P A Y M E N T FO R SOF T W A R E L I C E N S E. HE H AS F U R T H ER S U B M I T T ED T H AT TH E R E WE R E NU M B E R O F J UD I C I AL P R E C E D E N T S O N TH I S I SS U E W H E R E I N T H I S T R I B U N AL H AS H E L D TH A T T H E P A Y M E N T M A D E FO R PU R C H A S E O F SOF T WA R E D O ES N O T F A L L U N D ER T H E D E FI N I T I O N O F R O YA L T Y P R O V ID E D U ND E R S E C T I O N 9 ( 1 )( V I ) O F TH E A C T . T H U S H E H AS S U B M I T T ED T H AT A S UB S E QU E N T AM E N D M E N T O R A D E C I S I O N C A NN O T B E T H R U S T U P O N T H E A S S E S S EE FO R D E D U C T I O N O F T AX I N R E S P E C T O F A T R A N S A C T I O N C O M P L E T E D M U C H P RI O R T O T H E S A I D D E C I S I O N . I N S U P P O R T O F H I S C O N T E N T I O N , H E H AS ITA NO. 400 / BANG /201 7 . M/S.TEEKAYS INTERIOR SOLUTIONS PVT.LTD . 8 R E L I ED UP O N D E C I S I O N O F T H E C O - O R D I N A T E B E N C H O F TH I S T R I BU N AL D T . 2 3 . 11 . 2 0 1 6 I N TH E C A S E O F A C I T VS. AU R I G ENE L EA R N E D A U T H O RI S E D R E P R E S E N T A T I VE H AS S U B M I T T ED T H AT D I S AL L O WA N C E MA D E B Y T H E ASS E S S I N G OF F I C ER I S N O T J U S TI F I ED W H E N TH E R E WAS N O S U C H L AW O R D E C L A R A T I O N O F L AW AT T H E T I ME O F P A Y ME N T MA D E B Y TH E A S S E S S EE T O C A S T TH E D U T Y O N T H E A S S E S S EE T O D E D U C T T A X . 6 . ON T H E O T H ER H A N D , T H E L EA R N ED D E P AR T M E NT A L R E PR E S E NT A T I VE H AS S U B M I TT E D T H AT T H E D E C I S I O N O F H O N ' B L E J U RI S D I CT I O N A L H I G H C O U R T I N TH E C A S E O F C I T VS. S A M S UNG E L ECT R ON I CS C O. L T D . (S U P R A) T H O U GH WAS S UB S E QU E N T T O T H E T R A N S A C T I O N I N Q U E ST I O N H O WEV E R , T H E S A I D D E C I S I O N H AS N O T B R O U G H T I N T O S T A T U T E A N Y N E W L A W B U T I T I S O N L Y A D E C L AR A T I O N A N D I N T E R P R E T A T I O N O F EX I S T I N G L A W. HE H AS R EL I ED U P O N T H E O R D E R S O F T H E A U T H O R I T I ES B EL O W. 7 . WE H AVE C O N S I D E R ED T H E R I VAL S U B M I SS I O N S AS WE L L AS TH E R ELEV A N T MA T E R I AL O N R E C O R D . T H ERE I S N O D I S PU T E T H AT TH E T R A N S A C T I O N I N Q U E S T I O N R EGA R D I N G P A YM E N T O F PU R C H A S E O F SOF T WA R E WAS C O M P L E T E D I N T H E F. Y. 2 0 08 - 0 9 W H EREAS T H E D E C I S I O N O F H O N ' B L E J U RI S D I CT I O N A L H I GH C O U R T I N T H E C A S E O F C I T VS. S A MS U NG E L E CT R ON I CS C O . L TD. (S U P R A) WAS P A S S E D O N 15 . 1 0 . 2 0 1 1 M U C H L A T E R TH A N T H E T I ME O F T R A N S A C T I O N C AR RI E D O U T B Y T H E A S S E S S EE. I T I S AL S O N O T I N D I S P UT E TH A T TH I S I SS U E O F C O N S I D E R I N G T H E P A Y ME N T FO R P U R C H A S E O F SOF T W A R E AS R O Y AL T Y I S A H I G H L Y D E B A T A B L E I SS U E A N D VA R I O U S H I GH C OU R T S H A VE T AK E N D I VE R GE N T V I E WS O N T H I S I SS U E. T H E C O - O R D I N A T E B E N C H O F T H I S T R I B U N AL I N TH E C A S E O F A C I T V S . AU R I G ENE D I SC O V E R Y T E CH N O L O G I ES (P) L TD. (S U P R A) H AS C O N S I D ERED AN I D E NT I C AL I S S U E I N P ARAS 3 T O 5 AS U N D ER : 03. W E H E A R D THE RI V A L SU B M I S S I ONS A ND G O N E TH R OU G H THE R E L E V A NT O R D E R S . THE A SS E SS E E R E S U BM I TT E D TH E P L E A T A K E N B E F O R E T H E L O W E R A UTH O RI T I E S A N D P L A C E D O N T H E R U L I NG O F T HE H O N ' B L E B A N G A L O R E ITA T I N S O N A T A I NF O R M A T I O N TE C HN O L O G Y L T D V . A C I T ( 10 3 IT D 324 ) W H I C H H A D H E L D TH A T P A Y M E N T S F O R SO F T WAR E LI C E N S E S D O N O T CO N S T I T U T E R O Y AL T Y UN D E R T H E PR OV I S I ONS OF THE A CT A N D H E NCE DI S A LL O WA N CE UN D E R S E CT I ON40( A ) ( I A ) OF THE A CT W O U L D NOT B E A P P L I C A BL E . T H E C H A N G E I N TH E L E G A L P O S I T I O N O N T A X A T I O N O F CO M P UT E R SO FT W A R E W A S O N A C C O UN T O F TH E R U L I N G O F T H E K A R N A T A K A H IG H C O U R T I N C I T V . S A M S U N G E L E C T R O N I C S C O . L T D . ( 32 0 IT R 20 9 ) , W H I CH WA S PR O N OU N C E D ON 15.10.11 TH A T I S MUCH LA T E R T H A N THE C L OS U R E OF THE F Y 201 0 - 11. S U B S E Q U E N T L Y, T H E F I N A NC E A C T 201 2 AL SO I N T R O D UC E D , R E T R O S P E C T I V E L Y, E X P L A N A T I O N 4 T O S E C T I O N 9 ( 1 ( V I ) O F T H E A C T T O C LARI F Y T H A T PA Y M E N T S F O R , I N T E R ALIA . LI C E N S E ITA NO. 400 / BANG /201 7 . M/S.TEEKAYS INTERIOR SOLUTIONS PVT.LTD . 9 T O U S E CO M P U T E R SO FT WAR E W OU L D Q U AL I F Y A S R O Y A L TY . D U RI N G T H E F Y 1 0 - 11 , T H E A SS E S S E E DI D N O T H A V E T H E B E N E F I T O F C LARI F I C A T I O N BR OU G H T B Y T H E R E S P E C T I V E A M E N D M E N T . A S S U CH , F O R T H E F Y 2 01 0 - 11 , I N LIG H T O F T H E PR O V I S I ON S O F S E C T I O N 9 ( 1 ) ( V I ) O F T H E A C T R E A D WI T H J U DI C IA L G U ID A N C E O N T H E T A X A T I O N O F CO MP U T E R SO FT WA R E P A Y M E NT S , T A X WA S N O T R E Q U IR E D T O B E D E D U C T E D A T S O U R C E . G I V E N T H E PRA C T I CE I N PR I OR A SS E SSM E NT Y E A R S, THE A S S E S S E E WA S OF THE B ONA F I D E V I E W TH A T THE PA YM E NT O F SO FT WAR E LI C E NS E F E E WA S N O T SU B J E C T T O T A X D E D U C T I O N A T SOU R C E U N D E R S E C T I O N 194 J / 19 5 O F THE A CT. I T I S S U B M I TT E D T H A T L I A B I L I T Y T O D E D U C T T A X A T SO U R C E C A NN O T B E F A S T E N E D O N TH E A SS E SS E E O N TH E BA S I S O F R E T R OS P E C T I V E A M E N D M E N T T O T H E A C T ( F I N A NC E A C T 201 2 A M E N D M E N T T H E D E F I N I T I O N O F R O Y AL T Y WI T H R E T R OS P E C T I V E E FF E C T F R O M 01 . 0 4 . 1976 ) O R A S U B S E Q U E N T R U L I N G O F A CO U R T ( TH E K A R N A T A K A H C I N C I T V S A M SUN G E L E C T R ON I C S CO . L T D . ( 1 6 T A X M A N N . CO M 1 4 1 ) WA S PA SS E D O N OCTO B E R 15,2011). COU R TS H A V E CONS I ST E NT L Y U P H E L D T H I S PRI N C I P L E A S S EE N I N: I TO V. C L E A R WA T E R T E CHN O L O G Y S E R V I C E S ( P . ) L T D . (52 T A X M A NN . C OM 115) K E RA L A V I S I ON L TD V. A C I T ( 4 6 T A XM A N N . C O M 50) S ON I C BI O CH E M EXT R A C T I ONS ( P . ) L T D V. I TO (35 T A XM A NN . C OM 463) CH A NN E L G U I D E I N DI A L TD V. A C I T (25 T A X M A NN . C O M 25) DC I V. V IR O L A I NT E R N A T I O N A L (20 14(2) TMI 653) C I T V. KOT A K SE CU RI T I E S L T D . (20 T A X M A NN . COM 846). 04. THE R E L E V A NT PO R T I ON OF THE C I T( A ) O R D E R I S E XT R A CT E D A S UN D E R : D I SA L L O W A N C E O F E X P E N S E S U ND E R 4 0 ( A )( I ) / 4 0 ( A ) ( I A ) : 5 . 1. A S R E G A RD S D I S AL L O W A N CE OF E X P E N S E S U N D E R 4 0 ( A ) (I ) / 40 ( A ) ( I A ) , I T H A S B EE N SU B M I TT E D TH A T THE COMP A NY H A D D E T E R M I N E D THE RA TE OF T A X TO B E D E D UCT E D A ND FO L L O W I NG THE J U DG MENTS TH A T W E R E PR E V A L E NT A T THE T I ME OF T A X D E D U CT I ON, S U P R E ME COU R T I N THE C A SE OF T A TA CONSU L T A NCY SE R V I C E S A N D J U R I S D I C T I ON A L T R IB U N A L I N THE C A SE OF S A MSU N G E L E CT R ON I CS C O . L T D , THE A P P E LLA NT SU B M I TT E D TH A T THE S A I D J U D G MENT SH A L L NOT B E A P P LI C A B L E S I NCE I T WA S P R ONOUNC E D ON 15/10/2011 A ND VE LA N K A NI M A U RI T I US L T D . , W H E R E A S THE L I A B I L I TY TO D E D UCT T A X FOR THE A P P E L L A NT WA S THE F . Y. 201 0 - 11. THE AP P E L LA NT ITA NO. 400 / BANG /201 7 . M/S.TEEKAYS INTERIOR SOLUTIONS PVT.LTD . 10 H A S R E L I E D ON T H E J U DG ME N T OF COCH I N T R I B UN A L I N THE C A SE OF K E R A L A V I S I ON L TD A ND A G R A T R IB U N A L I N THE C A SE OF V IR O L A I NT E R N A T I ON A L , W H E R E I N I T W A S H E L D T H A T 'THE LA W A MEN D E D WA S U N D OU B T E D L Y R E T R O S P E CT I VE I N N A T U R E B UT SO F A R A S T A X WI THH O L D I N G LI A B I LI T Y I S CO N C E R N E D , I T D E P E N D S O N TH E L A W A S I T E X I S T E D A T T H E P O I N T OF T I ME W H E N PA Y MENTS, F R O M W H I CH T A X E S OU G H T TO H A VE B EE N WI THH E L D , W E R E M A D E . T H E T A X - D E D U C T O R C A N N O T B E E X P E C T E D T O H A V E C L A I R V O Y A N C E O F KN O WI NG H O W THE LA W WI L L CH A N G E I N FUTU R E . ' F U R T H E R , SO F T WA R E P A Y M E N T WA S I N C L U D E D I N D E F I N I T I O N O F R O Y A L T Y O N L Y V I D E E X PLA N A T I O N T O S E C T I O N 9 ( 1 )( V I ) I N S E R T E D R E T R OS P E C T I V E L Y V ID E F I N A N C E A C T , 2 01 2 A N D W H E N T H E P U R C H A S E WA S M A D E , TH E A PP E LLA N T D I D N O T H A V E T H E B E N E F I T O F C LA R I F I C A T I O N B R OU G H T B Y T H E R E T R OS P E C T I VE A M E N D M E N T . I T I S I M P OS S I B L E T O F A S T E N LIABIL I T Y F O R D E D U C T I N G T A X A T SOU R C E R E T R OS P E C T I V E L Y A S T A X I S T O B E D E D U C T E D A T SO U R C E A T TH E T I M E W H E N TH E P A Y M E N T I S C R E D I T E D O R M A D E . T H I S V I E W H A S B EE N U P H E L D B Y T H E BA N GAL O R E T RIB UN A L I N T H E C A S E O F D C I T V S M/ S W S A T K I N S I N DI A P V T L T D ( I T A N O 1 4 6 7 1 BA N G 1 20 1 4 A N D TH E M U MB A I T RI B UN A L I N T H E C A S E O F C H A N N E L G U ID E I N D I A L T D . VS A C I T ([2012] 25 T A XM A NN . COM 25). 5 . 2 T H E I T A T ' C ' B E N C H I N T H E C A S E M/ S W S A T K I N S I N DI A P VT . L T D A N D I N T H E C A S E O F I N F O T E C H E N T E R P RI S E S L T D O F T H E H Y D E RA B A D B E N C H O F TH E T R IB U N A L W H E R E I N I T H A S B EE N H E L D TH A T S E C T I O N 40 ( A )( IA ) W OU L D NO T A PPL Y T O DI S ALL O W PA Y M E N T S W H E N T D S WA S N O T D O N E A N D S U B S E Q U E N T L Y B E C O M E T A X A B L E O N A C C O U N T O F A R E T R O S P E C T I V E L E G I S L A T I O N . I T H A S A L S O R E F E R R E D T O I N TH E C A S E O F S ON I C BI O C H E M E XT RA C T I O N S P VT . L T D . ( SU PRA ) , I D E N T I C A L I SSU E WA S CO N S I D E R E D A N D D E C I D E D B Y TH E M U MB A I T RI B UN A L . F O LL O W I N G W E R E THE R E L E V A NT O B S E R V A T I O NS : - ' T H E A S S E S S E E P U R C H A S E D S O F T W A R E , C AP I T A L I Z E D TH E P A Y M E N T T O TH E CO M P UT E R S A CCO UN T A S TH E S O FT WAR E C AM E AL O N G W I T H TH E H ARDW A R E O F CO MP UT E R S A N D C L A I M E D D E PR E C IA T I O N . O N TH E G R O UN D T H A T P U R C H A S E O F SO FT WAR E I S E SS E N T IALL Y P U R CH A S E O F CO P Y RIG H T W H I C H A TT RA C T S T A X D E D UC T I O N A T SO U R C E U N D E R S E C T I ON 194 J , T H E A SS E SS I NG OFF I C E R I N V O L V E D T H E P R O V I S I O N S O F S E C T I O N 40 ( A ) ( I A ) A N D D I S A L L O W ITA NO. 400 / BANG /201 7 . M/S.TEEKAYS INTERIOR SOLUTIONS PVT.LTD . 11 E D TH E D E P R E C I A T I O N C L A I M E D . T H E C OM M I S S I ON E R ( A PP E A L S ), CON F IR M E D T H E A C T I O N O F T H E A S S E S S I NG O F F I C E R O N TH E G R O UN D TH A T TH E P U R C H A S E O F SO F T WAR E AM O UNT E D T O A C Q U I S I T I O N O F I N T A N GIBL E A SS E T A N D T H E R E F O R E , T H E PA Y M E N T WA S R O Y AL T Y A N D DI S ALL O W A B L E . ON A PP E A L : H E L D , ( I ) T H A T M E R E P U R C H A S E O F S O F T WA R E , A CO P Y RIG H T E D A R T I C L E , F O R UT I L I S A T I ON OF C O M P UT E R S C A N NOT B E CON S I D E R E D A S P U R C H A SE OF C O P Y R I G HT A N D R OY AL TY. T H E A S S E S S E E DI D N O T A C Q U I R E A NY RIG HTS F OR M A K I NG CO P I E S, S E LL I NG OR A C Q U I R I NG W H I CH G E N E RA L L Y COU L D B E CON S ID E R E D WI T H I N THE D E F I N I T I ON OF ' R OY A L TY ' . E X P LA N A T I ON 2 TO S E CT I ON 9 ( 1) ( V I ) C A N N O T B E APPLI E D TO P U R CH A S E O F A C O P Y RI G H T E D S O FT WA R E , W H I C H D O E S N O T I N V O L V E A N Y C O M M E R C IA L E X PL O I T A T I O N T H E R E O F . T H E A SS E SS E E S I M PL Y P U R CH A S E D S O FT W A R E D E L I V E R E D A L ONG W I TH C OM P UT E R H A R D W AR E F O R UT I LI Z A T I ON I N THE D A Y - TO - DA Y B U S I N E SS . ' 5.3 RELYING ON THE ABOVE DECISION, THE ITAT `C BENCH, BANGALORE UPHELD THE ORDER OF THE CIT(A) WHO HAD OBSERVED THAT THE ASSESSEE DID NOT HAVE THE BENEFIT OF THE C LARIFICATION BROUGHT BROUGHT ABOUT BY THE RETROSPECTIVE AMENDMENT THAT THE PAYMENTS TANTAMOUNT TO PAYMENT FOR ROYALTY AND CONSEQUENTLY TAX WAS TO BE DEDUCTED U/S 194J. THE LAW AS EXTANT ON THE DATE WHEN THE PAYMENT FOR OBTAINING THE SOFTWARE WAS MADE, HAS NOT CATEGORICALLY LAID DOWN THAT TAX IS REQUIRED TO BE DEDUCTED. IT IS IMPOSSIBLE TO FASTEN LIABILITY FOR DEDUCTING TAX AT SOURCE RETROSPECTIVELY. 5 . 4 I N V I E W O F T H E A B O V E D E C I S I O N S , I T I S C O R R E C T T O S A Y TH A T I T I S N O T P O S S I B L E T O F A S T E N L I A B I L I T Y F O R D E D U C T I N G T A X A T S O U R C E R E T R O S P E C T I V E L Y A S T A X I S T O B E D E D U C T E D A T SO U R C E A T TH E T I M E W H E N T H E P A Y M E N T I S C R E D I T E D O R M A D E . W H E N P U R C H A S E O F SO FT W A R E WA S M A D E TH E A S S E SS E E D I D N O T H A V E TH E B E N E F I T O F T H E C L A R I F I C A T I O N B R O U G H T A B O U T B Y T H E R E T R O S P E C T I V E AM E N DM E NT . T H E CO N T E NT I O N O F T H E APP E LLA N T I S CO R R E C T TH A T TH E S O FT W A R E P A YMENT DISALLOWED BY THE A O DID NOT WARRANT WITHHOLDING O F T H E T A X U / S 4 0 ( A ) ( IA ) A N D 40 ( A )( IA ) ( B Y A N O RD E R O F CO RRI G E N D U M D T 2 0 . 1 1 . 2 0 1 5 ) O F TH E A C T . T H E R E F O RE DI S A L L O W A N CE M AD E B Y THE A O ON A CCOUNT OF SOFT W AR E PA YM E NT WA NT OF WI TH H O L D I NG OF T A X IS H E R E B Y D E L E T E D . ITA NO. 400 / BANG /201 7 . M/S.TEEKAYS INTERIOR SOLUTIONS PVT.LTD . 12 05. THE C I T( A ) FO LL O W E D THE D E C I S I ON OF TH I S T R I B UN A L I N M/ S W S A T K I N S I N DI A P VT . L T D , SU PRA , W H I C H R E F E RR E D T H E D E C I S I ON S O F H Y D E RA B A D B E N C H O F TH E T R IB U N A L I N I N F O T E C H E N T E R P RI S E S L T D I N IT A 11 5 / H Y D / 20 1 1 W H E R E I N I T H A S B EE N H E L D T H A T S E C T I O N 40 ( A )( IA ) W OU L D NO T APPL Y T O DI S ALL O W PA Y M E N T S W H E N T D S WA S NO T D O N E A N D S U B S E Q U E N T L Y B E C O M E T A X A B L E O N A C C O U N T O F A R E T R O S P E C T I V E L E G I S L A T I O N . I T H A S A L S O R E F E R R E D T O T H E D E C I S I O N S O F T H E D E L H I & M U M BA I T R I B U N A L I N S M S D E M A G P V T L T D , 13 2 IT J 4 9 8 & S ON I C BI OCH E M E XT RA C T I ON S P V T . L T D . 2 3 I T R ( T RIB ) 447 , R E S P E C T I V E L Y . W E U P HO L D T H E D E C I S I O N O F T H E C I T ( A ) A N D DI S M I S S T H E GR OUN D S RAI S E D B Y T H E R E V E N U E . T H U S I T I S C L EAR T H AT T H E C O - O R D I N A T E B E N C H O F TH I S T R IB UN A L W H IL E D E C I D I N G T H I S I SS U E H AS T A K E N N O T E O F VA R I O U S D E C I S I O N S I N F AV O U R O F TH E A S S E S S EE O N TH E P O I N T T H AT T H E P A YM E N T FO R P U R C H A S E O F SOF T WA R E D O ES N O T F ALL I N TH E D E F I N I T I O N O F R O YA L T Y. R E S P E C T F U LL Y FO LL O W I N G T H E D E C I S I O N O F C O - O R D I N A T E B E N C H O F T H I S T R I B U N A L , WE D EL E T E T H E D I S A L L O WA N C E MA D E B Y TH E ASS E S S I N G OF F I C ER. 1 2 . CONSISTENT WITH THE VIEW TAKEN ON THE ABOVE CASE, WE ALSO HOLD THAT THE ASSESSEE CANNOT BE FASTENED WITH THE LIABILITY TO DEDUCT TAX AT SOURCE RETROSPECTIVELY AND ACCORDINGLY, WE SET ASIDE THE ORDER PASS ED BY THE LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE A.O. TO DELETE THE IMPUGNED ADDITION. 13. THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATES TO THE DISALLOWANCE OF INTEREST PAYABLE ON BELATED REMITTANCE OF TDS AMOUNT. THE LD A.R PLACED HER RELIAN CE ON THE DECISION RENDERED BY THE KOLKATTA BENCH OF TRIBUNAL IN THE CASE OF M/S NARAYANI ISPAT P LTD (ITA NO.2127/KOL/2014 DATED 30 - 08 - 2017) AND CONTENDED THAT THE ABOVE SAID INTEREST EXPENDITURE IS ALLOWABLE AS DEDUCTION . ITA NO. 400 / BANG /201 7 . M/S.TEEKAYS INTERIOR SOLUTIONS PVT.LTD . 13 14. ON THE CONTRARY, THE LD D.R TOOK SUPPORT OF THE DECISION RENDERED BY HON BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. CHENNAI PROPERTIES & INVESTMENTS LTD (1999)(239 ITR 435), WHEREIN IT WAS HELD THAT THE INTEREST PAID WOULD TAKE THE COLOUR FROM THE NATURE OF PRINCIPAL AMOUNT REQ UIRED TO BE PAID, BUT NOT PAID IN TIME. ACCORDINGLY IT WAS HELD THAT THE INTEREST PAID ON BELATED PAYMENT OF TDS CANNOT BE CONSIDERED AS COMPENSATORY IN NATURE AND ACCORDINGLY HELD THAT THE SAME IS NOT ALLOWABLE AS DEDUCTION. 15. IN VIEW OF THE DECISI ON RENDERED BY HON BLE MADRAS HIGH COURT IN THE CASE CITED ABOVE, WE DECIDE THIS GROUND AGAINST THE ASSESSEE. ACCORDINGLY WE UPHOLD THE DECISION TAKEN BY LD CIT(A) ON THIS ISSUE. 16. THE LAST ISSUE RELATES TO THE TDS CREDIT OF RS.4,70,214/ - . DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO RECONCILE THE GROSS RECEIPTS SHOWN BY THE ASSESSEE WITH THE FIGURES SHOWN IN FORM 26AS STATEMENT. IT WAS NOTICED THAT THE ASSESSEE HAS CLAIMED TDS CREDIT IN RESPECT OF CERTAIN RECEIPTS, WHIC H WERE OFFERED EITHER IN EARLIER YEARS OR IN SUBSEQUENT YEARS. ACCORDINGLY, BY TAKING SUPPORT OF SEC.199 OF THE ACT, THE AO DISALLOWED TDS CREDIT OF THOSE RECEIPTS, WHICH WERE NOT OFFERED DURING THE YEAR UNDER CONSIDERATION. THE LD CIT(A) ALSO CONFIRMED T HE SAME. 17. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. A PERUSAL OF PROVISIONS OF RULE 37BA READ WITH ITA NO. 400 / BANG /201 7 . M/S.TEEKAYS INTERIOR SOLUTIONS PVT.LTD . 14 SEC.199 OF THE ACT WOULD SHOW THAT , AS PER RULE 37BA(3)(I), THE CREDIT FOR TAX DEDUCTED AT SOURCE AND PAID TO THE CENTRAL GOVERNMENT SHALL BE GIVEN FOR THE ASSESSMENT YEAR FOR WHICH SUCH INCOME IS ASSESSABLE. HENCE, THE AO WAS JUSTIFIED IN RESTRICTING THE TDS CREDIT TO THE EXTENT THAT RELATED TO THE INCOME OFFERED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 18. HOWEVER, T H E PROVISIONS OF RULE 37BA(3)(II) ALSO STATES AS UNDER: - WHERE TAX HAS BEEN DEDUCTED AT SOURCE AND PAID TO THE CENTRAL GOVERNMENT AND THE INCOME IS ASSESSABLE OVER A NUMBER OF YEARS, CREDIT FOR TAX DEDUCTED AT SOURCE SHALL BE ALLOWED ACROSS THOSE YEARS IN THE SAME PROPORTION IN WHICH THE INCOME IS ASSESSABLE TO TAX. THIS PROVISION MANDATES THE AO TO ALLOW THE CREDIT FOR TDS IN THE SAME PROPORTION IN WHICH THE INCOME IS ASSESSABLE TO TAX. BEFORE US, THE LD A.R PRAYED THAT THE BENEFIT OF ABOVE PROVISION MAY BE GIVEN TO THE ASSESSEE. WHEN QUESTIONED AS TO WHETHER THE ASSESSEE HAS MOVED ANY PETITION BEFORE THE AO FOR ALLOWING TDS CREDIT IN OTHER YEARS, THE LD A.R REPLIED IN NEGATIVE. 19. IN OUR VIEW, THE ASSESSEE SHOULD NOT BE DENIED THE BENEFIT OF CRED IT OF TDS AS PROVIDED IN RULE 37BA(3)(II) OF I.T RULES . ACCORDINGLY WE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR EXAMINING THE CLAIM OF THE ASSESSEE. WE ALSO DIRECT THE ASSESSEE TO MOVE APPROPRIATE PETITION BEFORE THE AO IN THIS ITA NO. 400 / BANG /201 7 . M/S.TEEKAYS INTERIOR SOLUTIONS PVT.LTD . 15 REGARD, WHICH SHALL BE CONSIDERED IN A LIBERAL MANNER BY THE AO . ACCORDINGLY, THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE STANDS MODIFIED AS DISCUSSED ABOVE. 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 15 TH DAY OF FEBRUARY, 201 9 . SD/ - SD/ - ( N.V.VASUDEVAN ) ( B.R.BASKARAN ) VICE - PRESIDENT ACCOUNTANT MEMBER BANGALORE ; DATED : 15 TH FEBRUARY, 2019 . DEVDAS* COPY OF THE ORDER FORWARDED TO : TRUE COPY BY ORDER, (ASSTT. REGISTRAR) ITAT, BANGALORE 1. THE APPELLANT 2. THE RES PONDENT. 3. THE CIT, BENGALURU . 4. CIT(A) - 7 , BENGALURU 5. DR, ITAT, BANGALORE 6. GUARD FILE.