Citrix Systems Asia Pacific Proprietary Ltd., Bangalore V. ITO, Bangalore

ITA 477/BANG/2015

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 6182 (ITAT-BANGALORE)
• Duration Of Justice: 6 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 27-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VANDANA SAGAR
• Assessee Lawyers: P C KHINCHA
• Keywords: Double taxation relief; Permanent establishment; TDS; Set aside
• Section: 12AA; 195; 22

Judgement Text

IT(IT)A NOS.476 & 477/BANG/2018 CITRIX SYSTEMS ASIA PACIFIC PROPRIETARY LTD., BANGA LORE IN THE INCOME TAX APPELLATE TRIBUNAL CBENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(IT)A NOS.476 & 477/BANG/2015 ASSESSMENTYEARS:2008-09 & 2009-10 CITRIX SYSTEMS ASIA PACIFIC PROPRIETARY LTD. C/O M/S. Y.K. ANAND & CO. 172/3, KATHRIGUPPE MAIN ROAD VIVEKANANDA NAGAR BSK 3 RD STAGE BANGALORE 560 085. PAN NO :AADCC8874E VS. ITO INTERNATIONAL TAXATION WARD-1(1) BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI P.C. KHINCHA, A.R. RESPONDENT BY : SMT. VANDANA SAGAR, D.R. DATE OF HEARING : 22.03.2021 DATE OF PRONOUNCEMENT : 22.04.2021 O R D E R PERB.R. BASKARAN, ACCOUNTANT MEMBER: BOTH THE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST COMMON ORDER DATED 21.1.2015 PASSED BY LD. CIT(A)-1 2, BANGALORE AND THEY RELATE TO THE ASSESSMENT YEARS 2008-09 & 2 009-10. SINCE ISSUE URGED IN THIS APPEAL IS IDENTICAL IN NATURE, BOTH THE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COM MON ORDER FOR THE SAKE OF CONVENIENCE. IT(IT)A NOS.476 & 477/BANG/2018 CITRIX SYSTEMS ASIA PACIFIC PROPRIETARY LTD., BANGA LORE PAGE 2 OF 5 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD. CIT(A) IN CONFIRMING THE ASSESSMENT OF PAYMENTS RECEIVED BY T HE ASSESSEE FROM ITS INDIAN CUSTOMERS IN RESPECT OF LICENSES GR ANTED FOR USE OF COPY RIGHTED COMPUTER SOFTWARE AS ROYALTY U/S 9(1)( VI) OF THE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT]. 3. THE ASSESSEE COMPANY IS A FOREIGN COMPANY INCORP ORATED IN AUSTRALIA. THE COMPANY IS GRANTING LICENSES FOR US E OF SOFTWARE PROGRAMS. THE ASSESSEE HAS ENTERED INTO AN AGREEMEN T WITH INDEPENDENT INDIAN DISTRIBUTORS FOR DISTRIBUTION AN D SALE OF ITS SOFTWARE LICENSES AND HARDWARE PRODUCTS IN INDIA. THE ASSESSEE CONTENDED BEFORE THE TAX AUTHORITIES THAT CONSIDERA TION RECEIVED BY IT TOWARDS SALE OF SOFTWARE LICENSES IN INDIA IS NO T TAXABLE, SINCE IT DOES NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA. 4. THE ASSESSEE COMPANY ALSO FILED AN APPLICATION B EFORE AUTHORITY FOR ADVANCED RULING (AAR) FOR DETERMINI NG THE TAXABILITY OF CONSIDERATION RECEIVED BY IT FROM DISTRIBUTORS T OWARDS SALE OF SOFTWARE PROGRAMS IN INDIA. THE AAR HELD THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE IS ROYALTY WITHIN THE MEAN ING OF SECTION 9(1)(VI) OF THE ACT AND ALSO UNDER ARTICLE 12 OF DT AA ENTERED BETWEEN INDIA AND AUSTRALIA. THE AO ALSO HELD THE SAME VIEW. 5. THE ASSESSEE HAD RECEIVED A SUM OF RS.17.57 C RORES IN ASSESSMENT YEAR 2008-09 AND RS.16.97 CRORES IN ASSE SSMENT YEAR 2009-10 TOWARDS SALE OF SOFTWARE LICENSES. ACCORDIN GLY, THE AO BROUGHT TO TAX THE ABOVE SAID AMOUNTS IN ASSESSMENT YEARS 2008- 09 AND 2009-10 RESPECTIVELY. THE LD. CIT(A) ALSO H ELD THAT THE ABOVE SAID PAYMENTS CONSTITUTE ROYALTY IN THE HANDS OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE HAS FILED THESE APPEALS BEFORE US. IT(IT)A NOS.476 & 477/BANG/2018 CITRIX SYSTEMS ASIA PACIFIC PROPRIETARY LTD., BANGA LORE PAGE 3 OF 5 6. THE LD. A.R. SUBMITTED THAT THE PAYMENTS RECE IVED ON SALE OF SOFTWARE LICENSES HAVE BEEN HELD TO BE ROYALTY BY H ONBLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS CO LT D (345 ITR 494). HOWEVER, THE HONBLE DELHI HIGH COURT HAS TA KEN CONTRARY VIEW ON THE VERY SAME ISSUE. THE AAR ALSO HAD EXPR ESSED DIVERGENT VIEWS ON THE SIMILAR ISSUE. HE SUBMITTED THAT THE DECISION RENDERED BY THE AAR IN THE ASSESSEES OWN CASE IS REPORTED A S CITRIX SYSTEMS ASIA PACIFIC PTYL LTD (2012)(343 ITR 1)(AAR), WHERE IN THE AAR HAS TAKEN THE VIEW THAT THE IMPUGNED RECEIPTS ARE IN TH E NATURE OF ROYALTY. HOWEVER, THE AAR HAD EXPRESSED A DIFFER ENT VIEW IN THE CASE OF DASSAULT SYSTEMS, KK (2010)(322 ITR 125)(AA R), WHICH IS IN THE LINE EXPRESSED BY HONBLE DELHI HIGH COURT. 7. THE LD A.R SUBMITTED THAT THE HONBLE SUPREME COURT HAS CONSOLIDATED ALL APPEALS ARISING FROM THE ORDERS PA SSED BY HONBLE KARNATAKA HIGH COURT, HONBLE DELHI HIGH COURT AND THE AAR. THE HONBLE SUPREME COURT HAS RENDERED ITS DECISION IN THE CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PVT. LTD . VS. CIT (CIVIL APPEAL NOS.8733-8734 OF 2018 DATED 02.3.2021 ). THE LD. A.R. SUBMITTED THAT THE DECISION RENDERED BY AAR IN THE ASSESSEES CASE IS REFERRED IN PARA 94 OF THE HONBLE SUPREME COURT DECISION AND IN PARA 100, THE HONBLE SUPREME COURT HAS HELD THAT THE DECISION RENDERED BY THE AAR IN THE ASSESSEES CASE DOES NOT CONSTITUTE THE LAW CORRECTLY AND ACCORDINGLY, IT WA S SET ASIDE. FINALLY, THE HONBLE SUPREME COURT CONCLUDED THAT T HE SOFTWARE LICENSES SOLD BY THE ASSESSEE BY WAY OF DISTRIBUTOR AGREEMENTS/EULA (END USER LICENCE AGREEMENTS) DO NO T CREATE ANY INTEREST OR RIGHT IN SUCH DISTRIBUTOR/END USERS, WH ICH WOULD AMOUNT TO THE USE OF OR RIGHT TO USE ANY COPY RIGHT . ACCORDINGLY, IT WAS HELD THAT THE PAYMENT DOES NOT CONSTITUTE ROYAL TY. ACCORDINGLY, THE LD. A.R. SUBMITTED THAT THE ASSESSMENTS MADE BY THE A.O. IN IT(IT)A NOS.476 & 477/BANG/2018 CITRIX SYSTEMS ASIA PACIFIC PROPRIETARY LTD., BANGA LORE PAGE 4 OF 5 BOTH THE YEARS TREATING THE PAYMENT RECEIVED BY THE ASSESSEE ON SALE OF SOFTWARE PROGRAMMES AS ROYALTY ARE LIABLE T O BE SET ASIDE. 8. WE HEARD LD. D.R. AND PERUSED THE RECORD. WE NO TICE THAT THE HONBLE SUPREME COURT IN THE CASE OF ENGINEERIN G ANALYSIS CENTRE OF EXCELLENCE PVT. LTD. HAS GIVEN ITS CONCLU SION AS UNDER: 168. GIVEN THE DEFINITION OF ROYALTIES CONTAINED IN ARTICLE 12 OF THE DTAAS MENTIONED IN PARAGRAPH 41 OF THIS JUDGEME NT, IT IS CLEAR THAT THERE IS NO OBLIGATION ON THE PERSONS MENTIONE D IN SECTION 195 OF THE INCOME TAX ACT TO DEDUCT TAX AT SOURCE, AS T HE DISTRIBUTION AGREEMENTS/EULAS IN THE FACTS OF THESE CASES DO NOT CREATE ANY INTEREST OR RIGHT IN SUCH DISTRIBUTORS/END-USERS, W HICH 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 ROYA LTY, NOT BEING MORE BENEFICIAL TO THE ASSESSEES, HAVE NO APPLICATI ON IN THE FACTS OF THESE CASES. 169. OUR ANSWER TO THE QUESTION POSED BEFORE US, IS THAT THE AMOUNTS PAID BY RESIDENT INDIAN END-USERS/DISTRIBUT ORS TO NON- RESIDENT COMPUTER SOFTWARE MANUFACTURERS/SUPPLIERS, AS CONSIDERATION FOR THE RESALE/USE OF THE COMPUTER SO FTWARE THROUGH EULAS/DISTRIBUTION AGREEMENTS, IS NOT THE PAYMENT O F ROYALTY FOR THE USE 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 PERSONS 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 WILL APPLY TO ALL FOUR CATEGORIES OF CASES ENUMERATED BY US IN PARAGRAPH 4 OF THIS JUDGEMENT. 170. THE APPEALS FROM THE IMPUGNED JUDGEMENTS OF TH E HIGH COURT OF KARNATAKA ARE ALLOWED, AND THE AFORESAID J UDGEMENTS ARE SET ASIDE. THE RULING OF THE AAR IN CITRIX SYSTEMS (AAR) (SUPRA) IS SET ASIDE. THE APPEALS FROM THE IMPUGNED JUDGEMENT S OF THE HIGH COURT OF DELHI ARE DISMISSED. THE HONBLE SUPREME COURT HAS HELD THAT THE PAYMENT S RECEIVED ON SALE OF SOFTWARE LICENSES ARE NOT IN THE NATURE OF ROYALTY, AS THE DISTRIBUTION AGREEMENTS/EULAS IN THE FACTS OF THESE CASES DO NOT CREATE ANY INTEREST OR RIGHT IN SUCH DISTRIBUTORS/E ND-USERS, WHICH WOULD AMOUNT TO THE USE OF OR RIGHT TO USE ANY COPY RIGHT UNDER IT(IT)A NOS.476 & 477/BANG/2018 CITRIX SYSTEMS ASIA PACIFIC PROPRIETARY LTD., BANGA LORE PAGE 5 OF 5 12AA OF INDIA SINGAPORE DTAA. THE LD A.R SUBMITTE D THAT THE DTAA ENTERED BY INDIA WITH AUSTRALIA ALSO CONTAINS SIMILAR PROVISIONS. ACCORDINGLY, FOLLOWING THE DECISION RE NDERED BY HONBLE SUPREME COURT IN THE ABOVE SAID CASE, WE HOLD THAT THE PAYMENTS RECEIVED BY THE ASSESSEE ON SALE OF SOFTWARE LICENS ES IN INDIA ARE NOT IN THE NATURE OF ROYALTY AS PER THE PROVISIONS OF DTAA. AS OBSERVED BY HONBLE SUPREME COURT IN THE ABOVE CITE D CASE, THERE IS NO REQUIREMENT TO APPLY PROVISIONS OF SEC. 9(1)(VI) OF THE ACT TO THE INSTANT CASE. ACCORDINGLY, WE SET ASIDE THE ORDERS PASSED BY LD. CIT(A) ON THIS ISSUE IN BOTH THE YEARS AND DIRECT T HE A.O. TO DELETE THE INCOME ASSESSED AS ROYALTY IN RESPECT OF SALE O F SOFTWARE LICENSES IN BOTH THE YEARS UNDER CONSIDERATION. 9. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND APR, 2021 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 22 ND APR, 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