Autodesk Asia Pte Limited, Bangalore V. DDIT, Bangalore

ITA 509/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63749 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 03-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI
• Assessee Lawyers: K P KUMAR
• Keywords: Transfer pricing; Double taxation relief; International transaction
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SMT. P MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.5 09/BANG/2011 (ASST. YEAR - 2006-07) M/S AUTODESK ASIA PTE LTD., 3, FUSIONOPOLLS WAY, #10-21 SMBIOSIS, SINGAPORE-138633. . APPELLANT PAN AAFCA 6398 D. VS. THE DY. DIRECTOR OF INCOME-TAX, (INTERNATIONAL TAXATION) CIRCLE-1(1), BANGALORE. . RESPONDENT APPELLANT BY : SHRI K.P KUMAR, ADVOCATE RESPONDENT BY : SHRI FARHAT HUSSAIN QURESHI, CIT DATE OF HEARING : 04-10-2012 DATE OF PRONOUNCEMENT : 26-10-2012 O R D E R PER P MADHAVI DEVI, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2006-07. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE ITA NO.5 09/B/11 2 COMMISSIONER OF INCOME-TAX - (APPEALS) IV AT BANGAL ORE DATED 17.02.2011. THE APPEAL ARISES OUT OF THE ORDER U/S 143(3) OF THE INCOME-TAX ACT, 1961. 2. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE CIT(A) HOLDING THAT THE PAYMENT RECEIVED BY THE AS SESSEE FROM THE INDIAN CUSTOMERS IS ROYALTY UNDER THE INCOME-TAX AC T. WITHOUT PREJUDICE TO THE ABOVE GROUND, THE OTHER GRIEVANCE OF THE ASSESEE IS THAT THE DDIT/CIT(A) HAS ERRED IN NOT APPLYING RATE OF TAX ON THE ALLEGED ROYALTY INCOME AT 10% AS PER THE DTAA AGREE MENT BETWEEN INDIA AND SINGAPORE FOR THE ENTIRE FINANCIAL YEAR. 3. AS REGARDS THE FIRST ISSUE I.E THE NATURE OF THE PAYMENT RECEIVED WHETHER IT IS ROYALTY OR NOT, THE REPRESENTATIVES O F BOTH THE REVENUE AS WELL AS THE ASSESSEE HAVE AGREED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE REVENUE BY THE DECISION OF THE HONBE HIGH COUR T OF KARNATAKA IN THE CASE OF M/S SYNOPSIS INTERNATIONAL PVT. LTD . IN ITA NO.11 TO 15 OF 2008 AND 17 OF 2008 DATED 3 RD AUG, 2010, WHEREIN THE RECEIPTS HAVE BEEN HELD TO BE IN THE NATURE OF ROYALTY. THEREFOR E, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF M/S ITA NO.5 09/B/11 3 SYNOPSIS INTERNATIONAL PVT. LTD., THIS ISSUE IS D ECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. 4. THE NEXT QUESTION TO BE DEALT WITH BY US IS REG ARDING THE RATE OF TAX. THE BRIEF FACTS OF THE CASE ARE THAT AS PER T HE DTAA BETWEEN INDIA AND SINGAPORE, THE RATE OF TAX ON ROYALTY WAS 15%. HOWEVER, BY SUBSEQUENT NOTIFICATION DATED 18.7.2005, THE RATE O F TAX HAS BEEN CHANGED TO 10%. THE AO INITIALLY CHARGED THE TAX A T 15% FOR THE ENTIRE YEAR AND SUBSEQUENTLY BY AN ORDER U/S 154 HA S CHARGED INTEREST @ 15% FROM 1.4.2005 TO 17.5.2005 AND @ 10% FROM 18. 7.2005 TO 31/3/2006. THE CIT(A) HAD CONFIRMED THE ORDER OF T HE AO IN THE ORIGINAL PROCEEDINGS AND THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT UNDER ARTICLE 3 OF THE DTAA BETWEEN INDIA AND SINGAPORE FISCAL YEAR IS DEFINED AS IN THE CASE OF INDIA, PREVIOUS YEAR AS D EFINED U/S 3 OF THE INCOME-TAX ACT 1967 AND IN THE CASE OF SINGAPORE, CALENDAR YEAR. HE SUBMITTED THAT THE PREVIOUS YEAR AS DEFINED IN S EC. 3 OF THE INCOME- TAX ACT IS 1 ST OF APRIL TO 31 ST MARCH OF THE RELEVANT FINANCIAL YEAR. HE SUBMITTED THAT THE RATE OF TAX IS APPLICABLE TO THE FISCAL YEAR/PREVIOUS YEAR AND IRRESPECTIVE OF THE DATE OF NOTIFICATION, THE RATE OF TAX IS ITA NO.5 09/B/11 4 APPLICABLE THROUGHOUT THE FISCAL YEAR/PREVIOUS YEAR . HE SUBMITTED THAT VIDE NOTIFICATION DATED 18.7.2005, THE RATE OF TAX TO BE CHARGED ON ROYALTY HAS BEEN CHARGED/RESTRICTED TO 10% AS AGAI NST 15% WHICH WAS PREVALENT EARLIER. HE SUBMITTED THAT THE SAME RATE OF TAX I.E 10% SHOULD BE CHARGED FOR THE ENTIRE PREVIOUS/FISCAL YE AR I.E FROM 1.4.2005 TO 31.3.2006. 6. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE AO AND THE CIT(A) AND SUBMITTED THAT SINCE THE NOTI FICATION IS DATED 18.7.2005, THE RATE OF TAX WAS ACCORDINGLY RIGHTLY CHARGED BY THE AO FOR THE RESPECTIVE PERIODS AND THERE IS NO ILLEGALI TY IN THE ORDER OF THE AO. 7. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THE RIVAL CONTENTIONS, WE FIND THAT THE RATE OF TAX ON A PART ICULAR INCOME IS FOR THE INCOME EARNED DURING THE PREVIOUS YEAR. IN THE INTERNATIONAL TRANSACTION, EACH COUNTRY MAY HAVE A DIFFERENT FINANCIAL/PREVIOUS/FISCAL YEAR FOR THE PURPOSE OF T AXATION. THEREFORE, THE DTAA BETWEEN INDIA AND OTHER COUNTRIES HAS DEF INED THE FINANCIAL/FISCAL/PREVIOUS YEARS AS PER THE COMMON U NDERSTANDING OF BOTH THE COUNTRIES. IN THE CASE BEFORE US, THE DTAA BETWEEN INDIA AND ITA NO.5 09/B/11 5 SINGAPORE IS RELEVANT WHICH HAS COME INTO FORCE FRO M 21 ST MAY 1994. THE ARTICLE 12 OF DTAA BETWEEN INDIA AND SINGAPORE PRESCRIBED THE RATE OF TAX ON ROYALTY AT 15%. SUBSEQUENTLY ON NEG OTIATIONS BETWEEN BOTH THE COUNTRIES, THE RATE OF TAX HAS BEEN AMENDE D AND RESTRICTED TO 10%. THE QUESTION BEFORE US IS WHETHER THE RATE OF TAX OF 10% IS APPLICABLE FOR THE ENTIRE PREVIOUS YEAR OR IS THERE ANY DIFFERENCE AFTER THE AMENDMENT OR FROM THE DATE FROM WHICH THERE IS A CHANGE IN THE RATE OF TAX. ON GOING THROUGH THE DTAA BETWEEN IND IA AND SINGAPORE, WE FIND THAT CLAUSE (2) OF ARTICLE 12 HA S BEEN SUBSTITUTED VIDE NOTIFICATION NO.185 OF 2005 DATED 18.7.2005. T HE MEANING OF SUBSTITUTION IS THAT IT TAKES THE PLACE OF THE E ARLIER PROVISION I.E EARLIER PROVISION IS OBLITERATED AND THE NEW PROVIS ION TAKES ITS PLACE. IN SUCH A SITUATION, IT CAN ONLY BE INFERRED THAT T HE NEW PROVISION IS THE ONLY PROVISION WHICH IS IN EXISTENCE AND THE OLD PR OVISION HAS NO EXISTENCE IN THE EYES OF LAW. THEREFORE, IT IS CL EAR THAT THE RATE OF TAX AS PROVIDED/SUBSTITUTED IN CLAUSE 2 OF ARTICLE 12 O F THE DTAA BETWEEN INDIA AND SINGAPORE ONLY IS APPLICABLE FOR THE EN TIRE FISCAL YEAR AS DEFINED IN THE DTAA. THEREFORE, THE ASSESSEE IS EN TITLED TO BE TAXED @ 10% AS PROVIDED UNDER THE SUBSTITUTED CLAUSE 2 OF ARTICLE 12 OF THE DTAA BETWEEN INDIA AND SINGAPORE. ITA NO.5 09/B/11 6 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26TH OCT, 2012. SD/- SD/- (JASON P BOAZ) (MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : 26 /10/2012 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVATE SECRETA RY, ITAT, BANGALORE.