GARTNER IRELAND LTD, MUMBAI V. DDIT (IT) RG 3(1), MUMBAI

ITA 7174/MUM/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9338 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Assessment Year: 2007-2008
• Appeal Filed On: 01-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Keywords: Business income; Double taxation relief; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE S/ SHRI B.R. BASKARAN (AM) & RAMLAL NEGI (JM) I.T.A. NO. 7174 /MUM/20 14 (ASSESSMENT YEAR 20 07 - 08 ) GARTNER IRELAND LIMITED C/O. BSR & CO LLP 1 ST FLOOR, LODHA EXCELUS APOLLO MILLS COMPOUND N.M. JOSHI MARG MAHALAXMI, MUMBAI - 400011. PAN : AACCG2919B VS. THE DEPUTY DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) RANGE 3(1) MUMBAI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI FARROKH IRANI DEPARTMENT BY S HRI T.A. KHAN DATE OF HEARING 2 7 . 9 . 201 7 DATE OF PRONOUNCEMENT 27 . 9 . 201 7 O R D E R PER B.R. BASKARAN (AM) : - THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 28 - 08 - 2014 PASSED BY LD CIT(A) - 10, MUMBAI CONFIRMING THE PENALTY OF RS.59.08 LAKHS LEVIED BY THE AO U/S 271(1)(C) OF THE ACT FOR ASSESSMENT YEAR 2007 - 08. 2. THE LD A.R SUBMITTED THAT THE ASSESSEE HEREIN IS A COMPANY REGISTERED IN THE REPUBLIC OF IRELAND AND IS A RESIDENT OF THAT COUNTRY AS PER THE PROVISIONS OF ARTICLE 4 OF DTAA ENTERED WITH THAT C OUNTRY BY INDIA. IT IS ENGAGED IN THE BUSINESS OF DISTRIBUTION OF RESEARCH PRODUCTS, WHICH ARE COMPILATIONS OF ECONOMIC AND BUSINESS DATA AND REPORTS. THESE DATA ARE DISTRIBUTED IN THE FORM OF SOFTWARE SUBSCRIPTIONS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED GROSS SUBSCRIPTION FEE OF RS.590.89 LAKHS FROM VARIOUS INDIAN COMPANIES. THE ASSESSEE CLAIMED THE SAME AS BUSINESS INCOME AND EXEMPT, SINCE IT DOES NOT HAVE PERMANENT ESTABLISHMENT IN INDIA. ACCORDINGLY THE ASSESSEE FILED NIL RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. THE AO TREATED THE SAME AS ROYALTY INCOME AND ACCORDINGLY LEVIED TAX @ 10%, WHICH WORKED OUT TO RS.59.08 LAKHS. THE AO LEVIED PENALTY THEREON U/S GARTNER IRELAND LTD. 2 271(1)(C) OF THE ACT @ 100% OF THE TAX. THE LD CIT(A) ALSO CO NFIRMED THE PENALTY AND HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 3. IT IS PERTINENT TO NOTE THAT THE INCOME ASSESSED BY THE AO HAS SINCE BEEN CONFIRMED BY LD CIT(A) AND TRIBUNAL. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS CHALLENGED THE OR DER PASSED BY THE TRIBUNAL BY FILING APPEAL BEFORE HONBLE HIGH COURT OF BOMBAY AND THE SAME HAS SINCE BEEN ADMITTED. 4. THE LD A.R SUBMITTED THAT THE BANGALORE BENCH OF TRIBUNAL HAS HELD ON 30 - 12 - 2004, IN THE CASE OF WIPRO LIMITED, THAT THE PAYMENTS MADE TO THE ASSESSEE HEREIN WERE NOT ROYALTY AND HENCE NO TAX IS REQUIRED TO BE DEDUCTED AT SOURCE. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 24 - 10 - 2007 DECLARING NIL INCOME ON THE REASONING THAT THE PAYMENTS RECEIVED BY IT BY WAY OF SUBSCRIPTIONS ARE NOT ROYALTY AND IT CANNOT ALSO BE TAXED AS BUSINESS INCOME, SINCE IT DOES NOT HAVE PERMANENT ESTABLISHMENT IN INDIA. ON THE DATE OF FILING THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION, THERE EXISTED A DECISION OF TR IBUNAL SUPPORTING THE STAND OF THE ASSESSEE. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS FURNISHED ALL THE DETAILS RELATING TO THE SUBSCRIPTION INCOME AND HENCE IT CANNOT BE SAID THAT THE ASSESSEE HAS EITHER CONCEALED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME. 5. HE SUBMITTED THAT THE ITAT HAS FOLLOWED THE DECISION RENDERED BY THE BANGALORE BENCH OF TRIBUNAL IN THE CASE OF WIPRO LTD (SUPRA) IN THE ASSESSEES OWN CASE IN AY 2004 - 05 AND DECIDED AN IDENTICAL ISSUE IN FAVOUR O F THE ASSESSEE, VIDE ITS ORDER DATED 30 - 07 - 2010. HOWEVER, FOR THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER PASSED THE DRAFT ASSESSMENT ORDER ON 05 - 08 - 2010 WITHOUT FOLLOWING THE DECISION RENDERED BY THE ITAT IN AY 2004 - 05. HOWEVER, SUBSEQUENTLY THE DECISION RENDERED BY THE BANGALORE BENCH OF TRIBUNAL WAS REVERSED BY THE HONBLE KARNATAKA HIGH COURT ON 15.10.2011 IN THE CASE OF WIPRO LTD (2011) 203 TAXMAN 621)(KAR). BY THE TIME, THE TRIBUNAL HEARD THE QUANTUM APPEAL OF THE YEAR UNDER CONSIDERATION, THE GARTNER IRELAND LTD. 3 DECISION OF HONBLE KARNATAKA HIGH COURT HAS COME AND HENCE THE TRIBUNAL, IN THE INSTANT YEAR, HAS DECIDED THE ISSUE AGAINST THE ASSESSEE, VIDE ITS ORDER DATED 24.07.2013 PASSED IN ITA NO.7101/MUM/2010, BY FOLLOWING THE DECISION RENDERED BY HONBLE KAR NATAKA HIGH COURT, SINCE THE HONBLE KARNATAKA HIGH COURT HAS RENDERED ITS DECISION ON THE VERY SAME PAYMENTS/RECEIPTS. 6. THE LD A.R SUBMITTED THAT THE HONBLE DELHI HIGH COURT HAS ALSO CONSIDERED AN IDENTICAL ISSUE IN THE CASE OF INFRASOFT LTD (2013) (39 TAXMANN.COM 88)(DELHI) AND HAS DECIDED THE SAME IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE SUBSCRIPTION RECEIVED FOR RIGHT TO USE OF SOFTWARE PROGRAM WOULD NOT GIVE RISE TO ANY ROYALTY INCOME IN TERMS OF INDIA USA DTAA. THE HONBLE DELHI HIGH COURT HAS MENTIONED IN PARAGRAPH 98 OF ITS ORDER THAT IT IS NOT IN AGREEMENT WITH THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS CO LTD, WHICH WAS RENDERED ON IDENTICAL ISSUE. ACCORDINGLY HE SUBMITTED THAT THE ISSUE IS A HIGHLY DEBATABLE ONE AND HENCE THE PENALTY CANNOT BE LEVIED. 7. THE LD A.R ALSO SUBMITTED THAT THE APPEAL OF THE ASSESSEE HAS SINCE BEEN ADMITTED BY HONBLE HIGH COURT OF BOMBAY AND HENCE ON THAT COUNT ALSO, THE IMPUGNED ISSUE BECOMES DEBATABLE AND HENCE NO PENALTY IS ATTRACTED. THE LD A.R ALSO INVITED OUR ATTENTION TO THE COPY OF NOTICE ISSUED U/S 271(1)(C) OF THE ACT AND SUBMITTED THAT THE AO DID NOT STRIKE OFF INAPPLICABLE PORTION AND THE SAME SHOWS NON - APPLICATION OF MIND ON THE PART OF THE AO A ND HENCE ON THIS COUNT ALSO PENALTY IS NOT LEVIABLE. 8. ON THE CONTRARY, THE LD D.R PLACED STRONG RELIANCE ON THE ORDERS PASSED BY THE TAX AUTHORITIES. THE LD D.R ALSO PLACED HIS RELIANCE ON THE WRITTEN SUBMISSIONS GIVEN BY HIS PREDECESSOR, WHEREIN, IT WAS CONTENDED THAT THE ADMISSION OF APPEAL BY THE HONBLE HIGH COURT CANNOT BE A GROUND TO CANCEL THE PENALTY. GARTNER IRELAND LTD. 4 9. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE RECORD. FROM THE ARGUMENTS ADVANCED BY LD A.R, IT CAN BE NOTICED THAT THERE ARE DIVERGENT VIEWS ON THE IMPUGNED ISSUE, VIZ., WHETHER THE SUBSCRIPTION RECEIVED FOR GRANTING RIGHT TO USE A SOFTWARE FALLS UNDER THE DEFINITION OF ROYALTY OR NOT. THE HONBLE KARNATAKA HIGH COURT HAS TAKEN THE VIEW IN THE CASE OF WIPRO LTD (SUPRA) AND SAMSUNG ELECTR ONICS CO LTD THAT THE PAYMENT MADE FOR RIGHT TO USE SOFTWARE WOULD BE IN THE NATURE OF ROYALTY. HOWEVER, THE HONBLE DELHI HIGH COURT DID NOT AGREE WITH THE VIEW TAKEN BY HONBLE KARNATAKA HIGH COURT. IN THE INSTANT CASE, AT THE TIME OF FILING RETURN OF INCOME, THE ASSESSEES VIEW GOT SUPPORT FROM THE ORDER PASSED BY BANGALORE BENCH OF TRIBUNAL IN THE CASE OF WIPRO LTD. IT IS THE CASE OF THE ASSESSEE THAT IT HAS FURNISHED ALL THE PARTICULARS RELATING TO THE SUBSCRIPTION RECEIPTS AND IT CLAIMED EXEMPTION ONLY UPON INTERPRETATION OF PROVISIONS OF LAW, WHICH IS NOW DEMONSTRATED AS DEBATABLE IN NATURE. IT IS A WELL SETTLED PROPOSITION OF LAW, THE ISSUES, WHICH ARE DEBATABLE IN NATURE, WOULD NOT GIVE RISE TO PENALTY U/S 271(1)(C) OF THE ACT. HENCE WE ARE OF THE VIEW THAT THE ASSESSEE CANNOT BE SUBJECTED TO CHARGE OF EITHER CONCEALMENT OF PARTICULARS OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME. HENCE THE PENALTY LEVIED BY THE AO U/S 271(1)(C) OF THE ACT IS LIABLE TO BE DELETED. 10. THE WR ITTEN SUBMISSIONS GIVEN BY LD D.R RELATE TO THE PROPOSITION THAT THE ISSUE SHALL BECOME DEBATABLE ONLY THE APPEAL OF THE ASSESSEE IS ADMITTED BY HONBLE HIGH COURT. HOWEVER, THE DISCUSSIONS MADE IN THE PRECEDING PARAGRAPH, IN OUR VIEW, CLEARLY DEMONSTRATE THAT THE ISSUE IS DEBATABLE IN NATURE. 11. IN VIEW OF THE FOREGOING DISCUSSIONS, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) AND DIRECT THE AO TO DELETE THE IMPUGNED PENALTY LEVIED U/S 271(1)(C) OF THE ACT. GARTNER IRELAND LTD. 5 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 27 . 9 .201 7. SD/ - SD/ - (RAMLAL NEGI ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 27 / 9 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI