M/s. Ansys Software Private Limited, Bengaluru V. Income Tax Officer (International Taxation), Ward-1(1), Bangalore

ITA 733/BANG/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8002 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 12-08-2021
• Assessment Year: 2009-2010
• Appeal Filed On: 15-12-2020
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S V RAVISHANKAR; NARE NDRA SHARMA S
• Keywords: Double taxation relief; TDS; Set aside
• Section: 201(1); 195; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER IT A NO S . 731 TO 734/BANG/2020 ASSESSMENT YEAR S : 2007 - 08 TO 2010 - 11 ANSYS SOFTWARE [P] LTD., PRESTIGE TECH PARK, 2 ND FLOOR, MERCURY BLOCK (2B), KADUBEESANAHALLI VILLAGE, VARTHUR HOBLI, OUTER RING ROAD, BANGALORE EAST TALUK, BENGALURU 560 103. PAN: AADCA 1658E VS. THE INCOME TAX OFFICER, WARD 1(1), INTERNATIONAL TAXATION, BENGALURU. APPELLANT RESPONDENT APPELLANT BY : S/ SHRI S.V. RAVI SHANKAR & NARE NDRA SHARMA, ADVOCATES RESPO NDENT BY : SHRI KANNAN NARAYANAN , JT . C IT(DR)(ITAT ), BENGALURU. DATE OF HEARING : 12 . 0 8 .2021 DATE OF PRONOUNCEMENT : 23 .0 8 .202 1 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS OF CIT(APPEALS)-12, BENGALURU, ALL DATED 27 .03.2020 FOR THE ASSESSMENT YEAR 2007-08 TO 2010-11. THEY WERE HEAR D TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF BR EVITY. 2. IN ALL THESE APPEALS THE ASSESSEE HAS RAISED COM MON GROUNDS OF APPEAL AS FOLLOWS:- ITA NOS.731 TO 734/BANG/2020 PAGE 2 OF 6 1. THE ORDER PASSED BY THE LEARNED ASSESSING OFFIC ER UNDER SECTION 201 [1A] OF THE ACT DATED 06/04/2015 AND CO NFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS] VI DE APPELLATE ORDER DATED 27/03/2020, IN SO FAR AS IT IS AGAINST THE APPELLANT IS AGAINST LAW, EQUITY, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS] ERRED IN HOLDING THE APPELLANT AS AN ASSESSEE IN DEFAULT UNDER SECTION 201[1] OF THE ACT AMOUNTING TO RS. 2,05,13,007/-AND LIABLE TO INTEREST UNDER SECTION 201[1A] OF THE ACT AMOUNTING TO RS. 1,09,75,439/-, ON THE FACTS AND CIRCUMSTANCES OF TH E CASE. 3. THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS] FAILED TO APPRECIATE THAT THE SOFTWARE IMPORTED BY THE APPELLANT WAS A SHRINK WRAP PRODUCT AND THE SAME NOT BEING CU STOMIZED AND HENCE NO TAX AMOUNT BE DEDUCTED AS PER THE PROV ISIONS OF SECTION 195 OF THE ACT, ON THE FACTS AND CIRCUMSTAN CES OF THE CASE. 4. THE LEARNED AUTHORITIES BELOW ARE NOT JUSTIFIED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT SINCE TH E PROVISIONS OF SECTION 195 OF THE ACT ITSELF IS NOT APPLICABLE THE N THE APPELLANT CANNOT BE HELD AS AN ASSESSEE IN DEFAULT AS PER THE PROVISIONS OF SECTION 201 [1] OF THE ACT, ON THE FACTS AND CIRCUM STANCES OF THE CASE. 5. THE LEARNED COMMISSIONER OF INCOME TAX [APPEALS] FAILED TO APPRECIATE THAT CONSENT CANNOT CONFER JUR ISDICTION, THE TAX DEDUCTED AND CREDITED TO THE ACCOUNT OF THE CEN TRAL GOVERNMENT IS OUT OF ABUNDANT PRECAUTION AND THE SA ME CANNOT BE CONSIDERED AS AN ACQUIESCE THAT THE PROVISIONS OF S ECTION 195 OF THE ACT ARE APPLICABLE ON THE PAYMENTS MADE BY THE APPELLANT TO M/S. ANSYS INC. USA, ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. THE LEARNED AUTHORITIES BELOW FAILED TO APPRECIA TE THAT WHEN THE APPELLANT CANNOT BE HELD AS AN ASSESSEE IN DEFAULT CONSEQUENTLY THE INTEREST UNDER SECTION 201 [1A] OF THE ACT IS ALSO NOT APPLICABLE AND LEVIABLE UNDER THE FACTS AN D CIRCUMSTANCES OF THE CASE. 7. WITHOUT PREJUDICE, THE LEARNED LOWER AUTHORITIES FAILED TO APPRECIATE THAT THE APPELLANT WAS UNDER BONAFIDE BE LIEF THAT THERE ITA NOS.731 TO 734/BANG/2020 PAGE 3 OF 6 WAS NO REQUIREMENT TO DEDUCT AT SOURCE FROM THE PAY MENTS MADE FOR THE PURCHASE OF SOFTWARE AND ACCORDINGLY, THE A PPELLANT CANNOT BE TREATED AS AN ASSESSEE IN DEFAULT AND CON SEQUENTLY, THE INTEREST U/S. 201[1A] OF THE ACT IS ALSO NOT APPLIC ABLE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 8. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, SUBSTI TUTE AND DELETE ANY OR ALL THE GROUNDS OF APPEAL URGED ABOVE . 9. FOR THE ABOVE AND OTHER GROUNDS TO BE URGED DURI NG THE HEARING OF THE APPEAL, THE APPELLANT PRAYS THAT THE APPEAL BE ALLOWED IN THE INTEREST OF EQUITY AND JUSTICE. 3. IN THESE CASES, THE LOWER AUTHORITIES HAVE OBS ERVED THAT THE ASSESSEE COMPANY HAS MADE PAYMENT TO FOREIGN COMPAN Y, M/S. ANSYS INC. USA IN RESPECT OF WHICH IT WITHHELD TAX AND MA DE DEPOSIT INTO THE GOVT. ACCOUNT WITH LONG DELAY, HENCE INTEREST U/S. 201(1A ) WAS CHARGES. ONE OF THE CONTENTIONS OF THE LD. AR IS THAT ASSESSEE IS N OT LIABLE TO DEDUCT TAX AT SOURCE IN VIEW OF THE ORDER OF THE TRIBUNAL IN THES E ASSESSMENT YEARS AND HE DREW OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN ITA NOS.2036 TO 2039/BANG/2019 DATED 31.3.2021 WHEREIN IT WAS HELD AS FOLLOWS:- 2.5 . ADMITTEDLY THE ISSUE INVOLVED IN THESE APPEAL S HAS BEEN SET AT REST BY THE DECISION OF HON'BLE SUPREME COUR T IN A RECENT CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE P VT.LTD. VS CIT REPORTED IN 2021 SCC ONLINE SC 159. HON'BLE SUP REME COURT WHILE CONSIDERING THE ISSUE OF ROYALTY ON SAL E OF SOFTWARE, HAVE ALSO CONSIDERED THE DECISION OF HON'BLE KARNAT AKA HIGH COURT IN CASE OF CIT VS SAMSUNG ELECTRONICS CO.LTD. (SUPRA) AND VARIOUS OTHER DECISIONS. HON'BLE SUPREME COURT HELD AS UNDER: ' CONCLUSION 168. GIVEN THE DEFINITION OF ROYALTIES CONTAINED IN ARTICLE 12 OF THE DTAAS MENTIONED IN PARAGRAPH 41 O F THIS JUDGMENT, IT IS CLEAR THAT THERE IS NO OBLIGATION O N THE PERSONS MENTIONED IN SECTION 195 OF THE INCOME TAX ACT TO DEDUCT TAX AT SOURCE, AS THE DISTRIBUTION AGREEMENT S/ EULAS IN THE FACTS OF THESE CASES DO NOT CREATE ANY INTEREST OR RIGHT IN SUCH DISTRIBUTORS/END-USERS. W HICH ITA NOS.731 TO 734/BANG/2020 PAGE 4 OF 6 WOULD AMOUNT TO THE USE OF OR RIGHT TO USE ANY COPY RIGHT. THE PROVISIONS CONTAINED IN THE INCOME TAX ACT (SEC TION 9(1)00, ALONG 11711/1 EXPLANATIONS 2 AND 4 THEREOF) , WHICH DEAL WITH ROYALTY, NOT BEING MORE BENEFICIAL TO THE ASSESSEES, HAVE NO APPLICATION IN THE FACTS OF THES E CASES. 169. OUR ANSWER TO THE QUESTION POSED BEFORE US, I S THAT THE AMOUNTS PAID BY RESIDENT INDIAN END-USERS/ DISTRIBUTORS TO NON-RESIDENT COMPUTER SOFTWARE MANUFACTURERS/SUPPLIERS, AS CONSIDERATION FOR THE RESALE/USE OF THE COMPUTER SOFTWARE THROUGH EULAS/DISTRIBUTION AGREEMENTS, IS NOT THE PAYMENT O F ROYALTY FOR THE USE OF COPYRIGHT IN THE COMPUTER SO FTWARE, 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 T O 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 JUDGMENT. 170. THE APPEALS FROM THE IMPUGNED JUDGMENTS OF T HE HIGH COURT OF KARNATAKA ARE ALLOWED, AND THE AFORES AID JUDGMENTS ARE SET ASIDE. THE RULING OF THE AAR IN C ITRIX SYSTEMS OAR) (SUPRA) IS SET ASIDE. THE APPEALS FROM THE IMPUGNED JUDGMENTS OF THE HIGH COURT OF DELHI ARE DISMISSED.' 2.6. IT HAS BEEN SUBMITTED THAT PRESENT ASSESSEE HA S BEEN ONE OF THE PETITIONER IN THE GROUP CASE, DISPOSED OF BY HO N'BLE SUPREME COURT BY ORDER DATED 02/03/2021. THE LD.AR HAS FILE D THE CASE STATUS FROM THE WEBSITE OF HON'BLE SUPREME COURT WH ICH HAS BEEN PLACED ON RECORD IN SUPPORT OF THIS SUBMISSION . LD.AR ALSO SUBMITTED THAT SUBSEQUENTLY ON 18/03/202 1 HON'BLE KARNATAKA HIGH COURT IN ASSESSEE'S OWN CASE FOR ASS ESSMENT REAR 2006-07 IN ITA NO.453 OF 2019 CONSIDERED THE ISSUE IN FAVOUR OF ASSESSEE BY FOLLOWING THE RATIO OF HON'BLE SUPREME COURT IN CASE OF ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PVT.LT D. VS CIT (SUPRA). RESPECTFULLY FOLLOWING THE RATION LAID DOWN BY HON' BLE SUPREME COURT IN CASE OF ENGINEERING ANALYSIS CENTRE OF EXC ELLENCE PUT. LTD. VS CIT (SUPRA), AND HONBLE KARNATAKA HIGH COU RT IN ITA NOS.731 TO 734/BANG/2020 PAGE 5 OF 6 ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2006-07 IN ITA NO.453 OF 2019 BY ORDER DATED 18/03/2021, WE DIRECT THE DI SALLOWANCE TO BE DELETED. AS THE FACTS ARE SAME IS ALL THE APPEALS, THE ABOVE VIEW IS APPLIED TO ASSESSMENT YEARS 2008-10 TO 2010-11 MUTATIS MUTA NDIS. ACCORDINGLY, GROUNDS RAISED BY ASSESSEE STANDS ALLO WED. 4. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT NOW THE QUESTION BEFORE THE TRIBUNAL IS VERY LIMITED, WHETHER THE AS SESSEE DEDUCTED TAX ON THE AMOUNT PAYABLE TO FOREIGN COMPANY AND WHETHER T HERE WAS A DELAY IN REMITTING THE SAME TO THE GOVERNMENT ACCOUNT. SINC E THERE WAS A DELAY IN REMITTING THE TDS WHICH WAS DULY DEDUCTED FROM THE PARENT COMPANY AND THE ASSESSEE RETAINED IT WITHOUT DEPOSITING INTO TH E GOVERNMENT ACCOUNT, THE ASSESSEE IS LIABLE TO PAY INTEREST U/S. 201(1) & 201(1A) OF THE ACT. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE MAIN CONTENTION OF THE ASSESSEE IS THAT IT IS N OT LIABLE TO DEDUCT TAX IN VIEW OF THE JUDGMENT OF HONBLE HIGH COURT OF KARNA TAKA AND THE TRIBUNAL IN ASSESSEES OWN CASE CITED SUPRA. HOWEVER, IN OUR OPINION, THE ASSESSEE HAS NOT PROVED THAT IT HAS NOT DEDUCTED AN Y TAX TOWARDS PAYMENT TO FOREIGN COMPANY. ONCE IT HAS DEDUCTED AND WITHH ELD THE TAX, THE SAME HAS TO BE DEPOSITED TO THE GOVERNMENT ACCOUNT AND I T CANNOT BE RETAINED. THIS IS SO BECAUSE THE FOREIGN COMPANY WOULD HAVE C LAIMED BENEFIT OF THIS TAX OR REFUND OF THIS TAX WHICH WAS DEDUCTED BY THE PRESENT ASSESSEE. IN THIS EVENT, THE GOVERNMENTS REVENUE SUFFERS LOSS W HICH CANNOT BE PERMITTED. IN VIEW OF THIS, WE SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFFICER TO EXAMINE WHETHER THE TDS WAS ACTUALLY DED UCTED BY THE ASSESSEE AND CREDIT GIVEN TO THE FOREIGN COMPANY. IF CREDIT IS GIVEN TO THE FOREIGN COMPANY, THE ASSESSEE IS LIABLE TO PAY INTE REST ON THE DEDUCTION AND WITHHOLDING OF TAX WHICH IS REMITTED WITH DELAY TO THE GOVERNMENT ITA NOS.731 TO 734/BANG/2020 PAGE 6 OF 6 EXCHEQUER. ACCORDINGLY, THE ISSUE IN DISPUTE IS RE MITTED TO THE ASSESSING OFFICER TO DECIDE AFRESH IN THE LIGHT OF ABOVE OBSE RVATIONS. 6. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF AUGUST, 2021. SD/- SD/- ( N V VASUDEV AN ) ( CHANDRA POOJARI ) VICE PRESIDENT ACCOUNTANT MEMBER BANGALORE, DATED, THE 23 RD AUGUST, 2021. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.