Financial Software & Systems Private Limited, CHENNAI V. ITO, CHENNAI

ITA 822/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9035 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 01-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN IRS
• Assessee Lawyers: M ASHIK SHAH
• Keywords: Double taxation relief; Principle of natural justice; Retrospective amendment; Non-deduction of tax
• Section: 143(3); 201(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , ! . ! ' # , $ #% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NOS.822, 823 & 824/MDS/2016 $ & !'& / ASSESSMENT YEARS : 2008-09, 2009-10 & 2010-201 1 M/S. FINANCIAL SOFTWARE & SYSTEMS (P) LTD, G-4, I CROSS STREET, SIPCOT IT PARK, RAJIV GANDHI SALAI, SIRUSERI, NAVALLUR, CHENNAI 603 103. [PAN AAACF 2351C] VS. THE INCOME TAX OFFICER, INTERNATIONAL TAXATION I(2) CHENNAI. ( / APPELLANT) ( /RESPONDENT) () * + / APPELLANT BY : SHRI. SRIRAM SESHADRI, C.A. & SHRI M. ASHIK SHAH, C.A. ,-() * + /RESPONDENT BY : SHRI. P. RADHAKRISHNAN, IRS, JCIT. ' ! * . / DATE OF HEARING : 08-06-2016 /0' * . / DATE OF PRONOUNCEMENT : 22-06-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-16, ITA NOS 822, 823 & 824/2016. :- 2 -: CHENNAI, DATED 25.01.2016 FOR THE ABOVE ASSESSMENT YEARS PASSED U/S. 201(1) & 201(1A) AND 250 OF THE INCOME TAX AC T, 1961 DATED 29.01.2016 (HEREIN AFTER REFERRED TO AS THE ACT) . SINCE THE ISSUE IN THESE THREE APPEALS ARE COMMON IN NATURE, HENCE THE SE APPEALS ARE COMBINED, HEARD TOGETHER, AND DISPOSED OF BY A COMM ON ORDER FOR THE SAKE OF CONVENIENCE, WE CONSIDER THE FACTS AS NARRA TED IN ITA NO.882/MDS/2016 OF ASSESSMENT YEAR 2008-09 FOR ADJU DICATION. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE UN DER:- 1.THE ORDER PASSED BY THE COMMISSIONER OF INCOME -TAX APPEALS ['CIT(A)'] UNDER SECTION 250(6) OF THE INCO ME-TAX ACT, 1961 ('ACT') CONFIRMING THE ORDER OF THE ASSESSING OFFICER ('AO') PASSED UNDER SECTION 201(1)/201(LA) IS NOT I N ACCORDANCE WITH LAW, CONTRARY TO THE FACTS AND CIRC UMSTANCES OF THE PRESENT CASE AND IS IN VIOLATION OF PRINCIPL ES OF EQUITY AND NATURAL JUSTICE. 2.THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS BY N OT CONSIDERING THE FAVORABLE DECISION OF THE HONORABLE CHENNAI TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE SAME AS SESSMENT YEAR WHEREIN THE HONORABLE TRIBUNAL HAS HELD THAT T HERE WAS NO REQUIREMENT FOR THE APPELLANT TO DEDUCT TAX AT S OURCE UNDER SECTION 195 OF THE ACT AND HENCE, NO DISALLOWANCE I S WARRANTED UNDER 40(A)(I) OF THE ACT. 3. THE LEARNED CIT(A) AND THE AO HAVE ERRED IN TREA TING THE APPELLANT AS AN 'ASSESSEE IN DEFAULT' WITHIN THE ME ANING OF SECTION 201(1) OF THE ACT, WITHOUT APPRECIATING THE FACT THE PAYMENTS MADE TO THE NON-RESIDENTS TOWARDS THE PURC HASE OF SOFTWARE PRODUCTS WERE NOT CHARGEABLE TO TAX INDIA UNDER THE PROVISIONS OF THE ACT AND UNDER THE APPLICABLE TAX TREATIES. FURTHER, THE HON'BLE ITAT IN THE ASSESSEE'S OWN CAS E HELD THAT THE PAYMENTS CANNOT BE TREATED AS ROYALTY EVEN UNDER THE PROVISIONS OF THE ACT. 4. THE CIT(A) AND THE AO FAILED TO APPRECIATE THE F ACT THE ITA NOS 822, 823 & 824/2016. :- 3 -: PROVISIONS OF THE SECTION 201(1) OF THE ACT ITSELF WOULD NOT BE APPLICABLE IF THE THERE IS NO OBLIGATION TO WITHHOL D TAX UNDER SECTION 195 OF THE ACT. 5.THE LEARNED CIT(A) AND AO HAVE ERRED IN RE-CLASSI FYING THE PAYMENTS MADE TO NON-RESIDENTS TOWARDS PURCHASE OF SOFTWARE AS ROYALTY. 6.THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ORDER OF THE AO UNDER SECTION 201(1)/201(LA) WAS BASED ON THE OR DER OF THE CIT(A), WHEREIN THE CIT(A) HAD DISALLOWED THE P AYMENTS UNDER SECTION 40(A)(I) OF THE ACT, WHICH HAS NOW BE DECIDED IN FAVOR OF THE APPELLANT BY THE HONORABLE TRIBUNAL. H ENCE, THE BASIS OF THE ORDER UNDER SECTION 201(1)/201(LA) ITS ELF DOES NOT SURVIVE. 7. THE LEARNED CIT(A) AND AO HAVE ERRED IN LEVYING INTEREST UNDER SECTION 201(LA) OF THE ACT. 8. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO H AS ERRED IN TAKING INTO CONSIDERATION AN AMOUNT OF RS 16,91,22, 981 FOR THE PURPOSE OF PROCEEDINGS UNDER SECTION 201 OF THE ACT WITHOUT APPRECIATING THE FACT THAT TAXES HAVE ALREADY BEEN DEDUCTED ON RS 9,33,67,964 BEING PAYMENT TOWARDS SERVICES. 9. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO O UGHT TO HAVE APPRECIATED THE FACT THAT INTEREST UNDER SECTI ON 201(IA) IS TO BE COMPUTED ONLY FROM THE DATE ON WHICH TAXES AR E DUE TO BE DEDUCTED UP TO THE DATE OF FILING THE RETURN OF INCOME BY THE PAYEE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN PROVIDING SOFTWARE AND RELATED SERVICES IN BANKING AND FINANCIAL SERVICE SECTOR FURTHER PROVIDES SERVICES IN ELECTRONIC PAYMENT TRANSACTIONS UNDER DIFFERENT MODULES. THE ASSESSEE COMPANY RENDERS A WIDE RANGE OF SOLUTIONS FOR ATM/POINT OF SALES AN D DELIVERS SERVICES RELATING TO DRIVING, SWITCHING, MOBILE BANKING, INT ERNET COMMERCE ITA NOS 822, 823 & 824/2016. :- 4 -: GATEWAY ETC., IN THE NORMAL COURSE OF BUSINESS, TH E ASSESSEE COMPANY MADE PAYMENTS TO ACI WORLDWIDE SINGAPORE (P TE) LIMITED AND M/S.INTEGRATED RESEARCH PVT. LTD BEING TWO NON- RESIDENT ENTITIES TOWARDS PROCUREMENT OF SOFTWARE PRODUCTS. THE ASSES SEE COMPANY OPERATES UNDER A DISTRIBUTION MODEL, WERE SOFTWARE PRODUCTS ARE PROCURED FROM M/S. ACI WORLDWIDE SINGAPORE (PTE) LI MITED AND M/S.INTEGRATED RESEARCH PVT. LTD AND IN TURN SUPPLI ED THESE SOFTWARE PRODUCTS TO VARIOUS CUSTOMERS IN INDIA. THE ASSESS EE COMPANY CASE WAS SELECTED UNDER SCRUTINY AND ASSESSMENT WAS COMP LETED/SEC. 143(3) OF THE ACT BY DISALLOWING PAYMENTS TO NON-RE SIDENT COMPANY TOWARDS PURCHASE OF SOFTWARE PRODUCTS U/S.40(A) (I ) OF THE ACT. THE LD. ASSESSING OFFICER DISALLOWED EXPENDITURE TREATE D AS ROYALTY PAYMENTS TO NON-RESIDENT COMPANIES AND THE LD. COM MISSIONER OF INCOME TAX (APPEALS) HAS CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER. ON FURTHER APPEAL THE TRIBUNAL HAS DELETED THE ADDITION AND PASSED THE ORDER IN THE YEAR 2014. THE PRESENT PR OCEEDINGS ARISE OUT OF ORDER U/S.201(1) AND 201(1A) OF THE ACT. TH E LD. ASSESSING OFFICER FOUND THAT THE ASSESSEE COMPANY PURCHASED S OFTWARE LICENSE FROM M/S. ACI WORLDWIDE SINGAPORE (PTE) LIMITED, SI NGAPORE AND M/S.INTEGRATED RESEARCH PVT (AUSTRALIA) AND DISTRIB UTES TO VARIOUS BANKS IN INDIA AND RECEIVED FOREIGN REMITTANCES OF ?35.78 CRORES DURING THE FINANCIAL YEARS 2002-03 TO 2009-2010. O N EXAMINATION OF ITA NOS 822, 823 & 824/2016. :- 5 -: THE FORM 15CA, IT WAS FOUND THAT THE ASSESSEE COMPA NY HAS MADE FOREIGN REMITTANCES TO THE COMPANIES WITHOUT DEDUCT ING TAXES U/SEC. 195 OF THE ACT AND SURVEY OPERATIONS WERE CONDUCTED U/S.133A OF THE ACT ON 28.10.2013 AND STATEMENTS ARE RECORDED FROM THE HEAD OF FINANCE DEPARTMENT. THE REVENUE HAS CALLED FOR THE EXPLANATIONS ON REMITTANCES TO FOREIGN COMPANY BEING IN THE NATURE OF ROYALTY DEFINED UNDER INCOME TAX ACT AND THE DTAA OF THE TW O COUNTRIES. IT WAS EXPLAINED THAT THE ASSESSEE COMPANY HAS CONTEST ED THE VIEW OF THE REVENUE ON TREATMENT OF ROYALTY AND IS PENDING BEFORE THE APPELLANT FORUMS. THE LD. ASSESSING OFFICER CALLED FOR FURNISHING OF DOCUMENTS, AGREEMENTS, BILLS, INVOICE OF FOREIGN RE MITTANCE IN THE FINANCIAL YEAR 2006-07 AND 2007-08. IN COMPLIANCE, THE ASSESSEE COMPANY FILED EXPLANATIONS AND THE LD. ASSESSING OF FICER BASED ON THE DOCUMENTS COLLECTED DURING SURVEY OPERATIONS, ISSUE D SHOW CAUSE NOTICE U/S.201(1)/201(1A) OF THE ACT. IN COMPLIANC E, THE ASSESSEE COMPANY OBJECTED TO THE PROCEEDINGS INITIATED U/S.2 01(1) /201(1A) OF THE ACT AS BAD IN LAW AS THE LD. ASSESSING OFFICER HAS ALREADY DISALLOWED THE REMITTANCE MADE TOWARDS USE OF COMPU TER SOFTWARE U/S.40(A) (I) OF THE ACT FOR THE SAID ASSESSMENT YE AR AND RELIED ON THE JUDICIAL DECISIONS. THE LD. ASSESSING OFFICER REJE CTED THE SUBMISSIONS AND OBJECTIONS AND FURTHER OBSERVED THAT THE PROVIS IONS ARE APPLICABLE DUE TO FAILURE TO DEDUCT TAX ON PAYMENTS AND THE PR OVISIONS OF SEC. ITA NOS 822, 823 & 824/2016. :- 6 -: 40(A)(I) AND SEC. 201(1) /201(1A) ARE INDEPENDENT. THE TDS PROVISIONS ARE APPLICABLE FOR DEFAULT OF ANY PERSON WHO IS LIABLE TO DEDUCT TAX BUT FAILS TO DEDUCT TAX ON PAYMENTS WHIC H ARE CHARGEABLE TO TAX UNDER ACT AND DISALLOWANCE U/S.40(A)(I) OF T HE ACT CANNOT BE A REASON FOR INITIATING PROCEEDINGS U/S.201 OF THE A CT. THE LD. ASSESSING OFFICER RELIED ON THE PROVISIONS OF SEC.201 AND CO NCLUDED THAT THE ASSESSEE COMPANY HAS DEFAULTED AND COME WITHIN PR OVISIONS APPLICABLE FOR THE SAID ASSESSMENT YEAR AND ALSO RE LIED ON THE PROVISIONS APPLICABLE TO FOREIGN REMITTANCES U/S.19 5 OF THE ACT. THE LD. ASSESSING OFFICER OBSERVED THAT IT IS MANDATORY FOR THE PAYER TO DEDUCT TAX AT SOURCE ON ANY SUM PAYABLE OR PAID TO ANY NON -RESIDENT AND THE SAID AMOUNT IS CHARGEABLE TO TAX UNDER PROVISIONS O F INCOME TAX ACT AND THE DEDUCTEE SHALL OBTAIN NON DEDUCTION CERTIFI CATE OF TDS FROM JURISDICTIONAL ASSESSING OFFICER. FURTHER, THE C IRCULAR NO.4/2009 OF CBDT, DATED 29.06.2009 REFLECTS THE PROCEDURE MAND ATED FOR NON DEDUCTION OF TAX WITHOUT INSISTING OF NO OBJECTION CERTIFICATE FROM DEPARTMENT. THE ASSESSEE COMPANY SHALL FILE AN UN DERTAKING ADDRESSED TO THE LD. ASSESSING OFFICER ON REMITTANC ES ACCOMPANIED BY A CERTIFICATE ISSUED BY THE CHARTERED ACCOUNTANT. THE LD. ASSESSING OFFICER DEALT ON THE PROVISIONS OF LAW AND THE FOR M NO. 15CA AND 15CB TO BE OBTAINED FROM CHARTERED ACCOUNTANT ALONG WITH UNDERTAKING TO BE SUBMITTED ELECTRONICALLY. THE LD. ASSESSING OFFICER EXAMINED IN ITA NOS 822, 823 & 824/2016. :- 7 -: DETAIL THE REMITTANCES AND PURCHASE OF SOFTWARE L ICENCE FROM M/S. ACI WORLDWIDE ASIA PTE. LTD SINGAPORE ?14,50,30,104/- A ND M/S. INTEGRATED RESEARCH PTE LTD, AUSTRALIA ?2,40,92,877 /-. THE CONTENTION OF THE DEPARTMENT THAT IN THE QUANTUM ASSESSMENT T HE SAID PAYMENTS ARE TREATED AS ROYALTY AND ASSESSEE COMPA NY FAILS TO DEDUCT TDS. THE LD. ASSESSING OFFICER OBSERVED THA T THE LICENSE TO USE THE SOFTWARE COULD CONSTITUTE ROYALTY AND THE PAYME NTS FOR PURCHASE AND USE OF SOFTWARE ARE COVERED U/S.9(1)(VI) OF THE ACT. THE LD. ASSESSING OFFICER DEALT ON THE PROVISIONS OF SEC. 9 (1)(VI) OF THE ACT IN THE ORDER AND REFERRED TO THE DTAA BETWEEN INDIA A ND AUSTRALIA IN RESPECT OF ROYALTY UNDER ARTICLE 12 AND ALSO DTAA B ETWEEN INDIA AND SINGAPORE FOR ROYALTY AND FEES FROM TECHNICAL SERVI CES AND AS PER THE WORDINGS OF DTTA OF BOTH THE COUNTRIES, EVEN CONSI DERATION RECEIVED FOR SIMPLE USE OF COPY RIGHT WITHOUT ACQUIRING A RI GHT TO EXPLOIT IS TERMED AS ROYALTY. THE DTAAS DOES NOT SAY USE OR RI GHT TO USE. THE LD. ASSESSING OFFICER VERIFIED TO THE CLAUSES OF AG REEMENTS ENTERED BETWEEN ASSESSEE COMPANY AND NON RESIDENT COMPANIES ON SOFTWARE PURCHASES AND UNILATERALLY CONCLUDED THAT LICENSE T O USE SOFTWARE AMOUNTS TO ROYALTY WITHIN THE MEANING OF SEC. 9(1) (VI) OF THE ACT AND CONCLUDED THAT THE ASSESSEE COMPANY SHOULD HAVE DED UCTED TDS AND REFERRED TO THE ORDER OF ASSESSMENT OF THE LD. ASSE SSING OFFICER DISALLOWING EXPENDITURE TOWARDS PURCHASE OF SOFTWAR E U/S.40(A)(I) OF ITA NOS 822, 823 & 824/2016. :- 8 -: THE ACT AND THE APPEAL FILED BEFORE COMMISSIONER OF INCOME TAX (APPEALS) II, CHENNAI VIDE ORDER IN ITA NOS. 131, 132, 133, 563, 564, 565, 566 & 727/2013-14, DATED 30.08.2013 WAS DISMIS SED BY CONFIRMING THE ORDER OF LD. ASSESSING OFFICER. THE LD. ASSESSING OFFICER MADE A DISTINCTION THAT THE PROVISIONS OF SEC. 40(A )(I) (A) AND SEC. 201(1)/ 201(1A) OF THE ACT PROCEEDINGS ARE DISTINCT AND ALSO RELIED ON THE SUBMISSIONS OF THE ASSESSEE COMPANY IN QUANTUM APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS)-II AND OBSERVA TION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AT PAGE 17 TO 21 OF THE ORDER AND JUDICIAL DECISIONS. THE LD. ASSESSING OFFICER C ONSIDERED THE PAYMENTS TOWARDS PURCHASE OF SOFTWARE AS ROYALTY AN D USAGE OF SOFTWARE IS TAXABLE IN THE HANDS OF NON-RESIDENTS A ND TDS AT 10% SHOULD HAVE BEEN DEDUCTED AND APPLICABILITY OF PR OVISIONS OF SEC.195 OF THE ACT AND PASSED ORDER UNDER PROVISIONS OF SEC . 201(1) AND U/S.201(A) FOR TDS AND INTEREST AGGREGATING ?2,99,8 0,498/-. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEA L BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, LD. AUTHORISED REPRE SENTATIVE ARGUED THE GROUNDS AND REITERATED THE SUBMISSIONS M ADE BEFORE LD. ASSESSING OFFICER IN THE QUANTUM APPEAL AND BEFORE COMMISSIONER OF INCOME TAX (APPEALS) IN THE EARLIER YEAR PROCEEDING S. THE LD. ITA NOS 822, 823 & 824/2016. :- 9 -: COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE SUBMISSIONS AND THE GROUNDS RAISED AGAINST THE ORDER OF U/SEC. 201(1) AND 201(1A) OF THE ACT AND CATEGORICALLY DEALT ON THE GROUNDS. CONSIDERING THE BACKGROUND AND APPLICABILITY OF PROVISIONS OF T DS AND DTAA PROVISIONS. THE LD. COMMISSIONER OF INCOME TAX (APP EALS) REFERRED TO THE LEDGER ACCOUNTS OF LICENSE FEES. THE LD. AUTHO RISED REPRESENTATIVE ALSO RELIED ON THE PROVISIONS OF DTAA AND EXPLAINED THAT PURCHASE OF SOFTWARE DOES NOT COME WITHIN THE PURVIEW OF ROYAL TY AND TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 20 03-04 TO 2010- 2011 IN ITA NOS.2190 TO 2196 & 2199/MDS/2013 DATED 5.06.2014 HAS DECIDED THE ISSUE OF DISALLOWANCE U/S.40(A)(I) OF T HE ACT IN FAVOUR OF THE ASSESSEE AND IS BINDING ON THE APPELLATE AUTH ORITY, BUT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DEFERRED ON TH E DECISION AND OBSERVE THAT THE PROVISIONS OF SEC. 40(A)(I) AND SE C. 201(1) AND 201(1A) OF THE ACT ARE INDEPENDENT. THE LD. COMMIS SIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE PAYMENTS OF ROYALT Y IS TAXABLE IN THE HANDS OF RECIPIENT AND REFERRED TO THE PROVISIONS O F SEC. 9 AND EXPLANATIONS AND THE ASSESSEE IS REQUIRED TO DEDUCT TDS U/S.195 OF THE ACT WHILE MAKING FOREIGN REMITTANCE FOR SOFTWAR E LICENSE WHICH THE ASSESSEE COMPANY HAS FAILED TO DO SO AND TREATED A S ASSESSEE IN DEFAULT AS PER PROVISIONS OF SEC. 201(1) AND 201(1A ) AND DISMISSED THE ASSESSEES GROUNDS AND DIRECTED LD. ASSESSING OFFIC ER TO VERIFY THE ITA NOS 822, 823 & 824/2016. :- 10 -: OTHER TDS PAYMENT AND PARTLY ALLOWED THE APPEAL. A GGRIEVED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE ASSESSEE FILED AN APPEAL BEFORE TRIBUNAL. 5. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE REITER ATED THE SUBMISSIONS MADE IN THE ASSESSMENT AND APPELLATE PR OCEEDING ON QUANTUM APPEAL AND ALSO SUBMISSIONS IN THE APPELLAT E PROCEEDINGS U/S. 201(1) AND 201(1A)OF THE ACT. THE LD. COMMISS IONER OF INCOME TAX (APPEALS) HAS NOT FOLLOWED THE PROVISIONS OF SEC.9 OF THE ACT AND DTAA AGREEMENTS AND ITAT ORDER IN ASSESSEES O WN CASE IN ITA NOS.2190 TO 2196 & 2199/MDS/2013, WERE THE CO-ORDIN ATE BENCH OF THE TRIBUNAL HAS CONSIDERED THAT PURCHASE OF SOFTWA RE IS NOT IN THE NATURE OF ROYALTY AND THEREFORE DISALLOWANCE U/S.40 (A)(I) OF THE ACT ARE NOT APPLICABLE. SINCE THE CHARGING PROVISIONS OF SE C. 40(A)(I) OF THE ACT IS NOT APPLICABLE, FURTHER TAXING FOR NON DEDUCTION OF TDS U/S.201 IS BAD IN LAW AND PRAYED FOR ALLOWING THE APPEAL. 6. CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF ASSESSING AUTHORITY AND ARGUED THAT THE P ROCEEDINGS ARE DISTINCT AND RELIED ON THE LOWER AUTHORITIES FINDIN GS AND VEHEMENTLY OPPOSED THE GROUNDS. 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIA L ON RECORD AND ORDER OF THE TRIBUNAL. THE CRUX OF THE ISSUE BEING ITA NOS 822, 823 & 824/2016. :- 11 -: APPLICABILITY OF PROVISIONS OF SEC. 201(1) AND 201( 1A) OF THE ACT. THE ASSESSEE COMPANY HAS PURCHASED SOFTWARE FROM TWO NO NRESIDENTS COMPANIES BEING IN SINGAPORE AND AUSTRALIA AND MADE PAYMENTS ON ACQUISITION OF SOFTWARE. THE ASSESSING AUTHORITY I N ORIGINAL ASSESSMENT DISALLOWED THE SAID AMOUNT U/S.40(A)(I) OF THE ACT FOR NON DEDUCTION OF TDS AS THE TRANSACTION IS IN THE NATURE OF ROYALTY PAYMENTS. ON APPEAL, THE CO-ORDINATE BENCH OF THE TRIBUNAL HAS H ELD THAT PROCURING OF SOFTWARE PRODUCT AND CONSIDERATION PAID DOES NOT FIT IN THE NATURE OF ROYALTY AND ALLOWED THE APPEAL OF THE ASSESSEE. N OW, THE LD. ASSESSING OFFICER AND LD. COMMISSIONER OF INCOME TA X (APPEALS) HAVING KNOWLEDGE OF THE TRIBUNAL ORDER HAS DISTINGU ISHED THE DECISION CONSIDERING PROVISIONS OF U/SEC. 40(A)(I) AND SEC.2 01 & 201(1A) OF THE ACT ARE DIFFERENT AND CALCULATED TDS PAYABLE ALONGW ITH INTEREST U/S.201(1A) AGGREGATING TO ?2,99,80,498/-. THE QUE STION ARISES WHEN THERE IS NO DISALLOWANCE U/S.40(A)(I) OF THE ACT WH ETHER, THE LD. ASSESSING OFFICER CAN APPLY THE PROVISIONS OF SEC. 201(1) AND SEC. 201(1A) OF THE ACT. WE ARE OF THE OPINION THAT SE C. 40(A)(I) OF THE ACT IS CHARGING PROVISION ON LARGER ASPECTS AND NOT APP LICABLE TO THE ASSESSEE. DUE TO FICTION OF BOTH PROVISIONS, THE P ROVISIONS OF SEC. 40(A)(I) OF THE ACT OVERRULE THE CONTEMPORARY TDS PROVISIONS U/S. 201(1) & 201(1A) OF THE ACT. THE CO-ORDINATE BENCH OF THIS TRIBUNAL HAS TREATED THE PAYMENTS NOT IN THE NATURE OF ROYAL TY IN ITA NOS.2190 ITA NOS 822, 823 & 824/2016. :- 12 -: TO 2196 & 2199/MDS/2013, DATED 5 TH JUNE, 2014 AT PAGE 35, PARA 47 TO 60 OF HIS ORDER OBSERVED AS UNDER:- 47. WE HEARD THE DETAILED ARGUMENTS ADVANCED FROM BOTH SIDES AND PERUSED THE JUDGMENTS AND ORDERS AND ALSO THE NOTES PLACED BEFORE US ON THE TECHNICAL ASPECTS OF SOFTWARE. 48. ON GOING THROUGH THE FACTS AND DETAILS OF THE CASE BEFORE US, WE FIND THAT THE ASSESSEE COMPANY HAS ENTERED I NTO AGREEMENTS WITH ACI SINGAPORE AND IRPL AUSTRALIA FO R SUPPLY OF STANDARD SOFTWARE PRODUCTS, WHICH IN TURN , ARE TO BE SOLD IN INDIA TO THE CUSTOMERS OF THE ASSESSEE COMP ANY MAINLY, BANKS AND FINANCIAL INSTITUTIONS. THE SOFTW ARE TRANSMITTED TO THE ASSESSEE COMPANY IS INSTALLED ON A SERVER WITH IDENTIFYING LOCATION AND MACHINE NO. OF THE CU STOMER. AS PER THE TERMS OF AGREEMENTS, THE ASSESSEE COMPANY D O NOT HAVE ANY EXCLUSIVE RIGHT TO DISTRIBUTE THE SOFTWARE PRODUCTS. IT OBTAINS ORDERS ON ITS OWN ACCOUNT FOR CUSTOMERS IN INDIA AND THEREAFTER PLACES ORDERS WITH NON-RESIDENT COMPANIE S. WHEN THE PRODUCTS ARE DELIVERED TO THE ASSESSEE, IT SELL S THE PRODUCTS TO THE CUSTOMERS IN INDIA. THE NON-RESIDEN T COMPANIES RAISE INVOICES ON THE ASSESSEE COMPANY AN D IN TURN, THE ASSESSEE COMPANY RAISES SEPARATE INVOICES ON THE END USERS. IT IS TO BE SEEN THAT THE ORDERS ARE PLA CED BY CUSTOMERS AND BANKS IN INDIA WITH THE ASSESSEE COMP ANY ON A NEED BASED ARRANGEMENT. THE SUPPLY OF THE PRODUCT S ARE MADE BY THE NON-RESIDENT COMPANIES ONLY AFTER APPRO VING THE TECHNICALITY OF THE SOFTWARE MODULE AND OTHER N ECESSARY PARTICULARS. THE SOFTWARE PRODUCTS ARE DELIVERED TO THE ASSESSEE ON A CD/ANY OTHER MEDIA SPECIFIED IN THE I NVOICES. IT IS SEEN THAT THE ASSESSEE DOES NOT HAVE OWNERSHI P IN THE COPYRIGHT SUPPLIED BY THE NON-RESIDENT COMPANIES. I T IS ALSO TO BE SEEN THAT THE ASSESSEE DOES NOT HAVE ANY RIGH T TO MAKE COPIES OF SOFTWARE OR USE THE SOFTWARE ANYWHER E ELSE. THE SOFTWARE IS CAREFULLY MARKED FOR THAT PARTICULA R CUSTOMER TO WHOM THE ASSESSEE HAS SOLD THE SOFTWARE PRODUCT. FROM THE ABOVE FEATURES, IT IS CLEAR THAT THE RELATIONSH IP SUBSISTED BETWEEN THE ASSESSEE COMPANY AND THE NON-RESIDENT COMPANIES WAS ON A PRINCIPAL-TO-PRINCIPAL BASIS. TH E RISK OF THE FAILURE OF THE SOFTWARE PRODUCT IS BORNE BY THE ASSESSEE COMPANY. THE ASSESSEE COMPANY DOES NOT HAVE ANY RIG HT TO MAKE CHANGES IN THE SOFTWARE SUPPLIED BY ACI SINGAP ORE AND IRPL AUSTRALIA. THE ASSESSEE COMPANY IS PERMITT ED TO MAKE ONLY NOMINAL/COSMETIC MODIFICATIONS FOR THE PU RPOSE OF INSTALLING THE SOFTWARE AND RUNNING THE SOFTWARE PR ODUCT IN THE SYSTEM OF CUSTOMERS. THE SOFTWARE TRANSFERRED BY THE NON-RESIDENT COMPANIES IS A STANDARD SOFTWARE. ITA NOS 822, 823 & 824/2016. :- 13 -: 49. THE SERVICES RENDERED BY THE ASSESSEE IN INSTA LLING THE SOFTWARE PRODUCTS IN THE SYSTEM OF ITS CUSTOMERS AR E IN THE NATURE OF MAKING THE SOFTWARE COMPATIBLE TO THE ENV IRONMENT OF THE INDIVIDUAL CUSTOMERS. THE ASSESSEE COMPANY N EVER BECOMES THE OWNER OF THE SOFTWARE. THE INTELLECTUAL PROPERTY IN THE SOFTWARE PRODUCTS ALWAYS REMAINS WITH THE AC I SINGAPORE AND IRPL AUSTRALIA. 50. THE DECISIONS CITED BY THE LEARNED COUNSEL APPE ARING FOR THE ASSESSEE SUPPORT THE ABOVE STATED POSITION OF T HE CASE. IN THE DECISIONS OF DASSAULT SYSTEMS KK, 322 ITR 12 5(AAR), CIT VS. DYNAMIC VERTICAL SOFTWARE INDIA (P) LTD., 3 32 ITR 222, DIT VS. ERICSSON AB, 343 ITR 470, THE COURTS H AVE HELD THAT WHERE THE ASSESSEE IS PURCHASING SOFTWARE FROM THE VENDOR AND SELLING THE SAME FURTHER IN INDIAN MARKE T, THE CONSIDERATION PAID FOR SUCH PURCHASE COULD NOT BE T ERMED AS ROYALTY. IT IS HELD THAT IN ORDER TO CONSTITUTE R OYALTY, WHAT IS CONTEMPLATED, IS A PAYMENT THAT IS DEPENDING ON USE R OF COPYRIGHT AND NOT A LUMP SUM PAID FOR THE ACQUISITI ON OF COPYRIGHTED ARTICLE 51. IN THE PRESENT APPEALS ALSO, WHAT HAS BEEN PURC HASED BY THE ASSESSEE FROM ACI SINGAPORE AND IRPL AUSTRALIA WAS ONLY COPYRIGHTED ARTICLES AND NOT COPYRIGHT, PROPER . WITHIN THE MEANING OF INDIAN COPYRIGHT ACT, 1957, A COPYRIGHT IS AN EXCLUSIVE RIGHT TO REPRODUCE SOFTWARE INCLUDING STO RAGE OF THE SAME IN ELECTRONIC MACHINES WITH EXCLUSIVE RIGHT TO SELL IT. IN THE PRESENT CASE, THE ASSESSEE DOES NOT HAVE OWNERS HIP OF THE SOFTWARE AND DOES NOT HAVE RIGHT TO REPRODUCE T HE SAID SOFTWARE. IT IS IN FACT ONLY PROCURING COPYRIGHTED SOFTWARE PRODUCT MEANT FOR A PARTICULAR CUSTOMER IN INDIA. T HE TECHNICAL ROLE OF THE ASSESSEE IS LIMITED IN INSTAL LING AND RUNNING THE SOFTWARE PRODUCT IN THE SYSTEM OF CUSTO MERS IN INDIA. THEREFORE, WE FIND THAT THE ASSESSEE IS RIGH T IN ITS CONTENTION THAT THE PAYMENTS MADE BY THE ASSESSEE COMPANY IN THE PREVIOUS YEAR RELEVANT TO THE ASSESS MENT YEARS UNDER APPEAL TO NON-RESIDENT COMPANIES ARE ON LY PURCHASE CONSIDERATION FOR PROCURING COPYRIGHTED SO FTWARE PRODUCTS. THEY WERE NOT IN THE NATURE OF ROYALTY. 52. THE LEARNED COMMISSIONER, IN THE COURSE OF HIS ARGUMENTS, HAS STATED THAT ALL THE ABOVE JUDGMENTS RELIED ON BY THE ASSESSEE WERE RENDERED BEFORE THE RETROSPECT IVE AMENDMENT BROUGHT IN SEC.9(1)(VI) BY FINANCE ACT, 2 012. BEFORE THE AMENDMENT BROUGHT IN BY FINANCE ACT, 201 2, ROYALTY HAS BEEN DEFINED AS CONSIDERATION FOR THE T RANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICE NCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCI ENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTIO N WITH ITA NOS 822, 823 & 824/2016. :- 14 -: TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADI O BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR T HE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS . THE AMENDMENT BROUGHT IN SEC. 9(1)(VI) IS AN EXPLANATIO N FOR THE PURPOSE OF REMOVING DOUBTS. IT IS CLARIFIED THAT CO NSIDERATION FOR THE TRANSFER OF ALL OR ANY RIGHT FOR USE OR RIG HT TO USE A COMPUTER SOFTWARE (INCLUDING GRANTING OF A LICENCE) IRRESPECTIVE OF THE MEDIUM THROUGH WHICH SUCH RIGHT IS TRANSFERRED, CONSTITUTES ROYALTY. 53. ON A COMPARATIVE READING OF THE EXPRESSION ROY ALTY, BEFORE AND AFTER THE AMENDMENT MADE BY THE FINANCE ACT, 2012, WE ARE NOT ABLE TO FIND ANY PARADIGM SHIFT IN THE MEANING OF TERM ROYALTY, FROM THE OLD ONE TO NEW ONE. IN BOTH THE EXPRESSIONS, ROYALTY MEANS BASICALLY THE CONSIDERATION MADE FOR THE TRANSFER OF ALL OR ANY R IGHTS OF SOMETHING. IN THE NEW AMENDED EXPRESSION ALSO IT IS THE SAME THAT THE TRANSFER OF ALL OR ANY RIGHTS OF SOME THING. THE ONLY CLARIFICATION MADE BY THE AMENDMENT IS THAT SU CH ALL OR ANY RIGHTS INCLUDED TRANSFER OF ALL OR ANY RIGHTS I N RESPECT OF A COMPUTER SOFTWARE ALSO. IT MEANS THE CLARIFICATION HAS INCLUDED THE SOFTWARE PRODUCTS ALSO IN THE AMBIT OF OTHER ITEMS LIKE LITERARY, ARTISTIC OR SCIENTIFIC WORK IN CLUDING FILMS ETC. IT IS EASILY SEEN THAT THE CLARIFICATION HAS BEEN B ROUGHT ONLY TO INCLUDE COMPUTER SOFTWARE ALSO IN THE AMBIT OF TRAN SFER OF ALL OR ANY RIGHTS SO AS TO DETERMINE THE NATURE OF PAYM ENT. THEREFORE, THERE IS NO CHANGE IN THE CONCEPT OF ROY ALTY EITHER BEFORE OR AFTER THE AMENDMENT. 54. ANYHOW, EVEN IF THE AMENDMENT BROUGHT IN SEC. 9 (1)(VI) BY FINANCE ACT, 2012, IS CONSIDERED AS A MILESTONE, THE JUDGMENT RENDERED BY THE HONBLE DELHI HIGH COURT I N THE CASE OF INFRASOFT LTD., 264 CTR 329, REALLY SUPPORT S THE ARGUMENT OF THE ASSESSEE. IN THE SAID DECISION, EVE N AFTER THE AMENDMENT, THE HONBLE DELHI HIGH COURT HAS HEL D THAT THE AMOUNT RECEIVED BY THE ASSESSE FROM A NON-RESID ENT COMPANY FOR GRANTING LICENSE TO USE COPYRIGHT SOFTW ARE TO ITS OWN BUSINESS PURPOSES COULD NOT BE BROUGHT TO TAX A S ROYALTY UNDER ARTICLE 12(3) OF INDO-US DTAA. THE CO URT OBSERVED THAT WHERE IT IS A CASE OF MERE TRANSFER O F RIGHT TO USE COPYRIGHTED MATERIAL LIKE SOFTWARE PROGRAMME, T HE CONSIDERATION PAID BY THE ASSESSEE DOES NOT GIVE RI SE TO ROYALTY IN THE HANDS OF VENDEES. THE JUDGMENT OF TH E HONBLE DELHI HIGH COURT IN THE CASE OF INFRASOFT L TD. ITSELF SUPPORTS THE VIEW THAT NO CHANGE HAS BEEN BROUGHT I N SEC. 9(1)(VI) BY FINANCE ACT, 2012, IN THE CONCEPT OF RO YALTY. 55. THE LEARNED COMMISSIONER RELIED ON A RECENT DEC ISION OF ITAT, MUMBAI BENCH, RENDERED IN THE CASE OF RELIANC E ITA NOS 822, 823 & 824/2016. :- 15 -: INFOCOM LTD., 98 DTR (MUMBAI)(TRIB) 66, WHEREIN THE TRIBUNAL HAS HELD THAT THE PAYMENTS MADE TO SUPPLIE RS FOR THE SOFTWARE CAN BE SAID TO BE PAYMENTS FOR THE USE OR RIGHT TO USE COPYRIGHTS AND, THEREFORE, SUCH PAYMENTS AMO UNT TO ROYALTY AND LIABLE FOR DEDUCTION OF TAX AT SOURCE U NDER SEC. 195. IN THE SAID CASE, WHAT HAS BEEN ACQUIRED BY TH E INDIAN COMPANY IS A COMPUTER SOFTWARE I.E. SOFTWARE PROPE R. IT IS NOT A CASE, WHERE INDIAN COMPANY HAD ACQUIRED A SOF TWARE PRODUCT IN THE NATURE OF COPYRIGHTED ARTICLE. THE REFORE, THERE IS A FUNDAMENTAL DIFFERENCE IN THE SUBJECT MATTER O F TRANSACTION CONSIDERED IN THE CASES CITED BY THE LE ARNED COUNSEL APPEARING FOR THE ASSESSEE AND THE TRIBUNAL DECISION RELIED ON BY THE LEARNED COMMISSIONER. WE, THEREFORE, FIND THAT THE DECISION OF ITAT, MUMBAI B ENCH, IN THE CASE OF RELIANCE INFOCOM LTD. STANDS ON A DIFFE RENT FOOTING AND DOES NOT APPLY TO THE PRESENT CASE. 56. AS WE HAVE ALREADY REACHED A CONCLUSION THAT T HE ASSESSEE HAS PROCURED COPYRIGHTED ARTICLES FROM THE NONRESIDENT COMPANIES, ACI SINGAPORE AND IRPL AUSTR ALIA AND PAYMENTS MADE BY THE ASSESSEE COMPANY TO THOSE COMPANIES WERE NOT IN THE NATURE OF ROYALTY, WITHIN THE PROVISIONS OF INDIAN INCOME-TAX ACT ITSELF, WE DO N OT FIND IT NECESSARY TO DWELL UPON THE DETAILED ARGUMENTS MADE BY THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE, TO EXAM INE THE ISSUE IN THE LIGHT OF THE PROVISIONS OF THE ACT VIS --VIS TERMS OF INDO-SINGAPORE DTAA AND INDO-AUSTRALIA DTAA. 57. ANYHOW, WE WOULD LIKE TO EXAMINE A SPECIFIC AR GUMENT ADVANCED BY THE LEARNED COUNSEL APPEARING FOR THE A SSESSEE THAT NO DISALLOWANCE UNDER SEC. 40(A)(I) ON ACCOUNT OF RETROSPECTIVE AMENDMENT COULD BE MADE, AS THE ASSES SE WAS TRANSACTING BUSINESS IN THE RELEVANT PREVIOUS Y EAR PERIOD. IN THE LIGHT OF THE LAW, AS IT STOOD AT THA T TIME, IT WAS NOT POSSIBLE FOR THE ASSESSEE TO FORESEE ANY AMENDM ENT THAT WOULD BE BROUGHT IN THE FUTURE. THE AMENDMENT IN SE C. 9(1)(VI) WAS BROUGHT BY FINANCE ACT, 2012, WHEREAS THE LATEST PREVIOUS YEAR IN THE PRESENT CASE ENDED ON 3 1.3.2010. THE AMENDMENT HAS BEEN BROUGHT CLEARLY AFTER TWO YE ARS FROM THE END OF THE PREVIOUS YEAR OF THE LAST ASSES SMENT YEAR INVOLVED IN THESE APPEALS. FOR THIS PROPOSITION, TH E LEARNED COUNSEL HAS RELIED ON THE DECISION OF ITAT, MUMBAI BENCH, RENDERED IN THE CASE OF CHANNEL GUIDE INDIA LTD. VS . ACIT, 139 ITD 49. ON SIMILAR FACTS, IT WAS HELD IN THE SA ID DECISION THAT AN ASSESSEE COULD NOT BE HELD LIABLE TO DEDUCT TAX AT SOURCE RELYING ON SUBSEQUENT AMENDMENT IN THE ACT W ITH RETROSPECTIVE EFFECT. THE TRIBUNAL OBSERVED THAT TH E ASSESSEE ITA NOS 822, 823 & 824/2016. :- 16 -: CANNOT FORESEE FUTURE CHANGE OF LAW AND THEREFORE, THERE IS AN IMPOSSIBILITY OF PERFORMANCE ON THE PART OF THE ASSESSEE AS ON THE DATE OF INCURRING SUCH EXPENDITURE. 58. WE FIND MUCH FORCE IN THE ABOVE CONTENTION ADVA NCED BY THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE. HER E ALSO, IT IS A SUBSEQUENT AMENDMENT WITH RETROSPECTIVE EFFECT . AS HELD BY ITAT, MUMBAI BENCH, IN SUCH CASES, THE ASSE SSEE IS CONSTRAINED BY IMPOSSIBILITY OF PERFORMANCE. THE DI CTUM IMPOSSIBILIUN NULLA OBLIGATION EST, STATES THAT THE RE IS NO OBLIGATION TO DO IMPOSSIBLE THINGS. IT IS TO BE SEE N THAT THE LAW DOES NOT COMPEL TO DO THE IMPOSSIBLE AS ENSHRIN ED IN THE PRINCIPLE LEX NON COGIT AD IMPOSSIBILIA. THE JURISP RUDENCE HAS ALSO ACCEPTED AS A BASIC DICTUM, IMPOTENTIA EXCUSAT LEGEM, THAT IMPOSSIBILITY IS AN EXCUSE IN LAW. 59. WHEN THE ASSESSEE IS CONSTRAINED WITH THE IMPO SSIBILITY OF PERFORMANCE, IT IS FUTILE TO ARGUE THAT THE ASSE SSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE IN THE ASSESSMENT YEARS EARLIER TO AMENDMENT BROUGHT IN SEC.9(1)(VI) BY FINANCE ACT , 2012. IT IS NOT POSSIBLE TO DO OR UNDO OR TO BELL OR UNBE LL THE PAST. 60. THEREFORE, IN THE LIGHT OF ABOVE DISCUSSIONS, W E FIND THAT THERE WAS NO REQUIREMENT ON THE PART OF THE ASSESSE E COMPANY TO DEDUCT TAX AT SOURCE AS PROVIDED UNDER S EC.195 OF THE ACT. ACCORDINGLY, WE HAVE TO HOLD THAT THE A SSESSING AUTHORITY IS NOT JUSTIFIED TO INVOKE SEC.40(A)(I) A ND MAKE DISALLOWANCE IN RESPECT OF THE AMOUNTS PAID BY THE ASSESSEE COMPANY TO ACI SINGAPORE AND IRPL AUSTRALIA. THE DISALLOWANCES ARE THEREFORE, DELETED. WE RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINA TE ON THE ISSUE OF PURCHASE OF SOFTWARE IS NOT IN THE NATURE OF ROYALT Y AND NO DISALLOWANCE U/S.40(A)(I) OF THE ACT IS WARRANTED. WE SET ASIDE THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS) C ONCURRED WITH THE ASSESSING OFFICER IN PASSING ORDER U/S.201(1) AND 2 01(1A) OF THE ACT AND ALLOW THE GROUND OF THE ASSESSEE. THE APPEAL OF THE ASSESSEE IS ITA NOS 822, 823 & 824/2016. :- 17 -: ALLOWED. 8. CONSEQUENTLY, THE APPEALS OF THE ASSESSEE IN ITA NOS.823 & 824/MDS/2016, FOR ASSESSMENT YEARS 2009- 2010 & 2010- 2011 13 ARE ALLOWED. 9. IN THE RESULT, THE APPEALS OF THE ASSESSEE IN ITA NOS.822, 823 & 824/MDS/2016 ARE ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 22ND DAY OF JU NE, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' # ) (G. PAVAN KUMAR) / JUDICIAL MEMBER / CHENNAI 2 / DATED: 22.06.2016 KV 3 * ,$.45 65'. / COPY TO: 1 . () / APPELLANT 3. ' 7. () / CIT(A) 5. 5!:; ,$.$ / DR 2. ,-() / RESPONDENT 4. ' 7. / CIT 6. ;<& = / GF