M/s Pepperl & Fuchs India Private Limited , Bangalore V. Assistant Commissioner of Income Tax Circle-5(1)(3), Bangalore

ITA 844/BANG/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1855 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 15-11-2018
• Assessment Year: 2014-2015
• Appeal Filed On: 19-03-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR P V PRADEEP KUMAR
• Section: 15; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, B ENGALURU BEFORE S HRI N.V.VASUDEVAN , VICE PRESIDENT AND SHRI INTURI RAMA RAO , ACCOUNTANT MEMBER I TA NO S . 844 & 845 / BANG/2 0 1 8 (ASSESSMENT YEAR S : 20 14 - 15 & 2013 - 14 ) M/S.PEPPERL & FUCHS (INDIA) PVT. LTD. 546/1, 7 TH MAIN , 4 TH PHASE, PEENYA INDUSTRIAL ESTATE, BENGALURU - 560058. PAN: AAACP 1218 L VS APPELLANT INCOME - TAX OFFICER, WARD 5(1)(3), BENGALURU. RESPONDENT A PPELLANT BY : SHRI DHEERAJ, ADVOCATE. RESPONDENT BY : DR.P.V.PRADEEP KUMAR, A DDL.CIT(DR) DATE OF HEARING : 1 5 /11/2018 DATE OF PRONOUNCEMENT : 16 /11/2018 O R D E R PER INTURI RAMA RAO, A M: THESE ARE APPEALS FILED BY THE ASSESSEE - COMPANY DIRECTED AGAINST TWO DIFFERENT ORDERS OF THE LD. COMMISSIONER OF INCOME - TAX(APPEALS) - 5, BENGALURU,[CIT(A)] BOTH DATED 19/12/2017 FOR THE ASSESSMENT YEARS 2013 - 14 AND 2014 - 15. 2. SINCE COMMON ISSUES ARE INVOLVED IN BOTH THE APPEALS, WE PROCEED TO DISPOSE OF THE SAME BY THIS COMMON ORDER. THE ASSESSEE - COMPANY RAISED THE FOLLOWING GROUNDS OF APPEAL FOR ASSESSMENT YEAR 2014 - 15: I TA NO S.844, & 845 /BANG/20 18 PAGE 2 OF 5 I TA NO S.844, & 845 /BANG/20 18 PAGE 3 OF 5 3 . BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY DULY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING, MARKETING AND AFTER SA LES SERVICE OF FACTORY AUTOMATION AND PROCESS AUTOMATION COMPONENTS WHICH CAN BE BROADLY CLASSIFIED AS HANDLING OF INDUSTRIAL ELECTRONICS COMPONENTS AND EQUIPMENT AND SOFTWARE DEVELOPMENT. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014 - 15 WAS FILED ON 30/11/2014 DECLARING TOTAL LOSS OF RS.5,48,64,154/ - WHICH WAS REVISED ON 30/11/2015 AT A TOTAL LOSS OF RS.9,20,42,477/ - . THE ASSESSMENT WAS COMPLETED BY THE INCOME - TAX OFFICER, WARD 5(1)(3), BENGALURU [HEREINAFTER REFERRED TO AS THE ASSESSING OFFICER (AO) ] VIDE ORDER DATED 27/12/2016 PASSED U/S 143(3) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] AT TOTAL LOSS OF RS.7,44,23,243/ - AFTER MAKING THE FOLLOWING TWO DISALLOWANCES: DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT PAYMENT OF RS.1,70,13,020/ - TOWARDS PURCHASE OF SOFTWARE WAS MADE TO M/S.PEPPEL & FUCHS PTE SINGAPORE, NON - RESIDENT COMPANY WITHOUT DEDUCTING TAX AT SOURCE. THE CONTENTION OF THE ASSESSEE THAT PAYMENT HA D BEEN MADE TO ITS F OREIGN COMPANY TOWARDS REIMBURSEMENT OF COST INCURRED BY IT AND NOT AS A ROYALTY, WAS NOT ACCEPTED BY THE AO. I TA NO S.844, & 845 /BANG/20 18 PAGE 4 OF 5 4. EVEN ON APPEAL BEFORE THE LD.CIT(A), THE CONTENTION HAS BEEN REJECTED BY THE LD.CIT(A). 5. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. 6. THE ISSUE IN THE PRESENT APPEAL IS SQUARELY AGAINST THE ASSESSEE BY THE DECISION OF THIS TRIBUNAL IN THE ASSESSEE S OWN CASE IN IT(TP)A NO.227/BANG/2014 DATED 14/09/2018 FOR THE ASSESSMENT YEAR 2009 - 10, WHEREIN THE CO - ORDINA TE BENCH OF THE TRIBUNAL, PLACING RELIANCE ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SAMSUNG ELECTORNICS LTD. ( 2011) 16 TAXMANN.COM 141(KAR) HELD THAT THE PAYMENT IS IN THE NATURE OF ROYALTY. THE RELEVANT PARAGRAPHS ARE REPROD UCED HEREUNDER: 26. THE NEXT SURVIVING GROUND IS GROUND NO.4 RAISED BY THE REVENUE. AS FAR AS GROUND NO.4 RAISED BY THE REVENUE IS CONCERNED, THE QUESTION FOR CONSIDERATION IS AS TO WHETHER THE PAYMENTS MADE BY THE ASSESSEE FOR PURCHASE OF SOFTWARE FOR W HICH THE ASSESSEE MADE PAYMENT TO A NON - RESIDENT, THE ASSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE U/S. 195 OF THE ACT? THE AO HELD THAT THERE WAS AN OBLIGATION TO DEDUCT TAX AT SOURCE U/S. 195 OF THE ACT AND SINCE THE ASSESSEE FAILED TO DEDUCT TAX AT SOU RCE, THE EXPENDITURE CLAIMED AS DEDUCTION IN THE PROFIT & LOSS ACCOUNT SHOULD BE DISALLOWED AND ADDED TO THE TOTAL INCOME. 27. ON APPEAL BY THE ASSESSEE, THE DRP CONFIRMED THE ORDER OF AO BY FOLLOWING THE DECISION OF THE HON BLE HIGH COURT OF KARNATA KA IN THE CASE OF CIT V. SAMSUNG ELECTRONICS CO. LTD. (2011) 16 TAXMANN.COM 141 (KAR). 28. AGGRIEVED BY THE ORDER OF DRP WHICH WAS INCORPORATED IN THE ORDER OF ASSESSMENT BY THE AO, THE ASSESSEE HAS RAISED GROUND NO.4 BEFORE THE TRIBUNAL. 29. WE H AVE HEARD THE RIVAL SUBMISSIONS. IT IS SEEN THAT THE CASE OF THE ASSESSEE IS THAT THE PAYMENT WAS MADE FOR RIGHT TO USE THE SOFTWARE AND SUCH PAYMENT WAS NOT IN THE NATURE OF ROYALTY WITHIN THE MEANING OF EXPLANATION (2) TO SECTION 9(1)(VI) OF THE ACT. F URTHER, THE PLEA OF THE ASSESSEE WAS THAT THE PARENT COMPANY INCURRED EXPENDITURE FOR PURCHASING SOFTWARE AND THE SAME WAS REIMBURSED BY THE ASSESSEE. THE CONTENTION OF THE ASSESSEE WAS THAT REIMBURSEMENT WAS NOT SUBJECT TO TDS U/S. 195 OF THE ACT. WE AR E OF THE VIEW THAT THE PAYMENT THOUGH WAS MADE AS REIMBURSEMENT, WAS IN FACT A PAYMENT FOR PURCHASE OF SOFTWARE. THE FACT THAT THE PARENT COMPANY MADE THE PAYMENTS TO THE LICENSOR I TA NO S.844, & 845 /BANG/20 18 PAGE 5 OF 5 WHICH WAS REIMBURSED BY THE ASSESSEE TO THE PARENT COMPANY WILL NOT MAKE TH E PAYMENT IN QUESTION AS REIMBURSEMENT. IN OTHER WORDS, IT WAS A PAYMENT BY THE ASSESSEE TO THE LICENSOR OF THE SOFTWARE THROUGH THE PARENT COMPANY. THEREFORE THE PROVISIONS OF SECTION 195 WILL STAND ATTRACTED. 30. AS FAR AS THE QUESTION WHETHER THE P AYMENT IN QUESTION IS A RIGHT TO USE THE SOFTWARE AND THEREFORE NOT ROYALTY WITHIN THE MEANING OF EXPLANATION (2) TO SECTION 9(1)(VI) OF THE ACT, THE HON BLE HIGH COURT OF KARNATAKA IN THE CASE OF SAMSUNG ELECTRONICS CO. LTD. (SUPRA) IN IDENTICAL FACTS AND CIRCUMSTANCES OF THE CASE, HAS TAKEN A VIEW THAT THE PAYMENT IN QUESTION WAS IN THE NATURE OF ROYALTY. IN VIEW OF THE AFORESAID DECISION OF THE HON BLE HIGH COURT OF KARNATAKA, WE FIND NO GROUNDS TO INTERFERE WITH THE ORDER OF DRP. RESPECTFULLY FOLLOWIN G THE DECISION OF THE CO - ORDINATE BENCH OF TRIBUNAL IN THE ASSESSEE S OWN CASE, THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR IS DISMISSED. FOR PARITY OF REASONS GIVEN FOR ASSESSMENT YEAR 2014 - 15, THE APPEAL FILED BY THE ASSESSEE FOR ASSESSMEN T YEAR 2013 - 14 IS ALSO DISMISSED. 7. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH NOVEMBER, 2018 S D/ - SD/ - (N.V .VASUDEVAN) ( INTURI RAMA RAO) VICE PRESIDENT ACCOUNTANT M EMBER PLACE : BENGALURU. D A T E D : 16 / 1 1 /201 8 SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE