DY. COMMISSIONER OF INCOME TAX CIRCLE-1(1), PUNE, PUNE V. ENTERPRISEDB SOFTWARE INDIA PRIVATE LIMITED, PUNE

ITA 989/PUN/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 2329 (ITAT-PUNE)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2024
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-05-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 10-09-2023
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: RAJENDRA AGIWAL LD.
• Keywords: TDS
• Section: 145; 143(3); 234B; 195; 250; 201; 251; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, PUNE ‘C’ BENCH, PUNE ITAT-Pune Page 1 of 8 BEFORE HON’BLE SHRI G. D. PADMAHSHALI, ACCOUNTANT MEMBER AND HON’BLE SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील स ं . / ITA No. 989/PUN/2023 & CO No. 008/PUN/2024 निर्धारण वर्ा / Assessment Year : 2017-18 Dy. Commissioner of Income Tax, Central Circle-1(1), Pune . . . . . . . अपीलार्थी / Appellant बिधम / V/s Enterprises Software India Pvt. Ltd. 301, 3 rd Floor, Sasoon Rd., N.W. College., Pune-411001 PAN :AABCE5660N . . . . . . . प्रत्यर्थी / Respondent & Cross Objector द्वारा / Appearances Assessee by: Mr Rajendra Agiwal [‘Ld. AR’] Revenue by: Ms Sonal Sonkavde [‘Ld. DR’] स ु नवाई की तारीख / Date of conclusive Hearing : 09/05/2024 घोषणा की तारीख / Date of Pronouncement : 16/05/2024 आदेश / ORDER PER G. D. PADMAHSHALI, AM; The present appeal instituted by the Revenue u/s 253(2) of Income Tax Act, 1961 [in short ‘the Act’] challenges the DIN & Order No. ITBA/NFAC/ S/250/2023- 24/1054358649(1) dt. 14/07/2023 passed u/s 250 by the National Faceless Appeal Centre, Delhi [in short ‘NFAC/CIT(A)’] anent to assessment year 2017-18 [in short ‘AY’] which in turn arisen out of order of assessment dt. 29/09/2019 passed u/s 143(3) of the Act by learned Asstt. Commissioner of Income Tax, Circle-1(2), Pune [in short ‘AO’]. The assessee also preferred a cross objection against the appeal of the Revenue. DCIT Vs Enterprises Software India Pvt. Ltd. ITA No. 989/PUN/2023 & Co No. 008/PUN/2024 ITAT-Pune Page 2 of 8 2. Tersely stated facts of the case are that; 2.1 The assessee company is a part of the Enterprise DB Group and is a subsidiary of Enterprise DB International Holdings Inc. [in short ‘EDB Crop./AE’] which was engaged in providing product development support services, general and administration support services and sales support services to its group entity. The assessee acts as a reseller of the software products of and also involved in providing training and consulting services to non-group and group customers. In January 2010 the assessee entered into an agreement with its AE-EDB Corp. to resell software subscriptions in India. The income/sales from the sale of aforesaid software is recognised in the books as ‘Subscription’ and 50% of the such Subscription earned/received is shared as Licence Fees to its AE-EDB Corp. For the year under consideration, the assessee accounted/debited ₹3,70,20,962 as 50% share of payable on subscription earned/generated by it without providing for deduction of taxes at source u/s 195 of the Act [in short ‘TDS’]. 2.2 The return of income [in short ‘ITR’] filed by the assessee declaring total income of ₹25,88,970/- was selected for scrutiny by service of notice u/s 143(2) of the Act. In assessment proceedings upon coming to notice that, the assessee had failed to deduct aforestated TDS u/s 195(1) of the Act from the license fees payable to its AE-EDB Corp. called upon the assessee to show cause as to why such expense (License fees) should not be disallowed u/s 40(a)(i) of the Act. Considering the submission over taxability in the hands of recipient AE and the year of deductibility of TDS, the Ld. AO disallowed the License fees u/s 40(a)(i) of the Act and assessed the total income accordingly u/s 143(3) of the Act. DCIT Vs Enterprises Software India Pvt. Ltd. ITA No. 989/PUN/2023 & Co No. 008/PUN/2024 ITAT-Pune Page 3 of 8 2.3 Aggrieved assessee carried the matter in an appeal u/s 246A(1) of the Act, wherein the Ld. CIT(A) overturned the disallowance. 2.4 Aggrieved by the aforestated adjudication the Revenue impugned the reversal of disallowance on following two grounds; 1. Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the AO u/s 40(a)(i) of the Act without considering the facts as per Explanation 1 to subsection 1 of section 195 of the Income-tax Act, 1961? 2. Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the appeal of assessee without considering the judgement the Hon’ble Supreme Court of India in the case of Standard Triumph Motor Co. Ltd. v. Commissioner of Income- tax, [1993] 67 Taxman 160 (SC)/[1993] 201 ITR 391 (SC)? 2.5 On the other hands the assessee raised as many as eleven ground in its cross objection. Though the said grounds prima-facie are inconsonance with rule 8 of ITAT-Rules, 1963 however for the ready reference are reproduced herein as; A. On the facts and in the circumstances of the case, the learned CIT(A) erred in not adjudicating on the Ground Nos. 4, 5, and 6 raised by the Respondent in the Grounds of Appeal submitted along with Form 35. 1. The learned CIT(A) erred in not adjudicating on the contention of the Respondent that software is a 'copyrighted article' and therefore, the purchase of software license does not all within the definition of 'Royalty' as per the India-USA Tax Treaty. 2. The learned CIT(A) ought to have deliberated on the favourable decision of the Hon'ble Supreme Court in the case of Engineering DCIT Vs Enterprises Software India Pvt. Ltd. ITA No. 989/PUN/2023 & Co No. 008/PUN/2024 ITAT-Pune Page 4 of 8 Analysis Centre of Excellence (P.) Ltd. (432 ITR /1), on the issue of taxability of software license fees, that is squarely applicable in the instant case. 3. The learned CIT(A) erred in not deciding the matter in favour of the Respondent based on the conclusion that the software license fees payable by the Respondent to Enterprise DB Corporation are not subject to withholding tax on the account of the same not being taxable as 'Royalty' under the India-USA Tax Treaty. B. On the facts and in the circumstances of the case and law, the learned Deputy Commissioner of Income-tax, Circle 1(1), Pune ('DCIT') erred in objecting to the order of learned CIT(A). General 4. The learned DCIT failed to appreciate that the learned CIT(A) has rightly deleted the additions/disallowances of INR 3,70,20,962 made to the returned income of the Respondent. Applicability of Explanation 1 to sub-section 1 of section 195 of the Income-tax Act, 1961 ('the Act') 5. The learned DCIT erred in objecting to the order of the learned CIT(A) without considering the fact that the learned CIT(A) has rightly deleted the additions made by the learned DCIT based on the use of the words 'payment of any kind received as consideration' as per Article 12 of the India-USA Tax Treaty. 6. The learned DCIT erred in objecting to the order of the learned CHA) without appreciating the fact that the learned CIT(A) has rightfully not referred to Explanation 1 to subsection 1 of section 195 of the Act since the same is not beneficial as compared to the provisions of the India-USA Tax Treaty. DCIT Vs Enterprises Software India Pvt. Ltd. ITA No. 989/PUN/2023 & Co No. 008/PUN/2024 ITAT-Pune Page 5 of 8 7. The learned DCIT erred in objecting to the order of the learned CIT(A) since the learned CIT(A) has rightfully relied on the provisions of section 90(2) of the Act and granted the benefits as per the India-USA Tax Treaty, without discussing other provisions of the Act. Judgement of the Hon'ble Supreme Court in the case of Standard Triumph Motor Co. Ltd. v. Commissioner of Income-tax. [1993] 67 Taxman 160 (SC) / [1993] 201 ITR 391 (SC) 8. The learned DCIT erred in relying on the decision of the Hon'ble Supreme Court (supra) that dealt with the provisions of section 5 and section 145 of the Act, as against the provisions of section 90(2) of the Act, read with the India-USA Tax Treaty as applicable in the instant case. 9. The learned DCIT erred in not appreciating the fact that the Hon'ble Supreme Court in the above case (supra) did not adjudicate on the provisions of the Tax Treaty between India and UK as the same did not exist during the Assessment Year to which the subject decision pertains to. C. Other Grounds 10. The learned CIT(A) erred in not adjudicating on the ground raised by the Respondent with respect to the levying of interest under section 234B of the Act on the demand raised by the learned DCIT. 11. The learned CIT(A) erred in not adjudicating on the ground raised by the Respondent with respect to the wrongful initiation of the penalty proceedings under section 270A of the Act by the learned DCIT. 3. During the course of hearing, both the parties to the dispute commonly submitted that, the Ld. NFAC overturned the disallowance without giving its independent findings over the subject matter of adjudication. Adverting to para 2 DCIT Vs Enterprises Software India Pvt. Ltd. ITA No. 989/PUN/2023 & Co No. 008/PUN/2024 ITAT-Pune Page 6 of 8 (placed at Pg2/25) of the impugned order the Ld. AR submitted that, the assessee raised as many as ten grounds, however the appellate proceedings came culminated adjudicating only ground number 2 in favour of assessee by deleting the disallowance holding that, ‘As per the provisions of the Tax Treaty, Royalty income shall be taxed in the hands of the non-resident taxpayer in India on actual receipt of the same from the resident taxpayer. The appellant has also submitted that it has already withheld tax at source on the License Fees payments during FY 2019-20 and deposited the same with the Central Government.’ 4. The Ld. AR further contended that, the legal grounds viz; (a) as to whether impugned expense/payment i.e. License Fee shared by the assessee is taxable in India in the hands of non-resident AE in view of provisions of article 12 of double taxation avoidance agreement entered between India and USA r.w. u/s 9 of the Act? and (b) as to whether impugned expense/payment i.e. License Fee shared by the assessee to its non-resident AE can be subjected to the provisions of section 195 of the Act, were remained to be decided on merits & in the light of settled legal position. In view of these factual position, it is claimed that the impugned adjudication is suffered from provisions of s/s (6) of section 250 of the Act. As the adjudication served no purpose the parties tendered approbation for remanding the matter back to the file of Ld. NFAC with a clear direction. 5. We have heard rival contentions on this limited issue, and subject to rule 18 of ITAT-Rules 1963 perused material placed on record and considered the facts in light of settled legal position. DCIT Vs Enterprises Software India Pvt. Ltd. ITA No. 989/PUN/2023 & Co No. 008/PUN/2024 ITAT-Pune Page 7 of 8 6. We observed that, while adjudicating the issue in favour of the respondent assessee, the impugned adjudication in relation to each of the ground (1 to 10) raised by assessee did fail to (i) identify the issue under challenge, (ii) conduct necessary enquiries, (iii) give independent findings thereon and (iv) substantiate the decision with valid reasons. 7. We are heedful to the restriction placed by clause (a) of sub-section (1) of section 251 of the Act which obligates the Ld. CIT(A) to adjudicate the issue either by confirming or annulling the addition or reducing or enhancing the addition made by the assessing officer without the right to remand the matter back. However, while exercising the jurisdiction u/s 251(1)(a) of the Act, the Ld. CIT(A) is required to state point of determination, its decision thereon and clear reasons therefore in terms of section 250(6) of the Act. 8. In the instant case, we find no whisper in the impugned order about (a) as to whether impugned expense/payment i.e. License Fee shared by the assessee is taxable in India in the hands of non-resident AE in view of provisions of article 12 of double taxation avoidance agreement entered between India and USA r.w. u/s 9 of the Act? and (b) as to whether impugned expense/payment i.e. License Fee shared by the assessee to its non-resident AE can be subjected to the provisions of section 195 of the Act. In view of this uncontroverted facts, the impugned adjudication in our considered view is prejudiced by assessee’s submission that in the subsequent year of payment of license fees to AE due taxes were deducted u/s 195 of the Act and deposited with the ex-chequer. The ground number 2 adjudicated also badly lacks the compliance in terms of section 250(6) of the Act. DCIT Vs Enterprises Software India Pvt. Ltd. ITA No. 989/PUN/2023 & Co No. 008/PUN/2024 ITAT-Pune Page 8 of 8 9. It is a trite law as laid down by Hon’ble Supreme Court in case ‘Chandra Kishore Jha Vs Mahavir Prasad’ reported in 8 SCC 266 (SC), that ‘if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner’. In view hereof, we hold that, the impugned adjudication by the first appellate authority sidestepping the dictate is not in consonance with the provision of sub-section (6) of section 250 of the Act. 10. On the aforestated score we deem it fit to set-aside the impugned order and without commenting on merits of the case deem it proper to remand the file to first appellate authority (faceless regime) with a direction to adjudicate all the grounds (1 to 10 as laid in Form No 35) a fresh on the basis of material already brought on record and held as on the date of impugned order but without burdening the assessee to reproduce/resubmit evidences on the subject matter and pass a speaking order in terms of section 250(6) of the Act. Ordered accordingly. 11. In result, the appeal of the Revenue and cross objection of the assessee are ALLOWED FOR STATISTICAL PURPOSES in above terms. u/r 34 of ITAT Rules, this order pronounced in open court on this Thursday, 16th day of May, 2024. -S/d- -S/d- VINAY BHAMORE G. D. PADMAHSHALI JUDICIAL MEMBER ACCOUNTANT MEMBER प ु णे / PUNE; दिना ां क / Dated : 16th day of May, 2024. आदेश की प्रनिनलनपअग्रेनर्ि / Copy of the Order forwarded to : 1.अपीलार्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT Concerned. 4. The CIT(A) & NFAC Delhi 5. DR, ITAT, Bench ‘C’, Pune 6.गार्डफ़ाइल / Guard File. आिेशान ु सार / By Order वररष्ठदनजीसदिव / Sr. Private Secretary आयकरअपीलीयन्यायादिकरण, प ु णे / ITAT, Pune.