M/S KASEYA SOFTWARE INDIA PRIVATE LTD V. THE DEPUTY COMMISSIONER OF INCOME TAX

ITA/196/2021

AI Insights

The case involves M/s Kaseya Software India Private Ltd., the appellant, challenging an order by the Income Tax Appellate Tribunal which sustained the disallowance of software expenses under Section 40(a)(i) of the Income Tax Act, 1961 for non-deduction of tax at source under Section 195. The dispute centered on whether the payments made for software products constituted 'royalty' under Section 9(1)(vi) of the Income Tax Act, which would necessitate tax deduction at source. The appellant argued that the distribution agreements did not grant any rights that would amount to the use of or right to use any copyright, referencing a similar case decided by the Supreme Court.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 767631 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 30-08-2021
• Assessment Year: misc
• Other Referred Cases: Engineering Analysis Centre of Excellence Private Ltd. vs. Commissioner of Income Tax
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: E I SANMATHI
• Assessee Lawyers: M KAUSHIK
• Keywords: Income tax appeal; Royalty; Software Expenses; Substantial questions of law; Tax deduction at source
• Section: 195; 9(1)(vi); 40(a)(i); 260-A

Judgement Text

" IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 30TH DAY OF AUGUST, 2021 PRESENT THE HON’BLE MRS.JUSTICE S.SUJATHA AND THE HON’BLE MR. JUSTICE RAVI V. HOSMANI I.T.A.No.196/2021 BETWEEN : M/s KASEYA SOFTWARE INDIA PRIVATE LTD., NEIL RAO TECH PARK PLOT NO.118, ROAD NO.3 EPJP PHASE-1, WHITEFIELD BANGALORE-560 066 ...APPELLANT (BY SRI M.KAUSHIK, ADV.) AND : THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE -4 (1) (1), BMTC BUILDING 80 FT ROAD, 6TH BLOCK, KORAMANGALA, BENGALURU - 560 095. …RESPONDENT (BY SRI E.I.SANMATHI, ADV.) THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 27.10.2020 PASSED IN ITA NO.1304/BANG/2018, FOR THE ASSESSMENT YEAR 2013-2014. PRAYING THIS HONBLE COURT TO (A) FORMULATE SUBSTANTIAL QUESTIONS OF LAW (B) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL AS BROUGHT OUT IN ANNEXURE-F DATED 27.10.2020 BEARING ITA NO.1304/BANG/2018 FOR THE ASSESSMENT YEAR 2013-2014. 2 THIS APPEAL COMING ON FOR ADMISSION, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING: J U D G M E N T This appeal is filed by the assessee under Section 260A of the Income Tax Act, 1961 challenging the order dated 27.10.2020 passed by the Income Tax Appellate Tribunal “B” Bench, Bangalore in ITA No.1304/Bang/2018 relating to the Assessment Year 2013-14 raising the following substantial questions of law:- 1. Whether the provisions of explanation (2) and explanation (4) below section 9(1)(vi) of the Income Tax Act, 1961 are applicable for the distributor of the software products solely based on the accounting of the transactions in the audited financials? 2. Whether the provisions of explanation (2) and explanation (4) below section 9(1)(vi) of the Income Tax Act, 1961 are applicable in the absence of transfer of 3 all or any right including granting of licence for use of computer software? 3. Whether the provisions of section 195 of the Act would get attracted to transactions of purchase of software products of the AE in the absence of the obtaining of licence of such products in favour of the appellant? 4. Whether the Appellate Tribunal was right in sustaining the disallowance of software expenses aggregating to Rs.2,13,03,772/- under section 40(a)(i) of the Income Tax Act, 1961 for non- deduction of Tax at Source under section 195 of the said Act thereby grossly misinterpreting the transaction of purchase simplicitor as one of “Royalty” as brought out in section 9(1)(vi) of the Income Tax Act, 1961? 2. Learned counsel for the appellant-assessee inviting the attention of the Court to the judgment of the Hon’ble Apex Court in the case of Engineering Analysis Centre of Excellence Private Ltd., vs. 4 Commissioner of Income Tax and another reported in 2021 SCC Online SC 159, would submit that the issue involved herein is no more res integra. Substantial questions of law raised herein are extensively considered by the Hon’ble Apex Court and the judgment is rendered holding that there is no obligation on the persons mentioned in section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. Learned counsel submits that this judgment is squarely applicable to the facts of the present case. Hence, substantial questions of law deserves to be answered in terms of the ruling of the Hon’ble Apex Court referred to supra. 5 3. Learned counsel for the revenue is not in a position to distinguish the case on hand with the judgment referred to above. 4. In the light of the judgment of the Hon’ble Apex Court referred to above, the substantial questions of law being covered as narrated above, the same are answered in terms of the assessee and against the revenue. The appeal stands allowed accordingly. All pending I.As. stand disposed of. Sd/- JUDGE Sd/- JUDGE PMR "