SONATA INFORMATION TECHNOLOGY LTD, V. DCIT (LTU),

MA 619/MUM/2012

• Counselvise Citation: [2013] 124 COUNSELVISE.COM (IT) 0074 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 07-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 01-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Recovery proceedings; Bonafide belief

Judgement Text

MA NO.619 OF 2012 SONATA INFORMATION TECHNOLOGY LTD MUMBAI PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL 'E' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER MA NO. 619/MUM/2012 (ARISING OUT OF ITA NO.1507/MUM/2012) (ASSESSMENT YEAR: 2008-09) SONATA INFORMATION TECHNOLOGY LTD, 208, TV INDUSTRIAL ESTATE,S.K. AHIRE MARG, WORLI, MUMBAI 400025 PAN: AAECS 8734 J VS. DCIT, LTU MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI VIJAY MEHTA, DEPARTMENT BY: SHRI MANOJ KUMAR, DR DATE OF HEARING: 01/02/2013 DATE OF PRONOUNCEMENT: 07/02/2013 O R D E R PER B. RAMAKOTAIAH, A.M. THIS IS A MISCELLANEOUS APPLICATION RAISED BY ASSE SSEE AGAINST THE ORDER OF THE ITAT E BENCH IN ITA NO.1 507/MUM/2012 DATED 07.09.2012. ASSESSEE POINTS OUT THREE MITAKES IN THE ABOVE ORDER. THE FIRST MISTAKE IS WITH REFERENCE TO THE J UDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. KO TAK SECURITIES LTD, 340 ITR 333 WHICH WAS DISCUSSED IN THE ARGUMENTS BY THE AR, BUT NO FINDING WAS GIVEN IN THE OPERATIVE PART OF THE O RDER. THE SECOND MISTAKE POINTED OUT IS WITH REFERENCE TO THE PAYMEN TS MADE FOR COMPUTER SOFTWARE TO BE CONSIDERED AS ROYALTY, THE ISSUE OF WHICH WAS NOT PRESSED AS THE MATTER WAS CONTESTED BEFORE THE HONBLR HIGH COURT OF BOMBAY. THE THIRD MISTAKE POINTED OUT IS WITH REFERENCE TO BINDING DECISION OF THE HON'BLE SUPREM E COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGE P. LTD VS. CIT , 293 ITR 226 WHICH WAS DULY RECORDED BY THE ITAT AND DIRECTED AO TO EXAMINE WHETHER THERE IS ANY PAYMENT OF TAXES BY THOSE COMP ANIES. THE MA NO.619 OF 2012 SONATA INFORMATION TECHNOLOGY LTD MUMBAI PAGE 2 OF 4 OBJECTION IS WITH REFERENCE TO NOT GIVING DIRECTION WITH REFERENCE TO THE DISALLOWANCE UNDER SECTION 40(A)(IA). 2. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEARNED D R IN DETAIL. 3. BRIEFLY STATED THE ISSUE PERTAINING TO THE ABOVE TH REE MISTAKES IS WITH REFERENCE TO GROUND NO.4 OF DISALLOWING AN AMOUNT OF ` 1,99,79,11,595 UNDER SECTION 40(A)(IA). ASSESSEE PU RCHASED SOFTWARE FROM PERSONS WHO ARE RESIDENTS IN INDIA. I N THE IMPUGNED ASSESSMENT ORDER THE SOFTWARE WAS HELD TO BE ROYALT Y AND THE PROVISIONS OF SECTION 194J WERE HELD APPLICABLE. SI NCE TDS WAS NOT MADE, AO DISALLOWED THE ENTIRE PURCHASE AMOUNT UNDE R SECTION 40(A)(IA). AFTER CONSIDERING THE RIVAL SUBMISSIONS THE BENCH RECORDED THAT THE ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE COORDINATE BENCH IN ASSESSMENT YEAR 2007-08, BUT CONSEQUENT TO THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN AN APPEAL ON ORDERS UNDER SECTION 201 ON PAYMENTS MADE TO NON-RESIDENTS WHERE IN IT WAS HELD THAT THE AMOUNTS ARE ROYALTY IN NATURE, THE MATTER WAS SET ASIDE TO AO TO DECIDE THE ISSUE AFRESH AFTER GIVING DUE OPPO RTUNITY TO ASSESSEE. IN ADDITION AO IS ALSO DIRECTED TO KEEP I N MIND THE SPECIAL BENCH DECISION OF THE ITAT IN THE CASE OF MERILYN S HIPPING & TRANSPORTS VS. AD.CIT (16 ITR TRIB.(1) VIZ) IN ITA NO.477/VIZ/2008 DATED 29.03.2012 AND ALSO TO GIVE A FINDING WHETHER THE PERSONS WHO RECEIVED THE PURCHASE CONSIDERATION HAVE PAID T AXES FOLLOWING THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COU RT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGES (P) LTD (SUPRA). I T IS ALSO FURTHER DIRECTED THAT THE DEFINITION OF ROYALTY UNDER SEC TION 40(A)(IA) IS ONLY WITH REFERENCE TO EXPLANATION 2 OF SECTION 9(1)(VI) AND ULTIMATELY VIDE PARA NO.33, IT WAS DIRECTED AS UNDER: 33. AO IS DIRECTED TO CONSIDER WHETHER THE AMOUNTS PAID TO INDIAN SUPPLIERS CAN BE CONSIDERED AS ROYAL TY KEEPING IN MIND THE LATEST PRONOUNCEMENTS OF VARIOU S HIGHER JUDICIAL AUTHORITIES ON THE ISSUE AND THE NA TURE OF PURCHASE AND THE RIGHTS INVOLVED THEREIN, IN ORDER TO EXAMINE WHETHER THE PAYMENTS CAN BE CONSIDERED AS ROYALTY AS PER EXPLANATION 2 OF CLAUSE VI OF SUB- S ECTION 1 OF SECTION 9. ASSESSEE SHOULD BE GIVEN DUE MA NO.619 OF 2012 SONATA INFORMATION TECHNOLOGY LTD MUMBAI PAGE 3 OF 4 OPPORTUNITY AND ISSUE SHOULD BE CONSIDERED IN THE L IGHT OF THE FACTS AND THE LAW ON THE ISSUE. GROUND IS ACCORDINGLY CONSIDERED ALLOWED FOR STATISTICAL PURP OSES. 4. NOW ASSESSEE PRESSED FOR GIVING SUITABLE DIRECTION ON THE DECISION OF THE JURISDICTIONAL HIGH COURT WITH REFE RENCE TO CIT VS. KOTAK SECURITIES LTD., 340 ITR 333 ON WHICH THE ARG UMENTS WERE PLACED AND RECORDED IN PARA 25 OF THE ORDER. SINCE THE ISSUE WHETHER THE AMOUNTS PAID WERE ROYALTY OR NOT WAS IT SELF RESTORED TO THE FILE OF AO, AT THAT TIME IT WAS FELT THERE IS N O REQUIREMENT TO GIVE SPECIFIC DIRECTION ON THE APPLICABILITY OF THE JURI SDICTIONAL HIGH COURT JUDGMENT AS IT IS BINDING ON AO TO FOLLOW THE PRINCIPLES LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT AND T HE ISSUE WAS RESTORED TO AO TO CONSIDER IN THE LIGHT OF THE FACT S AND LAW. NOW THAT ASSESSEE REQUESTED FOR SPECIFIC DIRECTION ON THIS I SSUE, WE ADD THE FOLLOWING VIDE PARA 33 OF THE ORDER WHICH SHOULD BE CONSIDERED AS INCLUSIVE OF THIS. AO IS ALSO DIRECTED TO EXAMINE WHETHER THE PRINCIPLES LAID DOWN BY THE HON'BLE BOMBAY HIGH COU RT IN THE CASE OF CIT VS. KOTAK SECURITIES LTD (SUPRA) WHEREI N THE HON'BLE COURT TOOK THE VIEW THAT DUE TO THE BONAFIDE BELIEF IF A PERSON DOES NOT DEDUCT THE TAX WHILE MAKING PAYMENT, THEN THERE CAN BE NO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE A CT. THIS ASPECT ALSO SHOULD BE CONSIDERED BY AO . THE ORDER STANDS MODIFIED TO THAT EXTENT. 5. WITH REFERENCE TO THE REQUEST FOR DIRECTION ON THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE CASE OF HINDU STAN COCA COLA BEVERAGES (P) LTD (SUPRA) THAT IF THE OTHER PERSON PAID TAXES THERE IS NO NEED TO DISALLOW THE AMOUNT UNDER SECTION 40(A)( IA), WE CAN NOT ACCEPT THE PLEA. IN FACT, THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF HINDUSTAN COCA COLA BE VERAGES PVT. LTD VS. CIT (SUPRA) ARE WITH REFERENCE RECOVERY OF TAX AND LEVY OF INTEREST UNDER SECTION 201. IN THAT CONTEXT, THE HO N'BLE SUPREME COURT HELD THAT SINCE ASSESSEE HAD PAID THE INTERES T UNDER SECTION 201(1A) AND THERE WAS NO DISPUTE THAT THE TAX DUE H AS BEEN PAID BY THE DEDUCTEE, TAX COULD NOT BE RECOVERED AGAIN FROM THE ASSESSEE. HOWEVER, THE PROVISIONS OF SECTION 201 OPERATE IN A DIFFERENT CONTEXT MA NO.619 OF 2012 SONATA INFORMATION TECHNOLOGY LTD MUMBAI PAGE 4 OF 4 OF RECOVERY OF TAX AND INTEREST IN CASE OF DEFAULT, WHEREAS UNDER SECTION 40(A)(IA), THE AMOUNTS WHICH ARE COVERED BY THE PROVISIONS OF TDS AND ON WHICH TDS WAS NOT MADE WERE TO BE DIS ALLOWED IN ITS ENTIRETY IN THE INCOME TAX ASSESSMENT OF ASSESSEE ( DEDUCTOR) ON SPECIFIC TYPES OF PAYMENTS MENTIONED THEREIN. WHETH ER THE PAYMENT OF TAX BY THE RECIPIENT WILL ABSOLVE ASSESSEE FROM THE PROVISIONS OF SECTION 40(A)(IA) CANNOT BE CONSIDERED ON THE BASIS OF THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE ABOVE SAID CASE UNDER THE PROVISIONS OF SEC.201. SINCE THESE TWO PR OVISIONS OPERATE IN A DIFFERENT CONTEXT, THE BENCH THOUGHT IT FIT NO T TO GIVE ANY SPECIFIC DIRECTION BUT ONLY TO PLACE ON RECORD THE FACT WHETHER THE RECIPIENT PAID THE TAXES OR NOT. THIS DIRECTION WAS ALREADY GIVEN IN THE ORDER. THEREFORE, AS FAR AS THE MISTAKE NO.3 PO INTED OUT BY ASSESSEE, NO DIRECTION CAN BE GIVEN SPECIFICALLY FO R APPLICATION OF THE ABOVE PRINCIPLES TO THE FACTS OF THE CASE. MISTAKE NO.2 WAS NOT PRESSED. 6. IN THE RESULT, MISCELLANEOUS APPLICATION FILED BY A SSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH FEBRUARY, 2013 SD/- SD/- ( D.K.AGARWAL ) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 7 TH FEBRUARY, 2013. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI