THE COMMISSIONER OF INCOME TAX V. WIPRO HEALTHCARE IT LIMITED

ITA/908/2007

AI Insights

The case revolves around an appeal by the Revenue against the decision of the Income Tax Appellate Tribunal, which had ruled in favor of Wipro Healthcare IT Limited, formerly GE Medical Systems Information Technologies Limited. The core issue was whether the respondent was liable to deduct TDS on royalty payments under Section 201(1) of the Income Tax Act, 1961, when the royalty agreement was cancelled from the inception as per a letter dated 09.07.2002 from the US company, GE Information Technology Inc., USA. The Tribunal had found that since the agreement was cancelled, there was no liability to pay royalty and consequently no liability to deduct TDS.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 733461 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 05-03-2013
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: R B KRISHNA
• Assessee Lawyers: M THIRUMALESH
• Keywords: Collaboration agreement; Income Tax; Intellectual Property Rights; International Taxation; Royalty Payment; TDS
• Section: 201(1); 260A; 201(1A)

Judgement Text

"IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 5TH DAY OF MARCH 2013 PRESENT THE HON’BLE MR. JUSTICE N.KUMAR AND THE HON’BLE MR. JUSTICE B.MANOHAR I.T.A. NO.908/2007 BETWEEN : 1. The Commissioner of Income-tax, Central Circle, C.R.Building, Queens Road, Bangalore. 2. The Income-Tax Officer, International Taxation, Ward – 19(1), C.R.Building, Queen’s Road, Bangalore. ...APPELLANTS (BY Sri.M.Thirumalesh, Adv.) AND : Wipro Healthcare IT Limited, Formerly GE Medical Systems Information Technologies Limited, Doddakenelli, Sarjapur Road, Bangalore – 560 035. …RESPONDENT (By Sri.Dr.R.B.Krishna, Adv.) . . . . This I.T.A. is filed under Section 260A of the Income Tax Act, 1961 praying to (i) formulate the - 2 - substantial questions of law stated therein, (ii) allow the appeal and set-aside the order passed by the Income Tax Appellate Tribunal, Bangalore in I.T.A. No.3732/Bang/2004 dated 03.08.2007 confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, (Internationa Taxation), Ward-19(1), Bangalore. This I.T.A. coming on for hearing, this day, N.Kumar J., delivered the following: JUDGMENT The Revenue has preferred this appeal challenging the order passed by the Tribunal holding that the company cannot be regarded as a defaulter under Section 201(1) of the Income Tax Act and consequential interest under Section 201(1A) is not leviable and directing cancellation of the same. 2. The assessee entered into a Collaboration Agreement with M/s. GE Information Technology Inc., USA(GEMS IT, USA). According to the contract, the USA company had given license to the assessee, the right to use the IPRs belonging to that company and also to participate in Global Technology Development efforts funded by them. The assessee was to pay royalty at - 3 - 15% on internal and export sales of all products made, sold, assembled and licenced by the assessee. According to him the agreement came to be executed on 6th September 2000. In the financial year 2001-02 the assessee-company made debit entries on monthly basis in royalty account since royalty was payable to the US Company. However, before closure of the account a reverse entry was made in respect of the royalty payable at Rs.1,92,42,304/-, the reason being that the royalty payment was cancelled from the very inception, from the terms of the agreement entered into between the parties, which is supported by the letter dated 09.07.2002 issued by US Company. The Assessing Officer held that the agreement was not cancelled but only the payment of royalty was cancelled. Therefore, he passed an order under Section 201(1) of the IT Act raising demand of tax of Rs.30,46,188/- and also held that the interest is payable thereon. 3. Aggrieved by the said order, the assessee preferred an appeal before the Commissioner of Income tax appeals. The Appellate Authority dismissed the - 4 - appeal. Aggrieved by the same, he preferred an appeal to the Tribunal. The Tribunal held that once the agreement itself is cancelled, consequential payment of royalty also stood cancelled. For the entire period from inception up to 30th July 2002 there was no liability for making payment on behalf of the assessee. When there is no liability to pay royalty and consequential interest, there was no liability to deduct TDS. The authorities below committed a serious error in holding the assessee liable to the same and erred in passing the impugned order. Accordingly, appeal was allowed. The relief was granted to the Assessee. Aggrieved by the same, Revenue is in appeal. 4. From the aforesaid material on record, it is clear that agreement with regard to payment of royalty was cancelled, no royalty was payable and therefore, the question of deducting TDS on such royalty does not arise. These facts are not in dispute. Therefore, in the facts and circumstances of the case we are of the view that the order passed by the Tribunal is correct. Hence, we pass the following order: - 5 - Appeal is allowed. Insofar as the substantial questions of law framed in this case are concerned, they are left open to be decided by this Court in an appropriate case. Parties to bear their own cost. Sd/- JUDGE Sd/- JUDGE SPS "