THE COMMISSIONER OF INCOME TAX V. M/S. KENNAMETAL INC.,

ITA/418/2022

AI Insights

The case involves an appeal by the Commissioner of Income Tax International Taxation and the Deputy Director of Income Tax International Taxation against M/s. Kennametal Inc. The appeal was filed under Section 260-A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal (ITAT) dated 09/12/2021, which favored the Assessee and remanded the matter to the Assessing Authority. The main legal issues pertained to the classification of payments for software use as 'Royalty' under the Income Tax Act and the Double Taxation Avoidance Agreement (DTAA). The court heard arguments from both sides and decided to dispose of the appeal, allowing the Appellant to revisit the legal points in future proceedings.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 728097 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 24-02-2025
• Assessment Year: misc
• Other Referred Cases: M/s.World Courier (India) Pvt. Ltd. vs. ACIT, ENGIENEERING ANALYSIS CENTRE OF EXCELLENCE (P) LTD. vs. CIT
• Laws Referred To: Income Tax Act 1961, DTAA
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: K R VASUDEVAN
• Assessee Lawyers: SANMATHI; DILIP
• Keywords: Assessment Year 2009-2010; Income tax appeal; International Taxation; Royalty; Software Use
• Section: 9; 260-A

Judgement Text

" - 1 - NC: 2025:KHC:8031-DB ITA No. 418 of 2022 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24TH DAY OF FEBRUARY, 2025 PRESENT THE HON'BLE MR JUSTICE KRISHNA S DIXIT AND THE HON'BLE MR JUSTICE G BASAVARAJA INCOME TAX APPEAL NO.418 OF 2022 BETWEEN: 1. THE COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION, 4TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU - 560 095. 2. THE DEPUTY DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION, CIRCLE-1(2), PRESENT ADDRESS DCIT, INTERNATIONAL TAXATION, CIRCLE-1(2), 4TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU - 560 095. …APPELLANTS (BY SRI. SANMATHI. E.I AND SRI. DILIP, ADVOCATES) AND: M/S. KENNAMETAL INC., C/O. KENNAMETAL INDIA, 8/9TH MILE, TUMKUR ROAD, BENGALURU - 560 073. …RESPONDENT (BY SRI. K R VASUDEVAN, ADVOCATE) Digitally signed by LAKSHMINARAYAN N Location: High Court of Karnataka - 2 - NC: 2025:KHC:8031-DB ITA No. 418 of 2022 THE INCOME TAX APPEAL IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 09/12/2021 PASSED IN ITA NO. 802/BANG/2019, FOR THE ASSESSMENT YEAR 2009-2010 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 802/BANG/2019 DATED 09/12/2021 FOR ASSESSMENT YEAR 2009-2010 ANNEXURE-C, ETC., THIS APPEAL, COMING ON FOR ADMISSION, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR JUSTICE KRISHNA S DIXIT and HON'BLE MR JUSTICE G BASAVARAJA ORAL JUDGMENT (PER: HON'BLE MR JUSTICE KRISHNA S DIXIT) The Revenue is in appeal against the order of the ITAT dated 09.12.2021 whereby Assessee’s Appeal having been favoured in ITA Nos.802 to 806/Bang/2019, matter has been remanded to the Assessing Authority for consideration afresh in terms of its own judgment in M/s.World Courier (India) Pvt. Ltd. vs. ACIT rendered in ITA No.1727, 1577/Bang/2017 dated 11.08.2021. 2. The Appellant/Revenue has framed the following Substantial Questions of Law for consideration: - 3 - NC: 2025:KHC:8031-DB ITA No. 418 of 2022 1. Whether on the facts and in the circumstances of the case, the Tribunal order can be said as perverse in nature in holding that CIT(A) is not right in holding that receipt for allowing use of software and other services cannot be held to be Royalty under Income Tax Act as well as in DTAA by ignoring contents of agreements dated 1/7/2005 under which rights were granted to the subsidiary and even otherwise Tribunal failed to observe that decision rendered by Apex Court in case of M/s. Engineering analysis Centre of Excellence Pvt. Ltd has not reached finality? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that payment made to the said Indian company to Kennametal USA, are for use of SAP software and is not in the nature of Royalty when conditions for invoking section 9 of the Act was fully satisfied in present set of facts and materials on record? 3. Sri.K.R.Vasudevan, learned counsel appearing for the Assessee vehemently opposes the appeal contending that ordinarily whether something amounts to Royalty or not, is a mixed question of law and facts, if not a question of fact and therefore, Appeal is not maintainable. Even otherwise, he submits, when remand is made, much grievance cannot be made by the Revenue. 4. Having heard the learned counsel appearing for the parties and having perused the Appeal Papers, we find - 4 - NC: 2025:KHC:8031-DB ITA No. 418 of 2022 considerable force in the submission of learned counsel appearing for the Assessee. Therefore, much interference in the matter is not warranted. 5. The above being said, we reserve liberty to the Appellant to canvass all the points of law including the decision of the Apex Court in ENGIENEERING ANALYSIS CENTRE OF EXCELLENCE (P) LTD. vs. CIT, (2021) 125 taxmann.com 42. With the above observation, Appeal is disposed off, costs having been made easy. Sd/- (KRISHNA S DIXIT) JUDGE Sd/- (G BASAVARAJA) JUDGE DR List No.: 1 Sl No.: 18 "