THE COMMISSIONER OF INCOME TAX V. ING VYSYA LIFE INSURANCE CO (P) LTD

ITA/761/2006

AI Insights

The case involves an appeal by the Commissioner of Income Tax and the Income-Tax Officer against M/s. ING VYSYA Life Insurance Co. regarding the non-deduction of TDS on payments made for the purchase of software. The core legal issues revolved around whether such payments could be classified as royalty under the Income Tax Act, 1961, and relevant Double Taxation Avoidance Agreements (DTAA). The tribunal had previously held that the payments were not liable to TDS as they were not considered royalty since the assessee only purchased the right to use the software and not the entire copyright. The revenue challenged this decision, citing precedents that supported the view that such payments do constitute royalty and are thus subject to TDS.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 729270 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 06-06-2012
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX & ANOTHER vs SAMSUNG ELECTRONICS CO LTD & OTHERS, COMMISSIONER OF INCOME- TAX vs M/S SYNOPSIS INTERNATIONAL OLD LTD
• Laws Referred To: Income Tax Act, 1961, Double Taxation Avoidance Agreements
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: V SRINIVAS RAGHAVAN
• Assessee Lawyers: M V SESHACHALA
• Keywords: Assessment Order; Copyright; Royalty; Scientific Work; Software purchase; Taxability; TDS
• Section: 201(1); 260A; 9; 195(2); 195(3); 195(4)

Judgement Text

"1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 6TH DAY OF JUNE 2012 PRESENT THE HON'BLE MR. JUSTICE D V SHYLENDRA KUMAR AND THE HON'BLE MR. JUSTICE B.MANOHAR ITA No.761 of 2006 BETWEEN : 1 THE COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION, RASTROTHANA BUILDING NRUPATHUNGA ROAD BANGALORE 2 THE INCOME-TAX OFFICER INTERNATIONAL TAXATION, WARD-19(2) RASTROTHANA BUILDING NRUPATHUNGA ROAD BANGALORE … APPELLANTS [By Sri M V Seshachala, Adv.] AND : M/S. ING VYSYA LIFE INSURANCE CO.(P) LTD., NO.14, SANKEY ROAD, BANGALORE – 560 003 … RESPONDENT [By Sri V Srinivas Raghavan, Adv. for M/s. Indus Law, Advs.] THIS APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED 11.11.2005 PASSED IN ITA NO. 876/BANG/2004 FOR THE ASSESSMENT YEAR 2001-02, PRAYING TO SET ASIDE THE SAID ORDER OF THE TRIBUNAL AND ETC., 2 THIS APPEAL COMING ON FOR HEARING, THIS DAY, SHYLENDRA KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT Appeal by the revenue raising the following substantial questions of law: 1. Whether the Tribunal was correct in holding that the assessee is not liable to deduct TDS in respect of payments made for purchase of software as the same cannot be treated as income liable to tax in the India as Royalty or Scientific Work under section 9 of the Act read with Double Taxation Avoidance Agreements and treaties. 2. Whether the Tribunal was correct in holding that since the assessee had purchased only a right to use the copyright i.e., the software and not the entire copyright itself, the payment cannot be treated as Royalty as per the Double Taxation Avoidance Agreement and Treaties which is beneficial to the assessee and consequently section 9 of the Act should not take into consideration. 3. Whether the Tribunal should have recorded a finding that it is under section 195(2) and (3) and (4) of the Act, the chargeability to tax or not of the recipient is decided and having failed to obtain such a decision the assessee was bound to deduct tax at 3 source as held by the Apex Court in 239 ITR 587. 4. Whether the assessee can question the taxability of the recipient in section 201(1) of the Act proceeding when the assessee has to show only “without good and sufficient reasons failed to deduct and pay tax”, which has not been shown in the facts of the present case and non taxability cannot be taken as a sufficient reason, when section 195(2)(3)(4) of the Act certificate is not obtained. 5. Whether the Tribunal was correct in holding that the payment partakes the character of purchase and sale of goods and therefore cannot be treated as royalty payment liable to Income Tax. 2. Sri M V Seshachala, learned senior standing counsel appearing for the appellant-revenue submits that the questions have to be answered in the negative and in favour of the revenue, as such questions have already been answered by a division bench of this court in the case of COMMISSIONER OF INCOME TAX & ANOTHER vs SAMSUNG ELECTRONICS CO LTD & OTHERS [(2011) 245 CTR (KAR) 481]. He also 4 submits that this legal position is so indicated in terms of an earlier judgment of a division bench of this court rendered on 3-8-2010 in ITA Nos 11 – 15 of 2008 and 17 of 2008 in the case of COMMISSIONER OF INCOME- TAX vs M/S SYNOPSIS INTERNATIONAL OLD LTD. 3. Accordingly, this appeal is allowed, the questions are answered in the negative and in favour of the revenue, order of the tribunal is set aside and the assessment order is restored. Sd/- JUDGE Sd/- JUDGE *pjk "