THE COMMISSIONER OF INCOME TAX V. M/S FLETCHER PIONEER INDIA PVT LTD

ITA/121/2007

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The case involves the Commissioner of Income Tax and the Income Tax Officer as appellants against M/s. Fletcher Pioneer India Pvt. Ltd. as the respondent. The core issue was whether the payment made by the respondent for software purchase from Hanpac S Pte Ltd. constituted a 'sale for price' or a 'royalty', which would be liable for Tax Deducted at Source (TDS). The Income Tax Officer initially classified the payment as royalty, but this was overturned by the Appellate Commissioner and the ITAT, leading to the current appeal by the revenue authorities. The judgment references several precedents and circulars, particularly focusing on the interpretation and application of tax laws concerning international transactions and the deductibility of taxes at source.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 736339 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 28-08-2012
• Assessment Year: misc
• Other Referred Cases: M/s.Samsung Electronics case, THE COMMISSIONER OF INCOME TAX AND ANOTHER vs. M/S.RANKA AND RANKA, Surya Herbals Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: A SHANKAR
• Assessee Lawyers: K V ARAVIND
• Keywords: Income Tax; International Taxation; Royalty; Software purchase; TDS
• Section: 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA, BANGALORE DATED THIS THE 28TH DAY OF AUGUST, 2012 PRESENT THE HON'BLE MR. JUSTICE K.SREEDHAR RAO AND THE HON'BLE MR. JUSTICE B.MANOHAR I.T.A. No. 121 OF 2007 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 K.V. Aravind, Advocate) AND:- M/s. Fletcher Pioneer India Pvt. Ltd., PB No.4821, Mahadevapura Post, 22A, Doddanekkunde, Industrial Area, Phase – II, Bangalore – 560029. Respondent (By Sri A. Shankar, Advocate) 2 This I.T.A. is filed U/s.260-A of the I.T. Act, 1961 arising out of Order dated 04.08.2006 passed in ITA No.978/Bang/2005, for the Assessment Year 2003-04, praying that this Hon’ble Court may be pleased to: (i) formulate the substantial questions of law stated therein and (ii) allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.978/Bang/2005, dated 04.08.2006 confirming the order of the Appellate Commissioner and confirm the order passed by the Income Tax Officer, International Taxation, Ward-19(2), Bangalore in the interest of justice and equity. This appeal is coming on for final hearing this day, SREEDHAR RAO, J., delivered the following: J U D G M E N T The respondent/assessee purchased software from Hanpac S Pte Ltd., which became a disputed contention whether it was a sale for price or payment made is a royalty. The assessing Officer held that the payment made is a royalty and liable for TDS. The Commissioner of Income Tax appeals and Appellate tribunal took a contra view. The revenue aggrieved by the said order of the tribunal has filed this appeal. In the similar matters, the following substantial question of law is framed by the Apex Court is as follows:- “Whether on facts and circumstances of the case, the ITAT was justified in holding that the amounts paid by the assessee to the foreign 3 software suppliers was not ‘royalty’ and that the same did not give rise to any ‘income’ taxable in India and, therefore, the assessee was not liable to deduct any tax at source?” 2. Whether on facts and circumstances of the case, the tribunal was justified in holding that the amount paid by the appellant to the software suppliers was not a royalty and that the same did not arise any income tax in India. Therefore, the appellant was not liable to deduct any taxes at source. The tribunal has disposed of the appeal before the decision in M/s.Samsung Electronics case was rendered. In M/s.Samsung Electronics case, the question of law answered in favour of the revenue. 3. This Court in the case of THE COMMISSIONER OF INCOME TAX AND ANOTHER vs. M/S.RANKA AND RANKA, (2012) 72 DTR (Kar.) 270, has held that the Circular/Instruction No.3/11 dated 9.2.2011 whereunder the ceiling for monetary limit is fixed at Rs.10,00,000/-. By way of revision all the monetary limit would apply to all pending cases and it is further held that the circular instructions makes hostile discrimination on the basis of the 4 date of the decision of the case. Therefore, it is held that the circular instructions apart from being prospective in nature would also apply to the pending appeals. 4. The learned counsel for the appellant referred to the decision of the Supreme Court in Surya Herbals Ltd., in Special Leave to appeal (Civil) No.CC13694/2011 D.D. on 29.08.2011. In the said decision the special leave is disposed of with the following observations: “Liberty is given to the Department to move the High Court pointing out that the Circular dated 9th February, 2011, should not be applied ipso facto, particularly, when the matter has a cascading effect. There are cases under the Income Tax Act, 1961, in which a common principle may be involved in subsequent group of matters or large number of matters. In our view, in such cases if attention of the High Court is drawn, the High Court will not apply the Circular ipso facto. For that purpose, Liberty is granted to the Department to move the High Court in two weeks. The special leave petition is accordingly, disposed of.” 5. Counsel for the appellant submitted that the decision in Ranka’s case rendered by this court runs counter to the observations made by the Supreme Court in Surya Herbals case. Therefore, it is necessary that each case 5 should be considered separately and the decision to be rendered upon the facts and circumstances of each case. 6. The decision of the Supreme Court in SURYA HERBALS case was brought to the notice of this court in the course of argument. In respect of the decision in Ranka’s case, Special leave petition is filed before the Supreme Court and it is pending. The appellant based upon the decision in Surya Herbals case filed review petitions in several cases where the question of limitation prescribed under the circular was involved for consideration. This court has dismissed the review petition and in para-3 the following observations are made: “On that ground it is not possible to keep this matter pending. All that we can do is, as the appeal is dismissed following the judgment in the aforesaid case of M/s.Ranka and Ranka, in the event of the Apex Court setting aside the said order and holding it as prospective, then it is open to the revenue to seek for review of the order. Reserving such liberty, this petition is dismissed.” 7. It is to be noted that SURYA HERBALS case is decided subsequent to the decision rendered in Ranka’s case 6 by this court. Special leave petition is pending in respect of decision in Ranka’s case. In that view of the matter, this appeal is also disposed of on similar terms in R.P. No.341/12 and subject to the result of the Supreme Court in Ranka’s case the appellant is at liberty to seek revival of the appeal. Sd/- JUDGE Sd/- JUDGE psg* "