THE COMMISSIONER OF INCOME TAX V. M/S PSI DATA SYSTEM LTD

ITA/2978/2005

AI Insights

The case involves an appeal by the Commissioner of Income Tax and the Income-Tax Officer against M/S. P.S.I. Data System Ltd. concerning the liability to deduct TDS on payments made for the purchase of software. The core legal issue was whether such payments could be classified as royalty and thus subject to TDS under Section 9 of the Income Tax Act, 1961, in conjunction with relevant Double Taxation Avoidance Agreements (DTAA). The tribunal had previously ruled in favor of the assessee, stating that the payments were not liable for TDS as they were for the purchase of a right to use software, not the copyright itself. However, the High Court, referencing a prior judgment and recent amendments to Section 9, overturned this decision.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 702456 (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
• Laws Referred To: Income Tax Act, 1961, Double Taxation Avoidance Agreements
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: K S RAMABHADRAM
• Assessee Lawyers: M V SESHACHALA
• Keywords: Double Taxation Avoidance; Royalty; Scientific Work; Software purchase; TDS
• Section: 260A; 9; 19(2); 19(4); 19(3)

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.2978 of 2005 BETWEEN : 1 THE COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION, RASTROTHANA BUILDING NRUPATHUNGA ROAD BANGALORE 2 THE INCOME-TAX OFFICER TDS-I RASTROTHANA BUILDING NRUPATHUNGA ROAD BANGALORE … APPELLANTS [By Sri M V Seshachala, Adv.] AND : M/S. P.S.I. DATA SYSTEM LTD., NO.19, SHRUTAA COMPLEX PRIMROSE ROAD BANGALORE – 560 025 … RESPONDENT [By Sri K S Ramabhadram, Adv.] THIS APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED 21.04.2005 PASSED IN ITA NO. 387/BANG/2002 FOR THE ASSESSMENT YEAR 2000-01, PRAYING TO SET ASIDE THE SAID ORDER OF THE TRIBUNAL AND ETC., THIS APPEAL COMING ON FOR HEARING, THIS DAY, SHYLENDRA KUMAR J., DELIVERED THE FOLLOWING: 2 JUDGMENT This appeal by the revenue had been admitted to examine 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 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 in accordance with section 19(2) and (3) and (4) of the Act, the foreign parties are chargeable to tax or not and having failed to do so the assessee was bound to deduct tax as held by the Apex Court in 239 ITR 587. 3 2. Sri M V Seshachala, learned senior standing counsel appearing for the appellant-revenue, submits that these questions are now covered by the judgment of this court rendered in the case of COMMISSIONER OF INCOME TAX & ANOTHER vs SAMSUNG ELECTRONICS CO LTD & OTHERS [(2011) 245 CTR (KAR) 481]. 3. Sri Seshachala also submits that apart from this judgment of a division bench of this court, even the present statutory position in terms of the amendment to Section 9 of the Income Tax Act, 1961 [for short, the Act] by way of addition of explanations 4 and 5 reading as under: Explanations 4:- For the removal of doubts, it is hereby clarified that the expression “through” shall mean and include and shall be deemed to have always meant and included “by means of”, “in consequence of” or “by reason of”. Explanations 5:- For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall 4 always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India. by Finance Act, 2012 and which has been given retrospective effect from 1-6-1976, amply covers the situation in the present case and therefore the questions have to be answered in the negative and in favour of the revenue and the appeal has to be allowed. 4. Sri K S Ramabhadran, learned counsel for the respondent-assessee, while does not dispute that the judgment of this court in the case of SAMSUNG ELECTRONICS CO LTD [supra] does cover the questions raised in this appeal also, but, nevertheless, submits that it is not necessary to go into the amendment to Section 9 of the Act, as independent of this section as amended now, the questions have to be answered in the negative, in view of the legal position prevailing, is only as per the judgment of this court in the case of SAMSUNG ELECTRONICS CO LTD [supra]. 5 5. We answer the questions in the negative and against the assessee. Accordingly, we allow this appeal, set aside the order of the tribunal and restore the assessment order. SD/- JUDGE SD/- JUDGE *pjk "