WIPRO LIMITED V. THE ADDITIONAL COMMISSIONER OF INCOME TAX

ITA/724/2019

AI Insights

Wipro Limited appealed against the order of the Income Tax Appellate Tribunal, which had deemed the payments made for imported software licenses as 'royalty payments', thus taxable in India. The case centered on whether these payments necessitated tax deduction at source under Section 195 of the Income Tax Act, 1961. The Supreme Court's judgment in Engineering Analysis Centre of Excellence v. CIT, which clarified that such payments do not amount to royalty and are not taxable in India, was pivotal in deciding this case. The High Court of Karnataka, referencing this Supreme Court decision, allowed Wipro's appeal, overturning the Tribunal's decision.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 695733 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 03-08-2021
• Assessment Year: misc
• Other Referred Cases: Engineering Analysis Centre of Excellence v. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: S; SANDEEP HUILGOL
• Keywords: Double Taxation Avoidance Agreement; Royalty Payments; Software licenses; Tax deduction at source; Non-resident vendors
• Section: 195; 201(1); 260A; 9(1)(vi)

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 3RD DAY OF AUGUST, 2021 PRESENT THE HON'BLE MR. JUSTICE SATISH CHANDRA SHARMA AND THE HON'BLE MR. JUSTICE NATARAJ RANGASWAMY ITA NO.724/2019 BETWEEN WIPRO LIMITED, 76P AND 80P, DODDAKANNELLI SARJAPUR ROAD, BENGALURU 560 035 REPRESENTED HEREIN BY ITS SENIOR MANAGER – CORPORATE TAX, MR.ACHAL DASS PAN AAACW03874 ... APPELLANT (BY SRI S GANESH, SENIOR ADVOCATE FOR SRI SANDEEP HUILGOL, ADVOCATE) AND: THE ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE 12, BANGALORE, BMTC COMPLEX, 6TH BLOCK, KORAMANGALA, BENGALURU 560 095. …. RESPONDENT (BY SRI K V ARAVIND, ADVOCATE) THIS ITA IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW, ALLOW THE APPEAL AND SET ASIDE TO THE EXTENT QUESTIONED HEREIN, THE IMPUGNED ORDER DATED 21.6.2019 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'B' BENCH BENGALURU IN ITA NOS.1215-1220/BANG/2014 AND ITA NOS. 18- 2 23/BANG/2017 FOR THE ASSESSMENT YEAR 2007-2008 TO 2012- 2013 (ANNEXURE-G) AND ETC. THIS ITA COMING ON FOR ORDERS AND HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 23.7.2021, THIS DAY, SATISH CHANDRA SHARMA, J., PRONOUNCED THE FOLLOWING: JUDGMENT The present income-tax appeal filed under Section 260A of the Income Tax Act, 1961, is arising out of the order passed by the Income Tax Appellate Tribunal, 'B' Bench, Bengaluru, dated 21.6.2019 in ITA.Nos.1215-1220/Bang/2014 and ITA Nos.18- 23/Bang/2017 (M/s Wipro Limited v. The Additional Commissioner of Income Tax) for the assessment year 2007- 2008 to 2012-2013. 2. The facts of the case reveal that the appellant- company is a company incorporated under the provisions of the Companies Act, 1956. The company imports licenced software and the software is a copyright article. The vendor company is a company situated outside India. The software is directly supplied by the foreign vendors to the end users in India under exclusive licences, which are downloaded technically. 3. The software licences which are imported by the company are sold in the marketplace as goods and the 3 consideration is being paid to the non-resident vendors, who do not have a permanent establishment in India. The contention of the company is that there is no income chargeable to tax requiring deduction of tax at source. The contention of the learned Senior counsel for the appellant is that the Income Tax Appellate Tribunal has erred in law and in facts in holding that the payments made by the assessee were in the nature of 'royalty payments' as defined under Explanation II to Section 9(1)(vi) of the Income Tax Act, 1961. 4. Being aggrieved by the order passed by the Income Tax Appellate Tribunal, the present appeal has been preferred by the assessee, the appeal was admitted and four substantial questions of law were framed in the present appeal. 5. Learned Senior Counsel appearing for the appellant has fairly stated before this Court that he is not pressing substantial questions of law No.1, 2 and 4 and he is confining his arguments only in respect of substantial question of law No.3. 6. Substantial question of law No.3 reads as under; \"3. Whether tribunal was correct in confirming the common order passed by first respondent deeming that appellant is to be treated as an assessee in default under Section 201(1) of the IT Act by holding that payments made by the assessee were in the nature of \"royalty payments\" 4 as defined under Explanation 2 to Section 9(1)(vi) of the IT Act and under the applicable Double Taxation Avoidance Agreement (DTAAs) and thereby giving raise to an income at the hands of bailee (payee) chargeable to tax in India and necessitating deduction of tax by the appellant/assessee under Section 195 of the IT Act?\" 7. Sri Ganesh, learned Senior Counsel for the appellant has argued before this Court that the issue involved in the present case is no longer res integra and the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence v. CIT, reported in (2021) 432 ITR 471 has decided the issue. 8. The operative paragraph of the judgment delivered by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (supra) reads as under;- \"Conclusion 168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income Tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases. 5 169. Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 of the Income Tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment. 170. The appeals from the impugned judgments of the High Court of Karnataka are allowed, and the aforesaid judgments are set aside. The ruling of the AAR in Citrix Systems (AAR) (supra) is set aside. The appeals from the impugned judgments of the High Court of Delhi are dismissed.\" 9. In the light of the aforesaid judgment delivered by the Hon'ble Supreme Court, the question of law is answered in favour of the assessee and against the revenue. Accordingly, the appeal is allowed. Pending IA stands disposed of. No order as to costs. Sd/- JUDGE Sd/- JUDGE nd "