Income Tax Appellate Tribunal - Pune
John Deere Equipment Pvt.Ltd,, Pune vs Ddit,(It) -I,, Pune on 24 June, 2019
आयकर अपीऱीय अधिकरण पण
ु े न्यायपीठ " " पण
ु े में
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "C", PUNE
सुश्री सुषमा चावऱा, न्याययक सदस्य एवं, श्री डी. करुणाकरा राव, ऱेखा सदस्य के समक्ष
BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO, AM
आयकर अपीऱ सं. / ITA No.627/PUN/2017
यििाारण वषा / Assessment Year : 2009-10
John Deere Equipment Pvt. Ltd.,
(Now merged with John Deere India Pvt. Ltd.)
Tower XIV, Cybercity,
Magarpatta City, Hadapsar,
Pune - 411028 .... अऩीऱाथी/Appellant
PAN: AAACL7331A
Vs.
The Dy. Commissioner of Income Tax (IT)-1,
Pune .... प्रत्यथी / Respondent
अऩीऱाथी की ओर से / Appellant by : Shri Nikhil Pathak
प्रत्यथी की ओर से / Respondent by : Shri Rajesh Menon
सन
ु वाई की तारीख / घोषणा की तारीख /
Date of Hearing : 19.06.2019 Date of Pronouncement: 24.06.2019
आदे श / ORDER
PER SUSHMA CHOWLA, JM:
The appeal filed by assessee is against order of CIT(A)-13, Pune, dated 30.12.2016 relating to assessment year 2009-10 against order passed under section 201(1) and 201(1A) of the Income-tax Act, 1961 (in short 'the Act').
2. The assessee has raised the following grounds of appeal:-
The following grounds are taken without prejudice to each other -ITA No.627/PUN/2017
2 John Deere Equipment Pvt. Ltd.
On facts and in law 1] The learned CIT(A) erred in holding that the assessee company should have deducted TDS on the payments made to Deere & Co. USA of Rs. 13,810,054/- on account of for software license fees and IT support services on the ground that the same was taxable under the Income Tax Act as well as under the DTAA as Royalty.
2] The learned CIT(A) erred in not appreciating that the amount of Rs.13,810,054/- was not covered under Royalties and / or fees for technical services of the DTAA between India and USA as well as under
the Income Tax Act and therefore, the Appellant Company was not required to withhold tax u/s. 195 on above amounts and accordingly, the demands raised of tax and interest u/s 201(1) and 201 (1A) may kindly be deleted.
3] The learned CIT(A) ought to have appreciated that the payments made to Deere. & Co. USA was on account of reimbursement of software license fees and IT support services and since there was no income earned by the said entity, no TDS was required to be deducted on such reimbursement of expenditure.
4] The learned CIT(A) erred holding that payment for leaseline charges to Deere & Co. USA is taxable as "Royalty" under the DTAA as well as per Regular provisions of the Income Tax Act, 1961.
5] The learned CIT(A) erred in not appreciating that -
(a) the payment of lease line charges to Deere & Co. USA was not covered under clause "Royalty and / or Fees for Technical services"
of the DTAA between India and USA and hence the Appellant Company was not required to withhold tax u/s. 195 on above amounts;
(b) the payment of lease line charges to Deere & Co. USA were not covered under the definition of 'royalty' in Section 9(1)(vi) of the Act and hence, the assessee company was not required to deduct any TDS on the said payments.
(c) the payment of lease line charges to Deere & Co. USA was in the nature of reimbursement of expenses and no tax was deductible at source.
6] The learned CIT(A) erred in making an enhancement by holding that the appellant company ought to have deducted TDS on the charges on account of training and reimbursement of salary paid to Deere & Co. USA without appreciating that the appellant company was not required to deduct any TDS on the above referred payments and accordingly, the enhancement made by the learned CIT(A) is not justified at all and the demand raised may kindly be deleted.
7] The learned CIT(A) erred in holding that the appellant company should have deducted TDS on the training fees paid to Deere & Co. USA of Rs.9,85,180/- on the ground that the same constituted fees for technical services under the Income Tax Act as well as under the DTAA between India and USA.
8] The learned CIT(A) failed to appreciate that the payments were made to Deere & Co. on account of web based training which did not make available any technical service and hence, the same was not taxable under Article 12 of the DTAA between India and USA and hence, there ITA No.627/PUN/2017 3 John Deere Equipment Pvt. Ltd.
was no reason for the appellant company to deduct TDS on the said payments.
9] The learned CIT(A) erred in holding that the assessee was required to deduct TDS on the charges paid to Deere & Co. on account of reimbursement of salary of expat employees of Rs.91,764,755/- on the ground that the said payment constituted fees for technical services and hence, the appellant company was required to deduct TDS on the said payments.
10] The learned CIT(A) erred in holding that Deere & Co. by deputing its employees to the appellant company was providing technical services to the appellant company and accordingly, the TDS was required to be deducted on such payments.
11] The learned CIT(A) failed to appreciate that as per the secondment agreement between the appellant company and Deere & Co., all the expat employees are on the roll of the appellant company and TDS u/s 192 is deducted in respect of the salary paid to them and hence, there is no question of holding that the services rendered by these employees constituted fees for technical services under the Income Tax Act as well as under the DTAA between India and USA.
12] The learned CIT(A) erred in not appreciating that Deere & Co. was not providing any fees for technical services to the appellant company by deputing its employees to the appellant company and therefore, there was no question of deducting any TDS on the reimbursement of the salaries of the expat employees.
13] Without prejudice to the above grounds, the learned CIT(A) erred in not appreciating that the A.O. had grossed up the amounts chargeable to TDS u/s 195A for the purposes of computing tax and interest, without appreciating that the said section was not applicable while determining the tax and interest u/s. 201 and 201(1A) and hence, the grossing up of the amounts was not justified at all.
3. The issue raised in the present appeal is against raising of demand under section 201(1) of the Act and charging of interest under section 201(1A) of the Act on the ground that assessee had failed to withhold tax under section 195 of the Act on the payments made which were either covered under the definition of 'royalty' and / or 'fees for technical services' as per provisions of section 9(1)(vi) of the Act or Article 12 of DTAA between India and USA.
4. The learned Authorized Representative for the assessee pointed out that the issue raised in the present appeal is against deductibility of tax at source on purchase of software licenses, IT support charges and lease line charges. He further brought to our notice that enhancement was made by CIT(A), wherein ITA No.627/PUN/2017 4 John Deere Equipment Pvt. Ltd.
he held that TDS was required to be deducted out of charges paid for web based training fees and also for reimbursement of expat salaries. The learned Authorized Representative for the assessee further stated that CIT(A) while deciding appeal had followed his order for earlier years i.e. assessment years 2007-08 and 2008-09. Our attention was drawn to the order of CIT(A) in this regard. The learned Authorized Representative for the assessee stressed that the issue raised in present appeal is squarely covered by the order of Tribunal in assessee's own case in earlier year in the case of John Deere India Pvt. Ltd. Vs DDIT (International Taxation) (2019) 70 ITR (Trib) 73 (Pune).
5. The learned Departmental Representative for the Revenue placed reliance on the orders of authorities below.
6. We have heard the rival contentions and perused the record. The issue arising in the present appeal is against orders of authorities below in holding the assessee to be in default in not deducting tax at source out of various payments made on account of software licenses / IT support charges / lease line charges / web based training fees / reimbursement of salary to employees. The case of Revenue in this regard was that the assessee was liable to deduct tax at source, in view of provisions of section 9(1)(vi) / (vii) of the Act as either 'royalty' or 'fees for technical services' and also under Article 12 of DTAA between India and USA. Since the assessee had not deducted tax at source, the assessee was held to be in default and demand was raised under section 201(1) of the Act and interest charged under section 201(1A) of the Act.
7. We find that similar issue of deductibility of tax at source under section 195 of the Act arose before the Tribunal in the case of assessee for ITA No.627/PUN/2017 5 John Deere Equipment Pvt. Ltd.
assessment years 2007-08 and 2008-09 reported as (2019) 70 ITR (Trib) 73 (Pune). The Tribunal vide elaborate discussion on the issue by placing reliance on the decision of Hon'ble Delhi High Court in DIT Vs. Infrasoft Ltd. (2013) 39 taxmann.com 88 (Del) had distinguished various decisions of AARs and decision of Hon'ble High Court of Karnataka in CIT Vs. Samsung Electronics Co. Ltd. (2009) 185 taxmann.com 313 (Kar) relied upon by learned Departmental Representative for the Revenue and also taken note of the fact that earlier decision of Pune Bench of Tribunal in the case of Cummins Inc had been recalled by Miscellaneous Application vide MA Nos.28 & 29/PUN/2017, order dated 06.12.2017 and had concluded by holding as under:-
"90. In conclusion, we hold that purchase of software by the assessee being copyrighted article is not covered by the term „royalty‟ under section 9(1)(vi) of the Act. Where the assessee did not acquire any copyright in the software, is not covered under Explanation 2 to section 9(1)(vi) of the Act. We further hold that amended definition of „royalty‟ under the domestic law cannot be extended to the definition of „royalty‟ under DTAA, where the term „royalty‟ originally defined has not been amended. As per definition of „royalty‟ under DTAA, it is payment received in consideration for use or right to use any copyright of literary, artistic or scientific work, etc.; thus, purchase of copyrighted article does not fall in realm of „royalty‟. We also hold that since the provisions of DTAA overrides the provisions of Income Tax Act and are more beneficial and the definition of „royalty‟ having not undergone any amendment in DTAA, the assessee was not liable to deduct tax for payments made for purchase of software. In such scenario, the assessee cannot be held to be in default and the demand created under section 201(1) and interest charged under section 201(1A) of the Act is thus, cancelled."
8. The finding of Tribunal thus, was that purchase of software in the case of assessee being copyrighted article was not governed by the definition of 'royalty' under section 9(1)(vi) of the Act. It was also held that since the definition of 'royalty' originally defined under DTAA has not been amended, then the amended definition of 'royalty' under domestic law could not be extended to cover such cases. The Tribunal also held that since provisions of DTAA overrides the provisions of Income Tax Act and since they were more beneficial and the definition of 'royalty' having not undergone any change, then the assessee was not liable to deduct tax at source out of aforesaid payments ITA No.627/PUN/2017 6 John Deere Equipment Pvt. Ltd.
made for purchase of software. Following the same parity of reasoning, we hold that assessee was not in default and hence, there was no merit in the demand created under section 201(1) of the Act and charging of interest under section 201(1A) of the Act. The said finding of Tribunal would squarely apply to the facts of present case as the CIT(A) also while deciding the appeal has held that the issue raised in present appeal is squarely covered by the orders of CIT(A) in earlier years. Hence, relying on the aforesaid ratio of the Tribunal in assessee's own case for earlier years, we cancel the demand created under section 201(1) and charging of interest under section 201(1A) of the Act in respect of payments made for purchase of software.
9. The second issue which was addressed by Tribunal was with regard to provision of IT support charges i.e. internet charges, use of e-mail facility, backup support services, etc., which was also held to be 'royalty' by the Assessing Officer. The Tribunal vide paras 91 to 93 at pages 79 to 81 have held that the aforesaid payments on account of interest charges, line charges, service charges and other charges i.e. VPN charges, online meeting charges, etc. were not payment of royalty and also no technical services were made available, hence there was no requirement for deduction of tax at source. Applying the said ratio to the facts of present case, we accordingly, hold so.
10. The next issue which was decided vide para 95 was against payments on account of lease line charges and whether any tax had to be deducted at source. The Tribunal vide paras 95 to 99 in turn, relying on earlier decisions of Tribunal had vide paras 100 and 101 held as under:-
"100. As far as case of equipment royalty is concerned, the issue stands covered against the assessee by the decision of the Hon‟ble High Court of Delhi in Asia Satellite Telecommunications Co. Ltd. vs. Director of IT (2011) 332 ITR 340 (Del), wherein the case of Revenue was that Non-resident was providing equipment for use of Transponder facility of Satellite to television ITA No.627/PUN/2017 7 John Deere Equipment Pvt. Ltd.
companies outside India. However, the Hon‟ble High Court held that there was no lease of equipment but only use of broadband facilities and applying the said ratio to the facts of present case, we hold that in the case of assessee, there is no question of any equipment royalty where the assessee was only using lease lines for transmitting data and it cannot be said to be a case of equipment royalty.
101. Applying the said propositions to the facts of present case, we hold that the assessee has not defaulted in non deduction of tax at source out of payments made for lease line charges. We also uphold the alternate plea of assessee that the said lease line charges are at best reimbursement of expenses and hence, not liable for deduction of tax at source. The grounds of appeal No.4 to 5 are allowed."
11. The issue arising in the present appeal on account of payment for lease line charges is identical to the issue before the Tribunal and following the same parity of reasoning, we hold that there was no requirement to deduct tax at source out of such lease line charges and hence, the assessee had not defaulted in not so deducting. Accordingly, order of CIT(A) is thus, reversed.
12. Now, coming to enhancement made by CIT(A) i.e. on account of payment for web based training fees and also payment against reimbursement of expats salaries. The first issue was adjudicated by Tribunal vide para 102 onwards and vide para 106 it was concluded that in the absence of any transfer of technology, the payment is not covered under the definition of 'fees for technical services' and hence, there was no liability upon the assessee to deduct tax at source out of payments made for web based training. Following the same parity of reasoning, we hold that assessee could not be held to be in default under section 201(1) and 201(1A) of the Act in respect of payments made for web based training.
13. The last issue which is to be adjudicated is against deduction of tax at source out of reimbursement of salary to expats employees. The said issue was also decided vide paras 107 to 110 and it was held that where the ITA No.627/PUN/2017 8 John Deere Equipment Pvt. Ltd.
assessee had deducted tax at source out of salary paid to expat employees deputed in India for providing assistance to the employees of assessee, then assessee could not be held to be in default under section 201(1) and 201(1A) of the Act. Applying the same parity of reasoning, we hold that there is no merit in raising the demand under section 201(1) of the Act and charging of interest under section 201(1A) of the Act on this count. Accordingly, we decide all the issues of tax deduction at source raised by assessee and also the enhancement by CIT(A) in favour of assessee. Consequently, the grounds of appeal raised by assessee are allowed.
14. In the result, the appeal of assessee is allowed.
Order pronounced on this 24th day of June, 2019.
Sd/- Sd/-
(D.KARUNAKARA RAO) (SUSHMA CHOWLA)
ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER
ऩुणे / Pune; ददनाांक Dated : 24th June, 2019.
GCVSR
आदे श की प्रयिलऱपप अग्रेपषि/Copy of the Order is forwarded to :
1. अऩीऱाथी / The Appellant;
2. प्रत्यथी / The Respondent;
3. आयकर आयुक्त(अऩीऱ) / The CIT(A)-13, Pune;
4. The CIT(IT/TP), Pune;
5. ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, ऩुणे " " / DR 'C', ITAT, Pune;
6. गार्ड पाईऱ / Guard file.
ु ार/ BY ORDER, आदे शािस सत्यावऩत प्रतत //True Copy// वररष्ठ तनजी सधिव / Sr. Private Secretary आयकर अऩीऱीय अधधकरण ,ऩण ु े / ITAT, Pune