Income Tax Appellate Tribunal - Cochin
Rajasree Motors P. Ltd, Cochin vs Assessee on 8 May, 2015
ITA No. 535/Coch/2014
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
BEFORE S/SHRI V DURGA RAO, JM & B. R. BASKARAN, AM
ITA No. 535/Coch/2014
(Asst Year 2009-10)
Rajasree Motors Pvt Ltd Vs The Asst Commr of Income Tax
39/3842 Alappat Road Circle 4(1), Kochi
Kochi 682 016
( Appellant) (Respondent)
PAN No. AABCR1072K
Assessee By Shri A S Narayanamoorthy
Revenue By Shri K K John, Sr DR
Date of Hearing 5th May 2015
Date of pronouncement 8th,May 2015
ORDER
PER B.R. BASKARAN, AM:
The appeal filed by the assessee is directed against the order dated 30th Sept 2014 passed by the ld CIT(A)-II, Kochi and its relates to the AY 2009-10. 2 The assessee is aggrieved by the decision of the ld CIT(A) in confirming the disallowance of Rs 23,43,598/- made by the AO u/s 40(a)(ia) of the I T Act. 3 We heard the parties and perused the relevant materials on record. The facts relating to the said disallowance are that the AO noticed that the assessee has paid a sum of Rs. 23.43 lacs as license fee in respect of two softwares named MBIL Star Diagnostics and MBIL E-Dealer. The assessee is a dealer of M/s Mercedes-Benz Car and the above said two softwares have been supplied 1 ITA No. 535/Coch/2014 by M/s Mercedes-Benz India P Ltd for non-exclusive use by the assessee. Since the assessee did not deduct tax at source from the above said payments u/s 194J of the Act, the AO disallowed the same by invoking provisions of sec. 40(a)(ia) of the Act. The ld CIT(A) also confirmed the order of the AO and hence, the assessee has filed this appeal before us.
4 The ld AR submitted that the assessee has paid only services charges to M/s Mercedes-Benz India P Ltd., for using the softwares. He submitted that the ownership of the software, which was a copyrighted article, vested with M/s Mercedes-Benz India P Ltd., and it has only granted the right to use the same. He further submitted that since M/s Mercedes-Benz India P Ltd has not transferred the rights over the softwares and further the payments were made only as services charges, the same will not fall under the definition of royalty as given in Explanation 2 under section 9(1)(vi) of the Act. In this regard the ld AR invited our attention to Explanation 3 given under section 9(1)(vi) wherein the expression computer software is defined. The ld AR also invited our attention to the agreement entered between the assessee and M/s Mercedes- Benz India P Ltd to substantiate his contentions that the assessee was only given license to use the software and not the ownership. He further submitted that the assessee is not entitled to share the software with any other person. Accordingly, he submitted that the assessee is not liable to deduct tax at source u/s 194J of the Act from the service charges paid by it. The ld AR further placed his reliance on the decision of the Hon'ble Delhi High Court in 2 ITA No. 535/Coch/2014 the case of DIT vs Infrasoft Ltd (2013) 96 DTR 0113 (Del) wherein it was held that the license granted for use or right to use of any copyrighted article will not amount to transfer of any rights over the same and hence, it cannot be considered as royalty.
4.1 The ld DR, however submitted that the assessee has made the payment for use of software and hence it will squarely fall under the definition of royalty as given under Explanation 2 to sec 9(1)(vi) of the I T Act. The ld DR invited our attention to Explanation 4 wherein it has clarified that the transfer of all or any rights always included transfer of all or any right for use or right to use a computer software. Further, inviting our attention to the agreement entered between the assessee and M/s Mercedes-Benz India P Ltd, the ld DR submitted that the assessee has obtained the right to use the above said two softwares and hence the payment cannot be considered as mere service charges as contended by Ld A.R. Accordingly he submitted that the payment made by the assessee is liable for deduction of tax at source u/s 194J of the Act. Further the agreement between the parties itself clearly states that the applicable tax should be deducted at source. Accordingly, he submitted that the ld CIT(A) was justified in confirming the disallowance made u/s 40(a)(ia) of the Act. 5 We have heard rival contentions and carefully perused the record. Admittedly, the impugned amount paid by the assessee was for use of two types of software which has been supplied by M/s Mercedes-Benz India P Ltd. 3 ITA No. 535/Coch/2014 The terms royalty is defined under Explantion2 given under section 9(1)(vi) of the act which, inter-alia, includes consideration paid for transfer of all or any rights including granted of a license in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property. Under Explanation 4, a reference is made about computer software and for the sake of convenience; we extract the Explanation 4 as under:
Explanation 4 - For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a license) irrespective of the medium through which such right is transferred."
A combined reading of definition of "royalty" given in Explanation 2, Explanation 3 and Explanation 4 would, in our view, show that legislature has intended to include a computer software under "patent or invention" and hence further the legislature has clarified the same further by inserting Explanation 3 and Explanation 4. Further the agreement entered between the parties would show that the assessee is a non-exclusive user without any right to transfer the same to any other person and the assessee is required to pay rent or charges for use of the software. Since the right to use the softwares has been transferred to the assessee under the agreement, we are of the view that the license fee/service charges paid by the assessee to M/s Mercedes-Benz India P Ltd would fall under the definition of royalty and hence the assessee is liable to deduct tax at source.4 ITA No. 535/Coch/2014
6. The decision in the case of Infrasoft Ltd (supra) has been rendered by the Hon'ble Delhi High Court in the context of DTAA provisions and in the context of sec. 9(1)(vi) also, it was held that the payment made for right to us a copyrighted article was not "royalty". However, the Finance Act 2012 has made brought in amendments to sec. 9(1)(vi) of the Act with retrospective effect from 1.6.1976.
7. We have noticed that the Explanation 4 referred above was inserted by the Finance Act, 2012 w.r.e.f 1.6.1976. In the following cases, the co-ordinate benches of Tribunal has taken the view that the disallowance u/s 40(a)(ia) should not be made on the basis of subsequent amendment brought into the Act with retrospective effect.
(a) Sonata Information Technology Ltd Vs. DCIT (2012)(Taxcorp (Intl) 4659)(Mumbai - Trib)
(b) Infotech Enterprises Limited Vs. Addl. CIT (2014)(Taxcorp(Intl) 6945)(ITAT-Hyd)
(c) Channel Guide India Ltd Vs. ACIT (2013)(Taxcorp (Intl) 6702)(Mum- Trib)
8. In the case of Infrasoft Ltd (supra), the Hon'ble Delhi High Court has held that the price paid for a copyrighted article represents purchase price of an article and cannot be considered as royalty. Thus, it is seen that the view taken by the assessee gets support from the decision of Hon'ble Delhi High Court, referred above, till Explanation 4 was inserted in sec. 9(1)(vi) of the Act by Finance Act, 2012 w.r.e.f 1.6.1976.
5 ITA No. 535/Coch/2014
9. The Cochin bench of Tribunal has dealt with an identical issue in the case of Kerala Vision Ltd Vs. ACIT (ITA No.794/Coch/2013 dated 06-06-2014) (2014-TIOL-396). In this case, M/s Kerala Vision Ltd was engaged in the business of distribution of cable signals. The activity of transmission of signals by satellite was included in the expression "Process", vide Explanation 6 inserted by Finance Act 2012, w.r.e.f. 1.6.1976 and hence it fell within the ambit of "royalty". Hence, the assessee was liable to deduct tax at source on the pay channel charges paid by it. Earlier, the Hon'ble Delhi High Court has taken the view in the case of Asia Satellite Telecommunications Co. Ltd (332 ITR 340) that the transmission of television signals through satellite /transponders would not fall in the category of "royalty" as defined under Explanation 2 to sec. 9(1)(vi) of the Act. Under these set of facts, the co- ordinate bench noticed that the various benches of Tribunal (referred above) have held that the assessee cannot be held to be liable to deduct tax at source on the basis of subsequent amendment brought in with retrospective effect. Further the Tribunal held as under:-
"7. In the instant case, the view entertained by the assessee that the pay channel charges cannot be considered as royalty is in fact gets support from the decision rendered by Hon'ble Delhi High Court in the case of Asia Satellite Telecommunication Co. Ltd (supra). Though the Explanation 6 to sec. 9(1)(vi) inserted by Finance Act, 2012 is clarificatory in nature, yet in view of the fact that the view entertained by the assessee gets support from the decision of Delhi High Court, referred above, we are of the view that the assessee cannot be held to be liable to deduct tax at source from the Pay Channel Charges. Hence, we are of the view that the assessing officer was not justified in disallowing the claim of pay channel charges by invoking the provisions of sec. 40(a)(ia) of the Act. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the assessing officer to delete the impugned disallowance."6 ITA No. 535/Coch/2014
10. In the instant case also, the view entertained by the assessee is supported by the decision of Hon'ble Delhi High Court in the case of Infrasoft Ltd (supra). Since the assessee was held to be liable to deduct tax on the basis of subsequent amendment brought in with retrospective effect, in view of various decisions referred above, we have to hold that the assessee cannot be held responsible for violation of TDS provisions on the basis of a subsequent amendment. Accordingly, we are of the view that the assessing officer was not justified in disallowing the license fee/service charges paid for use of softwares by invoking the provisions of sec. 40(a)(ia) of the Act, since the view taken by the assessee was supported by the decision of Hon'ble Delhi High Court. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the assessing officer to delete the impugned addition.
11. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on this day of 8th, May 2015.
Sd/- Sd/-
( V DURGA RAO) (B.R. BASKARAN)
Judicial Member Accountant Member
Cochin: Dated: 8th, May 2015
Raj*
7
ITA No. 535/Coch/2014
Copy to:
1. Appellant - Rajasree Motors P Ltd, 39/3842 Alappaty Road, Kochi 16
2. Respondent - The ACIT, Circle 4(1), Kochi
3. CIT(A)
4. CIT, -Kochi
5. DR
6. Guard File By order Assistant Registrar ITAT, COCHIN 8