Income Tax Appellate Tribunal - Bangalore
Deputy Commissioner Of Income Tax ... vs M/S Allegis Services India Pvt Ltd , ... on 13 June, 2018
ITA.325/Bang/2018 Page - 1
IN THE INCOME TAX APPELLATE TRIBUNAL
BENGALURU BENCH 'B', BENGALURU
BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER
AND
SHRI. LALIET KUMAR, JUDICIAL MEMBER
I.T.A No.325/Bang/2018
(Assessment Year : 2011-12)
Deputy Commissioner of Income-tax,
Circle - 1(1)(1), Bengaluru .. Appellant
v.
M/s. Allegis Services India Ltd,
Commerce @ Mantri Level -3, Bannerghatta Road,
Bengaluru 560 076 .. Respondent
PAN : AAFCA0825M
Assessee by : Shri. Chavali Narayan, CA
Revenue by : Ms. Neera Malhotra, CIT - DR
Heard on : 30.05.2018
Pronounced on : 13.06.2018
ORDER
PER LALIET KUMAR, JUDICIAL MEMBER :
The present appeal is filed by the Revenue against the order of the CIT (A) - I, Bengaluru, dt.12.12.2017, for the assessment year 2011-12 on the following effective grounds :
2. The Ld. CIT (A) erred in allowing the assessee company's appeal on the issue of disallowance u/s.40a(i) of the Act in respect of non-deduction of TDS on software ITA.325/Bang/2018 Page - 2 expenses and not following the judgment of Karnataka High Court in the case of CIT v. Samsung Electronics Co.
Ltd., 320 ITR 209.
3. The Ld. CIT (A) erred in deleting the addition of Rs.3,66,020/- made by the Assessing Officer on account of delayed payment of employees contribution to PF and ESI under section 43B and 2(24) read with Section 36(1)(va) as the matter has not reached its finality and an SLP of the Revenue in the case of CIT v. Samsung India Electronics Ltd. is pending for consideration before the Hon'ble Apex Court.
02. Brief facts of the case are as follows. The assessee had filed the original return of income on 30.11.2011 and subsequently revised return was filed on 27.02.2012 declaring total taxable income as nil as per the normal provisions of the Act. The assessee has declared business income of Rs.3,36,50,563/- and income from other sources of Rs.80,569/-. The assessee computed the book profit u/s.115 JB for an amount of Rs.6,63,574/- and the taxable liability shown at Rs.1,23,026/- under the MAT provision. The assessee has also claimed the refund of Rs.5,08,11,992/-. Case of the assessee was selected for scrutiny. While going through the details furnished by the assessee it was noted by the AO that the assessee has debited an amount of Rs.8,82,74,266/- towards purchase of software licence resold and Rs.2,36,87,914/-, as software maintenance /licences under Schedule 12 and general and administration expenses. It was informed by the assessee that it has deducted the TDS on domestic purchase of software and however the assessee has not deducted the TDS on the software purchased in foreign currency. As such, the AO disallowed an amount totalling ITA.325/Bang/2018 Page - 3 to Rs.10,07,64,509/-, u/s.40(a)(i) of the Act for non-deduction of tax at source. The AO in the assessment order after relying upon the decision of the Hon'ble jurisdictional High Court in the matter of Samsung Electronics Co. Ltd [16 taxmann.com 141], wherein it was held that the consideration paid by the assessee for importing of software was in the nature of royalty payment and therefore constitute income chargeable under the Income-tax Act, in terms of Section 9(1)(vi) of the Act r.w. the relevant articles of DTAA. It was further noticed by the AO that as the assessee has deducted TDS on payment made on purchase of domestic software. Therefore applying the same ratio the assessee was duty bound to deduct TDS relating to purchase of imported software. As the assessee has not done the needful therefore, the provisions of Section 40(a)(i) is attracted and hence disallowed the amount of Rs.10,07,64,509/-. Feeling aggrieved by the order passed by the AO, the assessee filed appeal before the CIT (A).
03. The CIT (A) had allowed the appeal of the assessee by recording the following finding :
Having considered the submissions made by the appellant, it is that the Ground No. 3 to 6, 15 & 16 are regarding disallowance of Rs. 10,07,64,509 u/s 40a(i) for non deduction of tax at source. The Assessing officer has discussed this issue in para 4.23 of the assessment order at length and I am in complete agreement with the findings of the Assessing officer made in the Assessment order. The issue is squarely covered by the judgement of the jurisdictional High Court of Karnataka in the case of CIT vs. Samsung Electronic Company Ltd (2012) reported in 345 ITR 494 (Kar).
ITA.325/Bang/2018 Page - 4 However, it is seen that the appellant has relied on the decision of the Hon'ble Bangalore Income Tax Appellate Tribunal in its own case for the asst. year 200910 in ITA No.1370/Bang/2014 wherein in para 7 of the order the Hon'ble Tribunal, relying on the decision of the co-
ordinate Bench in the case of Aurigene Discovery Technologies Pvt. Ltd in ITA No. 1479/Bang/2013, has held that the s o f t w a r e p a y m e n t w o u l d n o t b e t a x a b l e a s r o y a l t y i n c o n s i d e r i n g th e impossibility of performance as the judgement in the case of Samsung Electronic Company Ltd was pronounced on 15.10,2011 much after the current financial y e a r r e l e v a n t t o t h e a s s t . y e a r 2 0 1 1- 1 2 . Re s p e c t f u l l y f o l l o w i n g t h e H o n ' b l e I n c o m e T a x Ap p e l l a t e T r i b u n a l ' s o r d e r i n the case of the appellant's own case for the assessment year 2009-10 (supra). I delete the d i s a l l o w a n c e ma d e b y t h e A s s e s s i n g O f f i c e r i n this regard.
T h e r e f o r e t h e R e v e n u e i s i n a p p e a l b e fo r e u s w it h r e s p e c t t o g ro u n d n o . 2 f o r w r o n g d e l e ti o n o f th e d i s a ll o w a n c e s m a d e b y t h e A O t o t h e e x t e n t o f R s . 1 0 ,0 7 ,6 4 , 5 0 9 / - u / s . 4 0 a ( i) o f th e A c t .
04. The Sr. DR who appeared before us had s u b mi t t e d t h a t th o u g h th e H o n 'b l e j u r is d i c ti o n a l H i g h C o u rt in th e m a t t e r o f S a ms u n g E l e c t ro n i c C o . L t d ( s u p r a) h a d h e l d t h a t th e c o n s id e r a t i o n p a i d f o r purchase of so f t w a r e is ' ro y a l t y ' , however the H o n 'b l e ju ri sd ic t i o n a l H i g h Co u r t h a s n o t b r o u g h t i n to th e s t a tu t e b o o k a n y n e w l a w , b u t h a s o n ly g i v e n t h e i n t e r p r e t a t io n o f t h e e x is ti n g l a w . T h e r e f o r e it w a s s u b mi t t e d b y t h e L d . D R t h a t i t i s th e d u t y o f th e a s s e s s e e t o d e d u c t t h e t a x a t t h e t i me o f ma k i n g t h e p a y m e n t f o r p u r c h a s e o f t h e s o ft w a r e . After the ITA.325/Bang/2018 Page - 5 categorical f in d i n g r e c o rd e d by the H o n 'b l e j u ri sd i c t io n a l H i g h C o u r t o n 1 5 . 1 0 . 2 0 1 1 , th e a s s e s s e e c a n v e r y w e l l d e d u c t t h e ta x i n th e su b s e q u e n t p a y m e n t s ma d e b y t h e a s s e ss e e , i f th e a s s e ss e e f a i l e d t o d e d u c t t h e t ax a t th e t i me o f m a k i n g th e p a y m e n t , i t s h o u l d su ff e r t h e c o n s e q u e n c e s a s p e r p ro v i s io n . T h e L d . D R h a s d ra w n o u r a t t e n ti o n t o p a r a 6 o f th e T r i b u n a l o rd e r i n I T A . 5 9 5 / B a n g /2 0 1 6 ( w h e r e J u d i c i a l M e mb e r w a s t h e a u t h o r o f th e o r d e r) , to th e fo ll o w in g effect :
06. We have heard the rival submissions and perused the material on record. We find that the coordinate bench in the matter of Intertec Software Pvt. Ltd., vs ITO, dt.13.10.2017, wherein the author of this order was the co-author, after relying upon the judgment of the jurisdictional High Court in the matter of CIT (Intl.Taxn) v. Samsung Electronics Co. Ltd [(2011) 203 Taxman 477] and distinguishing the later judgment of the jurisdictional High Court in WIPRO Ltd. vs. DCIT as reported in 382 ITR 179, has held as under :
4. We have considered the rival submissions. First, we examine the applicability of the first judgment of Hon'ble Karnataka High Court rendered in the case of WIPRO Ltd. vs. DCIT (Supra) rendered on 25.08.2010. In this case, the substantial question of law raised as per Para 37 was as under:-
"Whether the Tribunal is correct in allowing expenditure on imported software when the expenditure per se is capital in nature and is not allowable?"
5. From this substantial question of law, it comes out that in that case, this was not a dispute before Hon'ble Karnataka High Court as to whether the import of software is Royalty or not? The dispute in that case was this that the import of software is capital expense in that case and therefore, how the same can be allowed as deduction. In that case also, the A.O. held that the payment for software is Royalty and since TDS was not deducted, it is to be ITA.325/Bang/2018 Page - 6 disallowed u/s 40 (a) (i) but when the assessee carried the matter in appeal before CIT (A), he held that it is not Royalty and therefore, cannot be disallowed u/s 40 (a) (i). The revenue filed appeal before the tribunal but the dispute raised was not this that it is Royalty or not? The dispute raised was this that it is capital expenditure and therefore, cannot be allowed. The tribunal held that the tribunal cannot go into this question as this is not what was urged before the lower authorities. The revenue filed appeal before Hon'ble Karnataka High ITA No. 1388/Bang/2013 Court and the tribunal order was confirmed. Hence, this is seen that as per this judgment of Hon'ble Karnataka High Court, the decision is not on this aspect that it is Royalty or not and therefore, this judgment is not relevant in the present case.
6. Now, we examine the applicability of the second judgment of Hon'ble Karnataka High Court rendered in the case of WIPRO Ltd. vs. DCIT (Supra) rendered on 25.03.2015. As per this judgment, in Para 171, it was held that in earlier judgment dated 25.08.2010, similar question was decided in favour of the assessee and against the revenue and therefore, in those appeals also, the issue was decided in favour of the assessee. We have already seen that the decision dated 25.08.2010 is not on this aspect that it is Royalty or not and therefore, this judgment is not relevant in the present case. Accordingly, this later judgment dated 25.03.2015 is also not relevant.
7. There is no dispute that the present issue is covered against the assessee by the judgment of Hon'ble Karnataka High Court rendered in the case of CIT vs. Samsung Electronics Co. Ltd. (Supra) and learned AR of the assessee has merely cited these two judgments rendered in the case of WIPRO Ltd. (Supra) and no other argument was made to the effect that this issue is not covered against the assessee by this judgment of Hon'ble Karnataka High Court rendered in the case of CIT vs. Samsung Electronics Co. Ltd. (Supra). Since, these two judgments cited by him are not applicable as per above discussion;
ITA No. 1388/Bang/2013 we respectfully follow the judgment ofHon'ble Karnataka High Court rendered in the case of CIT vs. Samsung Electronics Co. Ltd. (Supra) and decline to interfere in the order of CIT (A).
ITA.325/Bang/2018 Page - 7 Respectfully following the judgment of the Hon'ble jurisdictional High Court (supra) and that of the order of the coordinate bench (supra), on identical facts and circumstances, we uphold the orders of the lower authorities.
I t w a s s u b mi t t ed t h a t th e T r i b u n a l h a s n o t g iv e n e f f e c t t o t h e p ri n c ip l e o f i mp o s s ib il i ty o f p e rf o r ma n c e a n d i n f a c t h a s r e li e d u p o n th e ju d g me n t o f S ams u n g E l e c t r o n i c C o . I n d i a L t d ( su p ra ) f o r b r in g h o m e t h a n o n d e d u c t io n o f T D S u n d e r s e c t i o n .4 0 ( a ) (i ) o f t h e Act.
0 5 . O n th e o t h e r h a n d t h e L d . A R f o r th e a s s e ss e e r e l i e s u p o n t h e o rd e r p a s s e d b y t h e c o o r d i n a t e b e n c h i n th e a s s e s s e e ' s o w n c a s e i n I T A . 1 3 7 0 / B a n g /2 0 1 4 , f o r A . Y . 2 0 0 9 -1 0 , d t . 1 5 . 0 9 . 2 0 1 7 , a n d a l s o i n I T A No.10/Bang/2014, dt.20.09.2017, fo r AY 2010-11, w h e r e t h e T r i b u n a l h a d d e c i d e d th e i s s u e i n t h e f o ll o w in g l in e s i n a p p e a l n o 1 3 7 0 / B / 2 0 1 4 (s u p ra ) :
Thus it is clear that the coordinate Bench of this Tribunal while deciding this issue has taken note of various decisions in favour of the assessee on the point that the payment for purchase of software does not fall in the definition of royalty. Respectfully following the decision of co-ordinate Bench of this Tribunal, we delete the disallowance m a d e b y t h e As s e s s i n g O f f i c e r .
I t w a s f u r th e r s u b mi t t e d b y th e L d . A R th a t i t is i mp o s si b l e fo r t h e a s s e ss e e t o d e d u c t t h e t ax a t th e t i me o f ma k i n g t h e p a y me n t a n d t h e r e fo r e th e d o c t r in e o f i mp o s si b i l it y w a s i n v o k ed b y t h e a s s e s s e e b e f o r e ITA.325/Bang/2018 Page - 8 t h e C I T ( A ) a n d t h e r e fo r e t h e C I T ( A ) w a s r i g h t i n g r a n t i n g r e l i e f t o t h e a ss e s se e . The Ld. AR had f u rt h e r d r a w n o u r a t t e n ti o n t o th e o r d e r p a ss e d b y t h e c o o rd in a t e b e n ch in th e ma t t e r o f A C I T v . Au r ig e n e D i s c o v e r y T e c h n o l o g i e s L td , [I T A 1 4 7 9 / B a n g / 2 0 1 5 , d t . 2 3 . 1 1 . 2 0 1 6 , fo r A . Y . 2 0 1 2 -1 3 ] w h e r e i n a t p a r a 5 i t w a s h e l d b y th e c o o rd in a t e b e n c h a s u n d e r :
05. The CIT(A) followed the decision of this Tribunal in M/s WS Atkins India Pvt. Ltd, supra, which referred the decisions of Hyderabad Bench of the Tribunal in Infotech Enterprises Ltd in ITA 115/HYD/2011 wherein it has been held that section 40(a)(ia) would not apply to disallow payments when TDS was not d o n e a n d subsequently become taxable on account of a retrospective legislation. It has also referred to the decisions of the Delhi & Mumbai Tribunal in SMS Demag Pvt Ltd , 132 ITJ 498 & Sonic Biochem Extractions Pvt.
Ltd. 23 ITR (Trib) 447, respectively. We uphold the decision of the CIT(A) and dismiss the grounds raised by the Revenue.
L a s t l y t h e Ld . A R h a s su b mi t te d t h a t th e p r in c i p l e o f c o n si s t e n c y a n d d is c i p l i n e r e q u i r e d t h a t t h e Tri b u n a l s h o u l d f o ll o w t h e d e c i s io n o f th e T h ir d M e mb e r d e c i s i o n o f th e I T A T C o c h i n B e n c h i n and for that p u r p o s e s , o u r at t e n ti o n w a s d ra w n t o p a r a 1 5 . 7 , 1 5 .8 a n d 1 6 , t o t h e fo l lo w in g e f f e c t :
15.7 Next, we shall discuss the question of our order for the current year being contrary to or inconsistent with the Tribunal's Order for the immediately preceding year (assessment year 2005-06) with reference to which the assessee pleads its case as covered in its favour. In this regard, we find it as not so, even as the orders may lead to a difference in results. For that year, the issue considered and adjudicated by the Tribunal was whether the years to which ITA.325/Bang/2018 Page - 9 the claim for unabsorbed depreciation allowance relates, i.e., arose for the first time, qualify to be 'the relevant assessment years', as defined under section 10B, and which it found as not, after examining the language of the provision. As per the said order, the said term signifies any of the seven (extended from five) consecutive assessment years falling within the block of ten (extended from eight) successive years beginning with the initial assessment year, for which the claim under section 10B stood made and allowed. This, as, if the assessee's claim under the sections specified in section 10B(6)(i) does not relate to the years to which deduction under section 10B relates, the same would not fall within the ambit;
of section 10B(6)(i) so as to be denied consideration where not adjusted in that year itself. We are in respectful agreement with the said order, i.e., in principle, which extends, in our view, only to the scope of the relevant assessment years as defined under Explanation 2(i) to section 10B. The said Order does not in any manner dwell on the scope or operation of section 32(2); in fact, it nowhere discusses or dilates on the said provision, and reference thereto is conspicuous by its absence. The Tribunal proceeded on the premise that the claim relates to the years stated, i.e., in which it first arose for consideration, and which it found to be not the relevant assessment years so as to be impacted by the non obstante clause of section 10B(6)(i). On the other hand, in the present case, we have only found it relevant and incumbent, for adjudicating the issue arising for our consideration, to see if the claim could indeed be said to relate to the stated years, given the provision of section 32(2), a substantive provision, on the mandatory nature of which there is no dispute. As such, the claim for depreciation for any year, irrespective of it being a relevant assessment year or not, to the extent effect thereto could not be given in that year, by virtue of the deeming fiction of section 32(2), is deemed to be depreciation for the year next following, and so on, so as to in effect 'transfer' the unabsorbed depreciation sequentially to the first of the relevant assessment years, being assessment year 1997-98 for Unit 'A' and assessment year 2000-01 for Unit 'B' (refer para 15.4). Section 10B(6)(i) would then apply (Unit 'A'), deeming its allowance for that year itself, precluding its carry forward. It may be appreciated that but for the deeming effect of section 32(2), there is no question of the claim being considered, in whole or in part, as of another year and, thus, the assessee (or ITA.325/Bang/2018 Page - 10 the assessees in general) being not entitled to a higher deduction where it pertains to a relevant assessment year not specified in section 10B(6)(i), i.e., from assessment year 2001- 02 onwards. Not so considering, as also noted earlier, would amount to not applying section 32(2) even to years which are not the (specified) relevant assessment years, as assessment years 1994-95 to 1996-97 and assessment year 1997-98 for Unit 'A' and 'B' respectively, and for which there is no mandate in law. In fact, that would in effect be applying the fiction of section 10B(6)(i) to such years and thereby according an interpretation and working just opposite to what stands advocated and held by the Tribunal in the assessee's case for assessment year 2005-06.
15.8 We, therefore, find no inconsistency or disharmony between the Tribunal's Order for the immediately preceding year and the adjudication per the present order. We have, it may be appreciated, only proceeded to apply the law, being unambiguous, while expressing our agreement with the ratio of the said Order by the Tribunal. Further, without doubt, even if it were to be contended that the two orders are inconsistent to each other, the same, as explained, is only on account of the fact that we have proceeded to first address the issue whether the assessee's claim for unabsorbed depreciation, stated to be for the assessment years 1994-95 to 1996-97 (Unit 'A') and assessment year 1997-98 (Unit 'B'), could, in view of section 32(2), be in deed said to relate to those years, and found it as not, a question not addressed by the Tribunal's order for assessment year 2005-06, being not directly before it, taking the years as stated as a given, so that we find no reason for not applying the settled law in the matter; the bounded duty of any court being to decide the matter before it in accordance with the law. The very fact that it leads to a difference in result, while the law in the matter admits of no difference, itself exhibits it to be a relevant factor, so that it was required to be considered so as to be able to decide the issue at hand in its proper perspective. Rather, as pointed out above, we have only applied the ratio as laid down in the said order. There is, as such, no difference of opinion between the views expressed in the said two orders and the dichotomy between the two is incidental. Toward this we draw support from the order by the Tribunal in the case of ITO v. Baker Technical Services (P.) Ltd. [2009] 126 TTJ (Mum.) 455 (TM), wherein the principle ITA.325/Bang/2018 Page - 11 of adoption of a different view, i.e., from that of the Coordinate Bench of the Tribunal, under certain circumstances, stands recognized. Further, this is only subject to our considered view of the present order being only supportive of the said order, and not in contradiction to what stands considered and laid out therein (refer paras 15.3 and 15.7 of this order).
16. The only consequence of the foregoing, including the decisions cited, would be that the entire depreciation being claimed would be in law the depreciation for or allowable for the first of the relevant assessment years, and being an assessment year(s) prior to assessment year 2001-02, prescribed for carry forward under the provisions of section 10B(6)(i). We decide accordingly.
0 6 . W e h a v e h e a r d t h e r i v a l c o n t e n t i o n s a n d p e r u se d t h e ma t e r i a l . At the time of hearing the Ld. AR was directed by the Bench to produce the following documents / clarify :
i) Whether the assessee continued its business with the same company in the subsequent years ;
ii) When the assessee has actually made the payment towards the consideration for purchase of software pertaining to AY 2011-12 ;
iii) Whether the assessee has deducted the TDS from the payment made for AY 2011-12 in the subsequent assessment year, i.e., AY 2012-13.
Despite the specific direction during the course of hearing, the assessee has not produced the above documents.
07. The CIT (A) in para 7 at page 6, had agreed to the decision of th e AO to the ex t e n t th a t th e c o n si d e r a t io n p a i d f o r p u r c h a se o f s o f t w a r e is i n th e ITA.325/Bang/2018 Page - 12 f o r m o f ro y a l t y a n d t h e r e fo r e n o n -d e d u c t i o n o f t a x a t s o u r c e a t t r a c t s t h e p ro v i si o n s o f S e c t io n 4 0 ( a ) ( i) o f t h e A c t a n d fo r t h a t p u r p o s e s, t h e l o w e r a u th o r i ti e s r e l i e d u p o n t h e H o n ' b l e j u r is d i c ti o n a l H i g h C o u rt j u d g me n t in S ams u n g E l e c t ro n ic s ( su p r a ) . A g ai n st th e f i n d in g r e c o r d ed b y t h e l o w e r a u t h o r it i e s th e a s s e s s e e i s n o t i n ap p e a l, i . e . , t h e a s s e ss e e h a s n o t c h al l e n g ed the n o n - d e d u ct i o n of TDS will attract the d i s a ll o w a n c e u /s . 4 0 ( a ) (i ) in r es p e c t o f p u r c h a s e o f s o ft w a r e .
0 8 . A s p o in t e d o u t b y th e L d . AR t h e C I T ( A) h a s granted relief to the assessee on account of i mp o s si b il it y o f p e rf o r ma n c e o n th e p r e mi s e t h a t j u d g me n t w a s re n d e r e d b y th e H o n ' b l e ju r is d i c t i o n al H i g h C o u rt o n 1 5 .1 0 .2 0 1 1 a n d t h e r e t u rn o f i n c o me w a s f i l e d o n 3 0 . 1 1 . 2 0 1 1 a n d t h e r e v is e d r e tu rn w a s f i l e d o n 2 7 . 0 2 . 2 0 1 2 . T h e r e fo r e i t w a s n o t p o ss ib l e fo r t h e a s s e s s e e t o d e d u c t t h e t a x a t t h e t i m e o f ma k i n g t h e p a y me n t .
0 9 . S e c t i o n 4 0 ( a )( i ) p r o v id e s a s u n d e r :
(i) 5 any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938 ), royalty, fees for technical services or other sum chargeable under this Act, which is payable outside India, on which tax has not been paid or deducted under Chapter XVII- B: Provided that where in respect of any such sum, tax has been paid or deducted under Chapter XVII- B in any subsequent year, such sum shall be allowed as a deduction in computing the income of the previous ITA.325/Bang/2018 Page - 13 year in which such tax has been paid or deducted. Explanation.-
For the purposes of this sub- clause,-
(A) " royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub- section (1) of section 9;
(B) " fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub- section (1) of section 9;] F ro m t h e b a r e re a d i n g o f t h e a fo r e s a id p ro v i s io n it is a b u n d a n tl y c l e a r th a t i f t h e a s s e s s e e is ma k in g th e p a y m e n t e i t h e r o n a c c o u n t o f i n t e r e st , r o y a lt y , f e e s f o r t e c h n i c a l s e r v i c e s o r o th e r s u ms c h a r g e a b le u n d e r t h is A c t w h i c h i s c h a rg e a b l e o u t si d e In d i a o r i n In d i a t o a n o n - r e si d en t , n o t b e i n g a c o mp a n y o r a f o r e ig n c o mp a n y o n w h i c h t a x is d e d u c ti b l e a n d t a x is d e d u c ti b l e a t s o u r c e a n d su c h t a x h a s n o t b e e n d e d u c t e d , t h e n t h e s a me s h a l l n o t b e d e d u c t e d w h il e c o mp u t i n g th e i n c o me c h a r g e d u n d e r t h e h e a d ' p ro f i ts a n d g a in s o f b u si n e s s o r p ro f e ssi o n ' .
9 . 1 F u r th e r t h e p ro v i so t o S ec t i o n 4 0 ( a )( i) p r o v id e s t h a t wh e r e o n an y s u ch su m t a x h as b e e n d e d u c t e d in a n y s u b s eq u e n t y e a r o r h a s b ee n d e d u c t e d d u r i n g th e p r e v i o u s y e a r b u t p a id a f t e r th e d u e d a t e s p e c i f i e d i n S u b -s e c t i o n (1 ) o f S e c t i o n 1 3 9 , su c h su m s h a l l b e a l l o w e d a s d ed u c t i o n i n c o mp u t in g th e in c o me o f t h e p r e v i o u s y e a r i n w h i c h su c h t a x h a s b e e n p a id .
1 0 . I t i s th u s c l e a r t h a t fo r th e p u rp o s e s o f a t tr a c t in g t h e p r o v is i o n s o f S e c t i o n 4 0 ( a ) ( i) o f th e A c t , t h e ITA.325/Bang/2018 Page - 14 p a y m e n t ma d e b y t h e a s s e ss e e s h o u l d b e in th e f o r m o f ro y a l t y o r in a n y o th e r fo r m a n d i t sh o u l d h av e b e e n p a i d e i th e r o u ts id e I n d ia o r p a i d to a n o n - r e s i d en t in I n d ia , f o r w h i c h th e r e i s a n o b li g at i o n to d e d u c t T D S . If ta x d e d u c ti o n w a s n o t ma d e a t t h e t i me o f ma k i n g th e p a y m e n t , a n d th e n su c h a mo u n t sh a ll n o t b e e l i g i b l e fo r d ed u c t io n .
1 0 .1 The Bench is not a b le to a p p r e c i a te the c o n t e n t io n o f th e L d . A R t h a t o n c e t h e C I T ( A ) h e ld t h a t t h e p ro v i sio n s o f S e c t io n 4 0 ( a ) ( i) a r e ap p l i c a b l e a s t h e p a y m e n t s ma d e b y t h e a s s e s s e e w a s i n t h e n a t u r e o f r o y a l ty , w h e r e i s t h e o c c a s i o n f o r d e l e t i n g t h e d i s a ll o w a n ce m a d e b y t h e A O , l d C I T ( A) . T h e r e is no su c h p o w e r u / s .4 0 ( a ) ( i) w i th C IT ( A ) to d i s a ll o w th e d is a l l o w a n c e m a d e b y t h e A O f o r n o n - c o mp l i a n c e o f S e c t i o n 4 0 ( a )( i) , a s i n t h e c o n s id e r a t i o n o f B e n c h t h e d is a l l o w a n c e i s au to ma t i c i f s u c h a mo u n t h a s n o t b e e n d e d u c t e d . T h e r e i s n o a mb i g u i ty i n th e p ro v i s io n s of the Act me n t io n ed herein above. F u r th e r th e C I T ( A ) h a s n o p o w e r t o ma k e o u t a c a s e o f i mp o s si b i l ity o f p e r fo r ma n c e . T h e p ro v i so to S e c t i o n 4 0 ( a )( i ) r e l e v a n t to t h e i mp u g n e d a ss e s s me n t year provide as under :
40. Notwithstanding anything to the contrary in sections 30 to 16[38], the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",--17
(a) in the case of any assessee--
ITA.325/Bang/2018 Page - 15 18 [(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,-- (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200 :
Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub- section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.
F ro m t h e r e a d in g o f t h e a b o v e , i t i s a l so c l e a r t h a t i f t h e a s s e s s e e f a i l e d t o d ed u c t t h e t a x i n th e y e a r o f a s s e s s me n t , t h e s a m e c a n b e d e d u c t e d in a s u b s e q u e n t y e a r a n d su c h su m s h a l l b e a l lo w e d in t h e s u b s e q u e n t year. I f w e l o o k in to t h e v a ri o u s d e c i si o n s a n d t h e f i n d in g r e c o r d ed b y t h e C I T ( A ) , w e h a v e t o s e e w h e t h e r i t i s i mp o s s ib l e f o r t h e a s s e s s e e t o d e d u c t t h e tax in th e year under c o n s i d e r a ti o n or in th e s u b s e q u e n t y e a r i . e . , f o r A Y . 2 0 1 2 -1 3 .
1 1 . F i rs t l y , w e a r e o f t h e o p i n io n t h a t th e ju d g me n t p a s s e d b y t h e su p e ri o r c o u rt wa s d e c l a r a t o r y in n a t u r e o f th e l a w w h i c h f in d s p l a c e i n t h e s t a tu t e b o o k . T h e C o u rt s d o n o t l a y d o w n th e fr e s h o r n e w l aw , t h e ITA.325/Bang/2018 Page - 16 c o u rt o n l y a u t h o r it a t iv e l y p r o n o u n c e s a n d i n te r p r e t s t h e l a w a l r e a d y e x i s ti n g in th e s t a t u t e b o o k . F u r th e r w e f i n d t h a t t h e H o n 'b l e j u r isd i c t io n a l H ig h C o u rt in S a ms u n g E l e c tr o n i c s (s u p r a ) in para 3 records i mp o r t a n t f a c t s w h i c h a r e t o th e f o ll o w in g e ff e c t :
3. Being aggrieved by the said order passed by the assessing officer, an appeal was filed before the Commissioner of Income Tax (Appeals)-V in appeal No. ITA 17/TDS/CIT(A)V/2001-02 wherein the appellate authority confirmed the order passed by the assessing officer holding that payment made to the non resident companies was taxable in India and therefore non deduction of TDS under Section 195(1) of the Act would make liable the respondent to treat the same as income and therefore the respondent would be liable for default for non deduction of tax at source and dismissed the appeal Being aggrieved by the said order, the respondent filed an appeal before the Income Tax Appellate Tribunal. Bangalore (hereinafter called the Tribunal) in ITA Nos. 264 to 266/Bang/2002 and the Tribunal by order dated 18-12-2005 allowed the appeal by setting aside the order passed by the appellate authority confirming the order passed by the Assessing Officer and held that payment made by the respondent to the non-resident company would not amount to royalty within the meaning of Section 9(1)(vi) of the Act or under Clauses of DTAA and it was a purchase of shrink wrap software and since there was no permanent establishment of non-resident company in India, the payment was not liable to be deducted.
Being aggrieved by the same, ITA Nos. 2808/2005 and other appeals were filed against the said order of the Tribunal and Division Bench of this Court by order dated 24-9-2009 set aside the order of the Tribunal by holding that all payments made to the non-resident company should be deducted at source unless certificate is obtained by making an application under Section 195(2) of the Act that there is no liability to deduct tax at source and accordingly allowed the appeals filed by the revenue by setting aside the order passed by the Tribunal. The respondent and others who are aggrieved by the common order dated 24-9- 2005 passed by this Court in ITA No. 2808/2005 and connected cases filed Civil Appeal Nos.7541-7542/2010 and connected matters before the Hon'ble Supreme Court and the Hon'ble ITA.325/Bang/2018 Page - 17 Supreme Court by order dated 9-9-2010 set aside the order passed by the Division Bench of this Court by analyzing the provisions of Section 195 of the Act and remitted the matter to this Court for answering the substantial questions of law framed by it as referred to above. Accordingly, these appeals are posted for hearing before us for answering the aforementioned substantial question of law.
(Emphasis supplied) F ro m a r e a d i n g o f th e a b o v e i t i s c l e a r t h a t t h e D i v is i o n B e n c h o f th e j u ri sd i ct i o n a l H i g h C o u r t v id e i t s j u d g me n t d t . 2 4 .0 9 .2 0 0 9 [1 8 5 t a x ma n n 3 1 3 ] h a d r e v e r s e d th e fi n d i n g r e c o rd e d b y t h e T r i b u n a l in I T A . 2 8 0 8 / B a n g /2 0 0 5 . H o w ev e r s u b s eq u e n tl y the H o n 'b l e S u p re me Court v id e i ts j u d g me n t d t . 0 9 . 0 9 . 2 0 1 0 h a d r e m a n d e d th e ma t t e r b a c k t o th e f i l e o f th e D i v is i o n B e n c h f o r f u rt h e r a p p r e c i a t i o n o f the decision. However in between i.e., f ro m 2 4 .0 9 .2 0 0 9 a n d 0 9 .0 9 .2 0 1 0 , th e d e c i s i o n r e n d e r e d b y t h e D i v is io n Be n c h i n 1 8 5 t a x ma n n . 3 1 3 w a s h o ld in g t h e fi e l d w i th re s p e c t to p a y m e n t ma d e f o r p u r c h a s e o f so ft w a r e . T h e r e f o r e th e r e w a s a j u r i s d ic t i o n al H i g h C o u r t j u d g me n t a u t h o ri t at i v e l y p ro n o u n ci n g th a t p a y m e n t m a d e o r c o n s id e r a t io n p a i d fo r a c q u i r in g th e s o ft w a r e w e r e i n t h e n a tu r e o f r o y a l t y . Incidentally t h is w a s p e ri o d w h e n p a y me n t s w o u ld h av e b e e n ma d e b y t h e a s s e s s e e t o a f o r e i g n e n t it y f o r p u r ch a s e o f s o ft w a r e w i th o u t d e d u c ti n g th e T D S . Ir o n i c a l l y , d e s p i t e d i r e c t io n a ss e s s e e h a d f u rn is h ed d e t a i ls a s t o w h e n e x a c t p a y m e n t s fo r p u r ch a s e o f so f t w a re w e r e ITA.325/Bang/2018 Page - 18 m a d e a n d w h e t h e r t h e a s s e s s e e c o n t in u e d i ts b u s in e s s i n th e su b s e q u e n t y e a r s o r n o t . F u r th e r t h e as s e s s e e w a s h a v i n g a n o t h e r c h a n c e t o d e d u c t th e T D S i n t h e s u b s e q u e n t y e a r a s th e a s s e sse e w a s c o n t in u i n g i ts b u s in e s s w it h th e s a me s u p p lie r , b u t h o w e v e r f o r th e r e a s o n s b e st k n o w n t o i t , a ss e s s e e h a d n o t p ro d u c e d t h e r e c o rd a s n o t e d h e r e in a b o v e .
1 1 .1 T h e r e f o r e w e ca n d r a w a d v e rse i n f e r en c e a g a i n s t a s s e s s e e , t h a t t h e a s s e s s e e e v e n i n t h e su b s e q u e n t y e a r s h a d n o t d e d u c t e d T D S o t h e r w is e i t w o u l d h a v e p ro d u c e d r e c o r d fo r d e d u c ti o n o f t ax i n s u b s e q u e n t y e a r s . F u r th e r in o u r v i e w w h e n d e d u c t io n o f T D S c a n b e d e d u c t e d in su b s e q u en t y e a r a n d fu rt h e r a s s es s e e i s c o n t in u in g it s b u s in e s s i n su b s eq u e n t y e a r , c o n c l u s io n r e c o r d e d b y t h e C I T ( A) w a s w r o n g a s th e r e w a s n o i mp o s si b il it y o f p e r f o r ma n c e .
1 1 .2 The Ld. AR during the course of argument had relied upon the decisions of the Tribunal in A u ri g en e Discovery T e c h n o lo g i es Ltd, [IT A 1 4 7 9 / Ba n g /2 0 1 5 , d t . 2 3 . 1 1 . 2 0 1 6 , f o r A . Y . 2 0 1 2 -1 3 ], i n t h e a s se s s e e ' s o w n c a s e i n I T A . 1 3 7 0 / B a n g /2 0 1 4 , fo r A . Y . 2 0 0 9 -1 0 , d t . 1 5 . 0 9 . 2 0 1 7 , a n d a l so in IT A N o . 1 0 / B a n g /2 0 1 4 , d t . 2 0 . 0 9 . 2 0 1 7 , fo r A Y 2 0 1 0 -1 1 .
1 1 .3 T h e T r i b u n a l in p ar a 5 o f Au r ig e n e D is c o v e r y T e c h n o lo g i es L t d ( su p r a ) h a s h e l d a s u n d e r :
ITA.325/Bang/2018 Page - 19
5. The CIT (A) followed the decision of the Tribunal in M/s. WS Atkins India P. Ltd, supra, which referred the decisions of Hyderabad Bench of the Tribunal in Infotech Enterprises Ltd in ITA 115/Hyd/2011 wherein it has been held that section 40(a)(ia) would not apply to disallow payments when TDS was not done and subsequently become taxable on account of a retrospective legislation. It has also referred to the decisions of the Delhi & Mumbai Tribunal in SMS Demag Pvt Ltd, 132 ITJ 498 & Sonic Biochem Extractions P. Ltd 23 ITR (Trib) 447, respectively. We uphold the decision of the CIT (A) and dismiss the grounds raised by the Revenue.
From the reading of the decision of A u r i g en e ( su p r a ) , it is clear that the Tribunal had relied upon a decision of the Hyderabad bench in the matter of M/s. WS Atkins India P. Ltd, for the proposition that as the amendment was brought into the statute by Finance Act 2012 retrospectively u/s.40(a)(ia), therefore the assessee cannot be asked to deduct TDS . in our view decision of Aurigene Discovery Technologies Ltd (supra), is not applicable to the facts of the case as the Hon'ble jurisdictional High Court in the matter of Samsung Electronics Co. (supra) by an earlier and subsequent judgments had held that the consideration paid for acquiring the software was in the nature of 'Royalty' and therefore the TDS is required to be deducted. Further we observe that the decision in Aurigene Discovery Technologies Ltd (supra) was for AY 2012-13, whereas the amendment was brought into the Section 9(1)(vi) retrospectively vide the Finance Act, 2012, whereas the obligation to deduct the TDS u/s.40(a)(i) so far as the State of Karnataka is concerned was there in the assessment year under consideration in view of the provisions of Section 9(1)(vi) r.w. the jurisdictional High Court in ITA.325/Bang/2018 Page - 20 the matter of Samsung Electronics Co. (supra). Therefore, ratio of Aurigene Discovery Technologies Ltd (supra) decision relied upon by the assessee is not applicable to the present case.
11.4 The second decision of the Tribunal relied upon by the assessee was in its own case in ITA.1370/Bang/2014 (supra). However when we look into the finding recorded by the Tribunal in para 7, we notice that the Tribunal has not given any finding with respect to the issue of 40(a)(ia) and it has only mentioned that in view of the coordinate bench decision the purchase of software does not fall within the definition of 'Royalty', whereas the characteristic of the payment made by the assessee whether royalty or not is not in dispute in the present appeal. Therefore the decision is not applicable to the present case.
11.5 Lastly, the assessee relies again upon the decision of the coordinate bench in its own case in ITA No.10/Bang/2014, dt.20.09.2017, wherein the Tribunal has relied upon its earlier order in ITA.1370/Bang/2014 (supra) and had allowed the issue. In our opinion the decision rendered by the Tribunal in ITA.10/Bang/2014 is also not applicable to the present facts as the Tribunal had had merely held that purchase of software does not fall within the definition of 'Royalty', whereas the present dispute pertains to section 40(a)(i) and the doctrine of impossibility of performance.
1 1 .6 W e can therefore su m ma r i z e that it is not i mp o s si b l e f o r th e a s s e s s e e t o d e d u c t th e t a x a t s o u r c e a t t h e t i me o f m a k i n g t h e p a y m e n t i n th e a s se s s me n t ITA.325/Bang/2018 Page - 21 y e a r u n d e r co n s i d e r a ti o n a s la w i n t e r p r e t e d b y t h e H o n 'b l e ju ri sd i c t io n a l H ig h Court in 185 t a x ma n n . 3 1 3 ) wa s h o l d in g th e f i e l d a t t h e r el e v a n t t i me a n d t h e r e a f t e r su b s e q u en t d e c i s i o n w a s h o l d in g t h e f i e ld w . e . f . 1 5 .1 0 .2 0 1 1 . F u r t h e r t h e a s s e sse e c a n a l w a y s d e d u c t th e t a x i n th e su b s e q u e n t p a y me n t ma d e b y t h e a s s e ss e e t o t h e s a me p a r t y i n t e r ms o f p ro v i so t o S e c t i o n 4 0 ( a) ( i) o f th e A c t . Therefore it will not b e f a i r o n t h e p a r t o f t h e C I T ( A ) o r th e a s se s s e e t o a l l e g e t h a t th e r e w a s i mp o ss ib i lit y o f p e rf o r ma n c e . I n o u r v i e w a b o v e , t h e d e c i s i o n o f c o o rd in a t e b e n c h a n d J u d g me n t (s u p ra ) r e l i e d u p o n b y t h e L d . A R , a s n o n o f t h e s e a s p e c t s w e r e a s p e c t w e r e c o n s id e r e d o r b ro u g h t t o n o ti c e o f t h e T r i b u n a l .
1 1 .7 I n v i e w o f th e a b o v e , w e d o n o t f in d th a t th e c a s e o f th e a s s e s s e e f a l l s w i th in th e f o u r c o rn e rs o f th e d o c tr i n e o f i mp o s si b i l it y a s m e n t i o n e d h e r e i n a b o v e . T h e l a w w a s i n t h e s t a tu t e b o o k , w h en th e r e w a s a n o b l i g a ti o n t o d e d u c t th e t ax b y t h e a s s e ss e e a n d l aw c o n t in u e s to b e s o b y th e d e c i s io n r e n d e r e d b y t h e H o n 'b l e ju r is d i c t i o n in the matter of S a ms u n g E l e c t r o n i c s [1 8 5 t a x ma n n 3 1 3 ] a n d t h e r e a f t er a l so l a w c o n ti n u e s to b e th e s a me i n S a ms u n g E l e c t r o n i c s C o . L t d [1 6 t a x m a n n . c o m 1 4 1 ]. In v i e w o f th e a b o v e , w e f i n d fo r c e , s u b s t an c e a n d m e r i t i n th e c o n t e n ti o n o f th e L d . D R a n d a c c o r d i n g l y t h e o rd e r p a ss e d b y t h e ITA.325/Bang/2018 Page - 22 C I T ( A ) i s r e v ers e d .
11.8. In the result, ground no.2 of the Revenue is allowed.
12. The third ground of the Revenue appeal deals with the issue of delayed payment of employees' contribution to ESI and PF, u/s.43B of the Act.
13. In this regard, the Ld. DR relies upon the decision of the Hon'ble Gujarat High Court in CIT v. Gujarat State Road Transport Corporation [(2014) 41 taxmann.com 100] in the in the order of the AO, to substantiate that the action of the AO was correct.
14. On the other hand the Ld. AR brought to our notice the decision of the Hon'ble jurisdictional High Court in the matter of CIT v. Magus Customers Dialog P. Ltd [(2015) 57 taxmann.com 94] wherein the Hon'ble jurisdictional High Court had held in paras 17 to 22 as under :
17. Section 6 of the PF Act provides for contributions and matters which may be provided for in Schemes. Paragraph-29 of the PF Scheme states what is "Contribution". The expression "contribution" is also defined under the PF Act by Section 2(c) of the PF Act, which means a contribution payable in respect of a member under the Scheme or the contribution payable in respect of an employee to whom the Insurance Scheme applies. If this definition is read with sub-para(1) of paragraph-29 in Chapter-V of the PF Scheme, it would mean that the contributions payable by the employer under the Scheme shall be at a particular rate and the contribution payable by the assessee shall be equal to the contribution payable by the employer.
18. Paragraph-30 of the PF Scheme provides for payment of contributions. Sub-para(1) of paragraph-30 states that the employer shall, in the first instance, pay both the contribution payable by himself (in this Scheme referred to as the employer's contribution) and also, on behalf of the member employed by him ITA.325/Bang/2018 Page - 23 directly or by or through a contractor, the contribution payable by such member (in this Scheme referred to as the member's contribution).
19. From bare perusal of sub-para(1) of paragraph-30, it is clear that the word "contribution" is used not only to mean contribution of the employer but also contribution to be made on behalf of the member employed by the employer directly.
20. Paragraph-38 of the PF Scheme provides for Mode of payment of contributions. As provided in sub-para(1), the employer shall, before paying the member, his wages, deduct his contribution from his wages and deposit the same together with his own contribution and other charges as stipulated therein with the provident fund or the fund under the ESI Act within fifteen days of the closure of every month pay. It is clear that the word "contribution" used in Clause(b) of Section 43B of the IT Act means the contribution of the employer and the employee. That being so, if the contribution is made on or before the due date for furnishing the return of income under sub-section(1) of Section 139 of the IT Act is made, the employer is entitled for deduction.
21. The submission of Mr. Aravind, learned counsel for the revenue that if the employer fails to deduct the employees' contribution on or before the due date, contemplated under the provisions of the PF Act and the PF Scheme, that would have to be treated as income within the meaning of Section 2(24)(x) of the IT Act and in which case, the assessee is liable to pay tax on the said amount treating that as his income, deserves to be rejected.
22. With respect, we find it difficult to endorse the view taken by the Gujarat High Court. We agree with the view taken by this Court in W.A.No.4077/2013.
15. We may like to record that the Revenue in the present case has relied upon the decision of the Hon'ble Gujarat High Court in the matter of Gujarat State Road Transport Corporation. (supra).
However, the said judgment was considered by the jurisdictional High Court in the matter of Essae Teraoka P. Ltd v. DCIT [(2014) 43 taxmann.com 33] and had expressed that it is difficult to endorse ITA.325/Bang/2018 Page - 24 the view taken by the Hon'ble Gujarat High Court. The Tribunal falls within the territorial jurisdiction of the Hon'ble High Court of Karnataka and is bound and governed by the judgment and law decided by the Karnataka High Court. Therefore respectfully following the judgment of the jurisdictional High Court, the issue of disallowance of delayed deposit of employees' contribution to PF and ESI is decided in favour of the assessee and against the Revenue.
16. In the result, appeal of the Revenue is partly allowed.
Order pronounced in the open court on 13th day of June, 2018.
Sd/- Sd/-
(A. K. GARODIA) (LALIET KUMAR)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Bengaluru
Dated : 13.06.2018
MCN*
Copy to:
1. The assessee
2. The Assessing Officer
3. The Commissioner of Income-tax
4. Commissioner of Income-tax(A)
5. DR
6. GF, ITAT, Bangalore
By order
Senior Private Secretary,
Income Tax Appellate Tribunal,
Bengaluru