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Karnataka High Court

The Commissioner Of Income Tax vs M/S Psi Data System Ltd on 6 June, 2012

Bench: D.V.Shylendra Kumar, B.Manohar

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    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:
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                   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.

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. 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