Income Tax Appellate Tribunal - Pune
Igate Computers Systems Ltd (Formerly ... vs Department Of Income Tax on 10 April, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER
AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER
ITA Nos.1172 to 1174/PN/2013
Assessment Years: 2008-09 to 2010-11
The Dy. Director of Income Tax (IT)-II,
Pune .... Appellant
Vs.
iGATE Computer Systems Ltd.,
(formerly known as Patni Computer
Systems Limited)
Level I, II, V & VI, Tower 3,
Cybercity, Magarpatta City,
Hadapsar, Pune - 411013 .... Respondent
PAN: AABCP6219N
Appellant by : Shri Rajesh Damor
Respondent by : Shri C.H. Naniwadekar
Date of hearing : 12-03-2015
Date of pronouncement : 10-04-2015
ORDER
PER SUSHMA CHOWLA, J.M:
All these appeals filed by the Revenue are against the consolidated order of CIT(A)-IT/TP, Pune dated 21.03.2013 relating to assessment years 2008-09, 2009-10 and 2010-11 passed under section 201(1)/201(1A) of the Income Tax Act, 1961.
2. All the appeals relating to same assessee on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. The facts in all the years under appeal are identical. However, we make a reference to the facts in ITA No.1172/PN/2013 to adjudicate the issue.
3. The Revenue has raised similar grounds of appeal in all the years and the grounds of appeal in assessment year 2008-09 read as under:-
1. On the facts and circumstances of this case, the Ld. CIT(A) was not correct in holding that the payment made for transfer of user rights of softwares and availing other services such as maintenance of software, 2 ITA Nos.1172 to 1174/PN/2013 iGATE Computers Systems Ltd training are not taxable under Article 12/13 of the double Taxation Avoidance Agreement (DTAA) between India and USA/UK/Singapore.
2. On the facts and circumstances of this case, the Ld. CIT(A) was not correct in holding that the payment made for transfer of user rights of softwares are not taxable as royalty under Article 12/13 of the double Taxation Avoidance Agreement (DTAA) between India and USA/UK/ Singapore, without verifying as to what rights are given to the assessee by the software suppliers, as to whether the software were customized for the use of assessee, the nature of maintenance/training services provided by the assessee, as to whether any personnel were deputed by the software suppliers and visited India for maintenance/training services.
3. On the facts and circumstances of this case, the Ld. CIT(A) was not correct in applying the decisions of Hon'ble Delhi High Court in the case Ericsson AB (ITA 507 of 2007) and other cases ignoring the factual differences.
4. On the facts and circumstances of this case, the Ld. CIT(A) erred in not considering the decisions, relied by the AO, of Hon'ble High Court of Karnataka in the case of Samsung Electronics Co. Ltd. (ITA No. 2808 of 2005), Hon'ble AAR Millennium IT Software Ltd. (AAR No. 835 of 2009), Hon'ble AAR, in the case of Citrix Systems Asia Pacific Pty. Ltd. (AAR No.822 of 2009) and Hon'ble Bangalore Tribunal in the case of ING Vyasya Bank Ltd [I.T.A. No.160/2010, dated 5 August 2011 (AY 2008-
09)], in which it had been held that the payment received for supply of software (licensed program) is taxable as royalty under the DTAA.
5. On the facts and circumstances of this case, the Ld. CIT(A) was not correct in holding payment for maintenance and training cannot be taxed as 'fees for technical services' under DTAA as per Article 13(4)(a) of the DTAA as the maintenance and training services are ancillary or subsidiary to the application or enjoyment of right to use software.
6. On the facts and circumstances of this case, the Ld. CIT(A) was not correct in holding payment for maintenance and training cannot be taxed as 'fees for technical services' under Article 13(4)(c) of DTAA as this conclusion is not based on any documentary evidence and in the light of the fact that if the assessee had received the customized software from the foreign suppliers then it could be termed as transfer of technical plan or technical design and is taxable as FTS and when it is not a ground of appeal raised by the appellant.
7. On the facts and circumstances of this case, the Ld. CIT(A) was not correct in holding that payment for maintenance and training cannot be taxed as 'fees for technical services' under Article 13(4)(b) of DTAA as the companies rendering services have not 'made available' any technical knowledge experience, skill, know-how etc, which would enable the assessee acquiring the services to apply the technology contained therein specially when conclusion is not based on any documentary evidence and without analyzing the nature of services provided by the service providers and when it is not a ground of appeal raised by the appellant.
8. On the facts and circumstances of this case, the Ld. CIT(A) was not correct in holding that the assessee has not acquired any such technical inputs for its own use from the companies rendering such services, when in fact the assessee does acquire the technical inputs during the maintenance and training services provided by the services provider, which then are utilized continuously for its own use. 3
ITA Nos.1172 to 1174/PN/2013 iGATE Computers Systems Ltd
9. The appellant craves leave to add to or modify any of the grounds of appeal.
4. The grounds of appeal No.1 and 4 raised by the Revenue are general in nature and hence, the same are dismissed as general.
5. The issue raised in other grounds of appeals is in relation to payment made for transfer of user rights of software and whether the same are taxable as royalty under Article 12/13 of Double Taxation Avoidance Agreement (DTAA) between India and USA/UK/Singapore. In view of the non-deduction of tax at source, whether the assessee is liable to the demand raised under section 201(1) of the Act and interest under section 201(1A) of the Act.
6. Briefly, the facts of the case are that the Assessing Officer had sought information from the assessee seeking details of foreign remittances made w.e.f. 01.04.2007 to till date. The Assessing Officer noted that the assessee had made payments towards software purchases and related cost without deduction of tax. The claim of the assessee before the authorities below was that since the assessee was engaged in the business of development and export of computer software, it had purchased the above said software and no tax was deducted and since the payments were not falling within the definition of royalty or technical know-how, no tax was required to be deducted. The Assessing Officer relying on the ratio laid down by Hon'ble Karnataka High Court in CIT Vs. M/s. Samsung Electronics Co. Ltd. in ITA No.2808 of 2005, held that the contention of assessee that the purchase of software was purchase of goods was not tenable. The conclusion of the Assessing Officer was that the payments made by the assessee for the purchase of software and related costs was royalty payment and in view of the provisions of section 195(1) of the Act, it was the obligation on the assessee for making payments and where the recipient of the amount is foreign company within the meaning of section 195 of the Act, then tax was to be deducted at source on such payments. Since the assessee had failed to deduct tax at source under section 195 of the Act on software payments of 4 ITA Nos.1172 to 1174/PN/2013 iGATE Computers Systems Ltd Rs.1,52,15,205/-, the assessee was found to be in default of tax of Rs.15,21,521/- under section 201(1) of the Act and interest was leviable under section 201(1A) of the Act at Rs.8,74,757/-.
7. Before the CIT(A), the explanation of the assessee was that the amount paid towards fees or subscription charges for the use or access of data base of the portal do not fall within the definition of royalty and hence, no tax was deductible on such payments. Further, it was pointed out that with respect to purchases of computer parts and hardware, the Assessing Officer had inadvertently considered the payments made for the purchase of hardware along with the payments made for the purchase of software, possibly, because the same party had also supplied the software. However, the said payments towards purchase of computer software or hardware do not attract the provisions of section 195 of the Act.
8. The learned Authorized Representative for the assessee placed reliance on the ratio laid down by the Hon'ble Delhi High Court in DIT Vs. Nokia Networks OY (ITA No.512 of 2007) for the proposition that the retrospective amendment to section 9(1)(vi) of the Act could not be read into the tax treaty. Reliance was placed on series of decisions before the CIT(A). The CIT(A) noted that the assessee had made payments during the year for the following purposes:-
i) Purchase or license of computer software
ii) Annual maintenance charges
iii) Fees for accessing data base
iv) Training and implementing charges
v) Purchase of computer parts or hardware
9. With regard to payments made for purchase of computer parts and hardware, the CIT(A) held that TDS was not required to deduct on such payments and with respect to remaining payments made for acquiring license of software, the CIT(A) noted that it had been made taxable by the amendment to section 9(1)(vi) of the Act by way of amendment to Finance Act, 2012 with retrospective effect from 01.06.1976. Hence, the payments made for acquiring 5 ITA Nos.1172 to 1174/PN/2013 iGATE Computers Systems Ltd software could not be taxable under the Income-tax Act. It was further held by the CIT(A) that As far as the payments made towards Annual Maintenance charges, fees paid for accessing data base, training and implementing charges are concerned, the same would be taxable as a 'technical service' rendered by non-resident to the Appellant company under section 9(1)(vii) as 'fees for technical services'. These services are technical in nature and accordingly the provisions on 'fees for technical' services would be applicable and the same would be taxable under the Income Tax Act. However, the CIT(A) held that However, when it comes to the taxability of the same under the DTAA, these payments would not be taxable either as 'royalty' or 'fees for technical service'. For deciding this issue, paragraphs 3 and 4 of Article on 'royalty' and 'fees for technical services' of the DTAA are relevant. This Article is similar in all the DTAAs with the respective countries. The CIT(A) thus, held as under:-
"2.20. From the above, it can be seen that the term 'royalty' is defined in the tax treaty. Therefore, there is no scope for using the definition of 'royalty' provided under the domestic law. Accordingly, retrospective amendment made under the Income tax Act taxing payments made for acquiring license of software would not be relevant in absence of similar corresponding amendment to the DTAA. In the cases of Nokia delivered by Delhi High Court as relied upon by the Appellant and in the case of B 4 U International Holdings Ltd v DCIT (ITA 3829/Mum/2008 dated 28.05.2012) Mumbai Tribunal has held that, in absence of corresponding amendment to the DTAA, payment made for acquiring license for software purchase is not taxable. Similar decision is given by the honourable Tribunal in the other cases, which are relied on by the Appellant and mentioned above in the para 2.11 of this Order."
10. In respect of taxability of other services under DTAA, it was further held by the CIT(A) that the same also could not be taxed as fees for technical services under DTAA. Thus, the CIT(A) held that the payments made for purchase of software and availing other services are taxable under the Income-tax Act, but are not taxable under the respective DTAAs and consequently, the assessee was not required to deduct tax on such payments.
11. The Revenue is in appeal against the order of CIT(A). 6
ITA Nos.1172 to 1174/PN/2013 iGATE Computers Systems Ltd
12. The learned Departmental Representative for the Revenue placed reliance on the order of Assessing Officer and pointed out that where there was license to use software, then the assessee was liable to deduct tax at source and since the assessee has failed to so deduct the tax at source, was liable for the demand raised under section 201(1) of the Act and interest under section 201(1A) of the Act.
13. The learned Authorized Representative for the assessee pointed out that the amendment by way of Explanation 4 to section 195 of the Act cannot be applied retrospectively. Reliance in this regard was placed on the ratios laid down in the following decisions:-
i) Director of Income Tax Vs. Infrasoft Ltd. (2013) 96 DTR (Del) 113
ii) New Bombay Park Hotel Pvt. Ltd. Vs. ITO (Intr. Taxation) (2014) 61 SOT 105 (Mumbai)
14. We have heard the rival contentions and perused the record. The assessee for the year under consideration had made payments for the purchase of software and for other related costs as detailed as under:-
Name of the company Nature of payment Date of Amount (Rs) payment Savvion Inc. USA Purchase of general software 04.05.2007 1,23,80,564 NCC Services Ltd, UK Annual fees for checking 24.06,2007 1,14,044 software Serena Software Pte Purchase of general software 04.09.2007 66,990 Ltd Cipher Soft Inc, USA Software License Fee-conversion 08.11.2007 47,784 of forms release 3.0 Java with XML Swing Ajira Technologies Inc, Purchase of software License- 14.11.2007 3,93,800 USA internet use-pilot testing of BPO Ajira Technologies Inc, Purchase of software License- 07.02.2008 22,12,023 USA internet use-pilot testing of BPO Total 1,52,15,205
15. The assessee was found to have defaulted in not deducting tax at source out of such payments and the Assessing Officer held the assessee to have defaulted under section 201(1) and further interest was charged under section 7 ITA Nos.1172 to 1174/PN/2013 iGATE Computers Systems Ltd 201(1A) of the Act. The plea of the assessee that it had purchased software which was akin to purchase goods and does not fall within the category of royalty or technical know-how, was rejected by the Assessing Officer. As per the Assessing Officer, the amounts paid fell within the definition of royalty or technical know-how and it was also held that these payments were taxable under DTAA. The case of the assessee before us was that when the payments were made for the under-mentioned purposes, there was no liability to deduct tax at source:-
i) Purchase or license of computer software
ii) Annual maintenance charges
iii) Fees for accessing data base
iv) Training and implementing charges
v) Purchase of computer parts or hardware
16. The Finance Act, 2012 had amended the provisions of section 9 of the Act by way of Explanation 4, with retrospective effect from 01.06.1976 and the payments made for acquiring license of software has been made taxable under the Income-tax Act. The issue arising before us is limited to the aspect that in such circumstances, can the assessee be held to be in default for non-deduction of tax at source relying on the subsequent amendments made in the Act with retrospective effect?
17. We find that Mumbai Bench of the Tribunal in New Bombay Park Hotel Pvt. Ltd. Vs. ITO (Intr. Taxation) (supra) has held as under:-
"If the entire services rendered by the foreign company to the assesses in respect of phase one and two outside India, then the same cannot become chargeable to tax in the hands of the foreign company in India. Unless the amount paid by the assessee company to the foreign company does not become chargeable to tax in India then the question of applicability of section 195 does not arise. Therefore, without considering the amendment brought into the statute by Finance Act 20I2 with retrospective effect from 01.06.1976 it has to be held that there was no liability of the assessee to deduct tax at source on the payment made by it with respect to work relating to phase one and two. Further the assessee cannot be held to be liable to deduct tax at source relying on the subsequent amendments made in the Act with retrospective effect. The Tribunal based its decision on a legal Maxim lex non cogit ad impossiblia meaning thereby that the law cannot possibly compel a person to do something which is impossible to perform. Amendment brought into the statute by Finance Act 2012 with retrospective effect from 01.06.1976 amendment does not create any liability against the assessee as the legal 8 ITA Nos.1172 to 1174/PN/2013 iGATE Computers Systems Ltd position prevailing at the relevant time was to be considered. Assesses was not liable for deduction of tax under section 195 of the Act. Channel Guide India Ltd. vs. ACIT, 139 ITD 49, relied on.
Assessee cannot be made liable to deduct TDS on basis of subsequent amendment in respect of payment made to non-resident for providing technical designs and drawings services outside India in relation to project in India."
18. Following the ratio laid down by the Mumbai Bench of the Tribunal in New Bombay Park Hotel Pvt. Ltd. Vs. ITO (Intr. Taxation) (supra), we hold that no liability can be fastened on the assessee to deduct tax at source on the basis of subsequent amendments made in the Act, in relation to earlier payments made to Non-residents, when the said amendment was not in force. We confirm the order of CIT(A) albeit on different grounds. The grounds of appeal raised by the Revenue are thus, dismissed.
19. The facts and issues in ITA Nos.1173 and 1174/PN/2013 are identical to the facts and issues in ITA No.1172/PN/2013 and our decision in ITA No.1172/PN/2013 shall apply mutatis mutandis to ITA Nos.1173 and 1174/PN/2013.
20. In the result, all the appeals of the Revenue are dismissed.
Order pronounced on this 10th day of April, 2015.
Sd/- Sd/-
(G.S. PANNU) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Pune, Dated: 10 th April, 2015.
GCVSR
Copy of the order is forwarded to: -
1) The Assessee;
2) The Department;
3) The CIT(A)-IT/TP, Pune;
4) The CIT-IT/TP, Pune;
5) The DR "A" Bench, I.T.A.T., Pune;
6) Guard File.
By Order
//True Copy//
//True Copy// Assistant Registrar
I.T.A.T., Pune