Bombay High Court
The Commissioner Of Income Tax -Ltu ... vs Reliance Industries Ltd on 18 July, 2024
Author: G. S. Kulkarni
Bench: G. S. Kulkarni
Digitally signed
by AARTI
AARTI
2024:BHC-OS:10775
GAJANAN
PALKAR
GAJANAN Date:
PALKAR 2024.07.23
17:37:00
+0530
905-OSITXA-1053-2011.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 1053 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 1054 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 1329 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 1378 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 1330 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 1379 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 1569 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
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WITH
INCOME TAX APPEAL NO. 1649 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 1648 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 1607 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 1608 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 1606 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 1609 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 1605 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
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Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 1604 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 1840 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 2130 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 2131 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 2132 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 2133 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 2134 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
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WITH
INCOME TAX APPEAL NO. 2135 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 2136 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 2126 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 2127 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
WITH
INCOME TAX APPEAL NO. 2128 OF 2011
The Commissioner of Income Tax LTU Mumbai ...Appellant
Versus
Reliance Industries Ltd. ...Respondent
Mr. Subir Kumar, a/w Abhinav Palsikar, Advocates for the
Appellant in ITXA/1053, 1054, 1329, 1378, 1330, 1379, 1569,
1649, 1648, 1608, 1606, 1609, 1604, 1840/2011.
Mr. Suresh Kumar, Advocate for the Appellant in ITXA/2126,
2127, 2128, 2129, 2130, 2131, 2132, 2133, 2134, 2135, 2136/2011.
Mr. Fenil Bhatt, a/w Ashwin Dave, Ketan Dave, Amit Mathur &
P.C. Tripathi, i/b A.S. Dayal & Associates for the Respondent.
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CORAM : G. S. KULKARNI &
SOMASEKHAR SUNDARESAN, JJ.
DATE : JULY 18, 2024 PC :
1. These are a batch of Appeals filed by the Revenue assailing orders passed by the Income Tax Appellate Tribunal ( "Tribunal"), whereby the Appeals which were filed by the Revenue assailing the orders passed by the Commissioner of Income Tax (Appeals) ("CIT(Appeals") came to be dismissed.
2. The Appeals involve a common question of law, which is in regard to the payments which were made by the Respondent-Assessee for obtaining computer software and whether such payments were liable to be taxed in India as royalty under the provisions of Section 9(1)(6) of the Income Tax Act, 1961 ("the Act").
3. Learned Counsel for the parties have drawn our attention to an Order dated 21st June, 2024 passed by this Court in Commissioner of Income Tax-(LTU) Vs. Reliance Industries Ltd.1, which according to the learned counsel for the parties would govern the present proceedings. For the sake of convenience, we note the said order which reads thus :-
"1. We have heard Mr. Suresh Kumar, Learned Counsel for the Appellant-Revenue and Mr. M. Agarwal, Learned Counsel for the Respondent.
2. At the outset, Mr. Suresh Kumar has stated that the Revenue would not have any objection for this Bench taking up the proceedings.
4. This Appeal of the Revenue assails an order dated 14 th July, 2017 passed by Income Tax Appellate Tribunal ("Tribunal"), whereby a batch of appeals filed by the Revenue against the orders 1 Income Tax Appeal No.1655 of 2018 and other connected Appeals.
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5. In its application as filed under Section 195(2) of the Act the assessee raised contentions as to why remittance made to such foreign parties was not liable to be taxed as "royalty", under the provisions of Section 9(1)(vi) of the Act. Such application of the assessee was rejected by an order dated 14th September, 2003 passed by the Deputy Director of Income Tax (International Tax). The assessee carried the matter in appeal before the CIT(A). The appeals filed by the assessee were allowed by the CIT(A), against which at the behest of the Revenue the proceedings reached the Tribunal.
6. In assailing the orders passed by the Tribunal the Revenue has urged the following substantial question of law which we have reframed:-
"Whether the payments made by the assessee for obtaining computer software were liable to be to taxed in India as royalties under the provisions of Section 9(1)(vi) of the Act?"
7. We have heard the Learned Counsel for the parties. We have been taken through the impugned orders passed by the Tribunal.
8. The Tribunal considering the provisions of the IT Act, as also the position in law as laid down in various decisions has observed that the assessee had made purchases of computer software from the residents of Denmark and Finland. It was observed that such purchases would fall within the provisions of the Double Taxation Avoidance Agreement ("DTAA") entered between India and these countries. The Tribunal also observed that a co-ordinate Bench of the Tribunal in the assessee's own case in ITAS No.2529/Mum/2008 and ITAS No.4587/Mum/ 2010 had held that in such cases similar remittances made to the residents of Germany and France, were held to be not liable for deduction of tax at source. The Tribunal, following the decision of its co-ordinate Bench, in assessee's own case, dismissed the appeal filed by the Revenue by the impugned order.
9. At the outset, Learned Counsel for the parties would fairly state that the question of law as raised in the present appeals, is no more res integra in view of the authoritative pronouncement of the Supreme Court in the case of Engineering Analysis Centre of Page 6 of 9 July 18, 2024 Aarti Palkar ::: Uploaded on - 23/07/2024 ::: Downloaded on - 27/07/2024 16:44:31 ::: 905-OSITXA-1053-2011.doc Excellence (P.) Ltd. vs. Commissioner of Income Tax 2. In the said case the Assessing Officer, applying Article 12(3) of the DTAA entered between India and U.S.A. as also the provisions of Section 9(1)(vi) of the IT Act ,to the transaction between the parties, held that the transaction involved copyright, which attracted the payment of royalty and accordingly, tax was required to be deducted at source by the Indian importer. Since this was not done, it was held that the assessee was liable to make good the payment of TDS which it had not deducted. Also interest under Section 201(1)(A) of the Act was levied. The Appeal before the Commissioner was also dismissed.
10. In these circumstances, the proceedings had reached the Tribunal at the instance of the assessee. The assessee succeeded in these proceedings, with the ITAT setting aside the concurrent findings of both the authorities below. On such backdrop, the proceedings reached the High Court.
11. The High Court of Karnataka, in similar proceedings, on examination of the End User Licence Agreement ("EULA") involved in such transactions found that what was sold by way of computer software, including the right or interest in copyright, which gave rise to the payment of royalty, would be an income deemed to have accrued in India under Section 9(1)(vi) requiring deduction of tax at source. The orders passed by the High Court were assailed before the Supreme Court. It is also required to be noted that similar issues had arisen before the Delhi High Court interalia in the case of DIT vs. Ericson A.B. and DIT vs. Nokia Network. The Delhi High Court however took a view contrary to the view taken by the High Court of Karnataka. The Supreme Court examined the issues as arising from the decisions of both the High Courts in the case of Engineering Analysis Centre of Excellence (P.) Ltd (supra). The Supreme Court in its decision rendered in the said case upheld the view taken by the Delhi High Court in interpreting such transactions in the context of Section 9(1)(vi) of the Act. The Supreme Court held that considering the provisions of DTAA, there was no obligation on the persons mentioned in Section 195(1) of the Act to deduct tax at source as the distribution agreements, in the facts of the case did not create any interest or right in such distributors/end users, which amounted to the use or right to use any copyright. It was held that the provisions of Section 9(1)(vi) of the Act along with Explanation 2 and 4 thereof which dealt with royalty, not being more beneficial to the assessee, had no application in the facts of the case. It would be appropriate to extract the conclusion as rendered by the Supreme Court in which reads thus:-
"168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the 2 [2021] 125 taxmann.com 42 (SC) Page 7 of 9 July 18, 2024 Aarti Palkar ::: Uploaded on - 23/07/2024 ::: Downloaded on - 27/07/2024 16:44:31 ::: 905-OSITXA-1053-2011.doc persons mentioned in section 195 of the Income-tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income-tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases.
169. Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income-tax Act were not liable to deduct any TDS under section 195 of the Income-tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment.
170. The appeals from the impugned judgments of the High Court of Karnataka are allowed, and the aforesaid judgments are set aside. The ruling of the AAR in Citrix Systems (AAR) (supra) is set aside. The appeals from the impugned judgments of the High Court of Delhi are dismissed.
(emphasis supplied)
12. It is not in dispute that transactions in the present case are similar to what had fell for consideration of the Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd (supra). Also there is no dispute that there is a DTAA entered with the countries in question, with whose residents the transactions were entered into by the assessee.
13. In the aforesaid circumstances, it is clear that the approach of the Assessing Officer in the present case was against the correct position in law as held by the Tribunal, and now also endorsed by the Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd (supra). In this view of the matter, we are in agreement with Mr. Madhur Agarwal that these four Appeals would not give rise to the question of law as noted by us hereinabove.
14. As fairly pointed out by the learned Counsel for the parties, as the facts are not in dispute as also the DTAA in question applicable we are not discussing the facts involved in each of these Appeals.Page 8 of 9
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14. The Appeals are accordingly dismissed as they do not give rise to any question of law. No costs."
15. Learned Counsel for the parties have also drawn our attention to the subsequent order dated 24 th June, 2024 passed by this Court on a batch of Appeals in Commissioner of Income Tax (LTU) Vs. Reliance Industries Ltd.3, wherein following the earlier order passed by us on 21st June, 2024 (supra), we had dismissed the appeals filed by the revenue on a similar question of law. Thereafter, again a batch of appeals filed by the Revenue was heard by us on 2 nd July, 2024 in Commissioner of Income Tax (LTU) Vs. M/s. Reliance Industries Ltd. 4 on similar question of law, which were also disposed of in terms of our order dated 21st June, 2024, as noted hereinabove.
16. Thus, for the reasons as set out in our order dated 21 st June, 2024 passed in (supra) and other connected Appeals, we find that no substantial question of law arises for consideration in the present Appeals.
17. The Appeals accordingly stand dismissed. No costs.
[ SOMASEKHAR SUNDARESAN, J.] [G. S. KULKARNI, J.] 3 Income Tax Appeal No.28 of 2018 and other connected Appeals. 4 Income Tax Appeal No.571 of 2017 along with connected Appeals.
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