Income Tax Appellate Tribunal - Bangalore
Bea Systems Inc.,, Bangalore vs Assessee on 12 June, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCH 'A'
BEFORE SHRI N. BARATHVAJA SANKAR, VICE-PRESIDENT
And
SHRI GEORGE GEORGE K, JUDICIAL MEMBER
ITA No.802/Bang/2011
(Assessment year: 2008-09)
M/s.BEA Systems Inc.
C/o BEA Systems Technology Centre Pvt. Ltd.
7th floor, Commerce@Mantri,
Bannerghatta Road, South Taluk,
Bangalore-76. ... Appellant
PAN: AADCB 0229J
Vs.
Deputy Director of Income-tax
(International Taxation), Circle 1(1),
Bangalore. ... Respondent
AND
ITA No.804/Bang/2011
(Assessment year: 2008-09)
M/s.BEA Systems Inc.
Bangalore. ... Appellant
Vs.
Deputy Director of Income-tax
(International Taxation), Circle 1(1),
Bangalore. ... Respondent
Assessee by: Shri Gaurav Bazoria, CA.
Revenue by : Shri S.K.Anbastha, CIT.
Date of hearing: 12-06-2012.
Date of pronouncement: 12-06-2012.
O R D E R
Per N. BARATHVAJA SANKAR, VP:
These cross appeals by the assessee-M/s. M/s.BEA Systems Inc. Bangalore, and the Revenue are for the assessment year ITA No.802 & 804/Bang/2011 Page 2 of 17 2008-09 and against the appellate order dated 21-7-2011 of the CIT(A)-IV, Bangalore.
2. First let us take up the assessee's appeal. The grounds of appeal relating to royalty read as under:
"i) That the order of the learned Commissioner of Income-tax (Appeals) -IV [referred to as 'learned CIT(A)'] is contrary to the provisions of law and erroneous on the facts of the case and the learned CIT(A) erred in upholding the order of the Deputy Director of Income-tax (International Taxation), Circle 1(1), Bangalore (hereinafter referred to as 'the learned AO').
ii) That on the facts and in the circumstances of the case, the learned C1T(A) erred in not appreciating that the aforesaid receipt of `32,51,18,194 represents merely proceeds on account of distribution of products, and is not for any transfer of intellectual property right contained in the copy right of the software.
iii) That on the facts and in the circumstances of the case, the learned CIT(A) has erred in not appreciating that BEA retains ownership over the copyright in the software and BEA System India does not have any right to commercially exploit the copyright in the software."
3. From the above grounds, it transpires that the only grievance of the assessee relates to the action of the CIT(A) in confirming the view expressed by the AO in holding that the payment of `32,51,18,194/- received from M/s.BEA Systems India Pvt. Ltd. on account of distribution of software product was royalty and hence the assessee was required to deduct tax at source and pay the same to the Government.
3.1. The facts as culled out from records are that the assessee, a non-resident Indian, filed return of income on 22-3-2010 declaring nil income. The said return was taken up for scrutiny and during the course of assessment proceedings, the AO noticed that the assessee was a software company engaged in the business of research, creation of software products and selling the ITA No.802 & 804/Bang/2011 Page 3 of 17 same through its subsidiaries across the world. The products were in the category of middleware products used to provide the infrastructure base for application to elicit information from various database. The assessee entered into an agreement with these subsidiaries wherein the assessee appointed M/s.BEA Systems India as an authorized distributor for BEA Products in the specified territory. According to the assessee, it had been granted non-exclusive non-transferable right to market, sell, distribute and support BEA products in its territory. The assessee had sold the software against the end users order to M/s.BEA Systems India, who in turn, finally sold it to the end users. The AO held that the payment towards 'Shrink wrapped software' constituted royalty payment. It was also held that for charging royalty, whether the assessee had a PE in India or not was not relevant. Hence, the AO charged tax at the rate of 10.56% (including SC & EC) on such royalty payments.
3.2. Aggrieved, the assessee moved the matter in appeal before the first appellate authority and made elaborate submissions. The CIT(A) after considering the assessee's submissions observed that the Hon'ble Supreme Court in the case of GE India Technology Centre vs. CIT (327 ITR 456) has referred the matter back to the Hon'ble Karnataka High Court to decide on the chargeability before concluding that all the payments made to the non-resident require deduction u/s 195 of the Act. The CIT(A) further observed that still in the case of M/s Samsung it was held that payment made towards 'shrink-wrapped software' is liable for withholding tax. The CIT(A) further observed that still in the case ITA No.802 & 804/Bang/2011 Page 4 of 17 of M/s.Samsung Electronics Ltd. & Others it was held that payment made towards 'shrink-wrapped software' was liable for withholding tax. The CIT(A) categorically stated that it was obligatory on the part of the lower authorities to follow the order of the jurisdictional High Court unless said judgment is reversed.
Hence, following the judgment of the jurisdictional High Court in the case of M/s.Samsung Electronics Co. Ltd. & Others, the CIT(A) held that payment made for purchase of 'shrink-wrapped software' by Indian company to the assessee amounted to royalty and the AO was correct in treating the same as royalty. Accordingly, he confirmed the order of the AO. Still aggrieved, the assessee is on second appeal before us with the grounds of appeal extracted elsewhere of this order.
3.3. At the time of hearing, learned counsel for the assessee submitted that the point at issue has already been considered by the Tribunal in the assessee's own case for assessment year 2007-08 in ITA No.543/Bang/2011 dated 13-4- 2012. He also placed a copy of the order on record. By placing the same, he submitted that the Tribunal, for the earlier assessment year has dismissed the assessee's appeal on this issue by following the decision of the jurisdictional High Court in the case of M/s.Samsung Electronics Co. Ltd. & others vs. DCIT. He has also placed on record paper book containing the copy of agreement entered into between BEA Systems Inc. and BEA Systems India Pvt. Ltd., and the submissions made before the CIT(A) and the AO.
ITA No.802 & 804/Bang/2011 Page 5 of 17 3.4 We have also heard the learned Departmental Representative and considered the facts and materials on record including the decision of the Tribunal cited supra. In the order of this Tribunal in the assessee's own case for assessment year 2007- 08, while considering this issue, has held as under:
"10. We have considered the submissions of both the parties and carefully gone through the material available on record. It is noticed that a similar issue having identical facts was subject matter of adjudication before this Bench of the Tribunal in the case of M/s. Samsung Electronics Co. Ltd. & Or. v. DCIT (International Taxation), Circle 2(1), Bangalore in ITA No.299/Bang/2011 for the A.Y. 2005-06 wherein vide order dated 22.03.2012, the issue has been decided against the assessee by following the judgment of the Hon'ble jurisdictional High Court in ITA No.2808/2005 & Ors., order dated 15.10.2011 and the relevant findings are given in paras 7 & 8 of the aforesaid referred to order dated 22.03.2012 which read as under:
"7. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is not in dispute that in assessee's own case, identicle issue has been decided by the Hon'ble jurisdictional High Curt and Their Lordships in the judgment dated 15.10.011 while deciding the ITA No.2808/2005 & Ors.,observed in paras 20 to 25 as under:
"20. Having regard to the above said definition of 'royalty', we have to consider the contents of software license agreement entered into by non-resident with Samsung Electronics and also respondents in the case represented by Sri Ganesh, learned senior counsel and Sri Aravind Dattar, wherein it is a case of purchase, sale or distribution or otherwise of the off-the-shelf software. It is described as a 'software license agreement', wherein it is averred that customer accepts an individual, non-transferable and non-exclusive license to use the licensed software program(s) program(s) on the terms and conditions enumerated in the agreement. It is further averred that the customer - Samsung Electronics shall protect confidential information and shall not remove any copyright, confidentiality or other proprietary rights provided by the non-resident. However, what is granted under the said license is only license to use the software for internal business without having any right for making any alteration or reverse engineering or creating sub-licenses. What is transferred under the said license is the license to use the software and copyright continue to be with the nonresident as per the agreement. Even as per the ITA No.802 & 804/Bang/2011 Page 6 of 17 agreement entered into with the other distributors as also the end-user license agreement, it is clear that the distributor would get exclusive non-transferable license within the territory for which he is appointed and he has got right to distribute via resellers the Software, upon payment of the licenses set forth in Exhibit A to the agreement only to End Users pursuant to a valid Actuate shrinkwrap or other Actuate license agreement and except as expressly set forth in the said agreement, distributor may not rent, lease, loan, sell or otherwise distribute the Software the Documentation or any derivative works based upon the Software or Documentation in whole or in part. Distributor shall not reverse engineer, decompile, or otherwise attempt to derive or modify the source code for the Software. Distributor shall have no rights to the Software other than the rights expressly set forth in the agreement. Distributor shall not modify or copy any part of the Software or Documentation. Distributor may not use sub-distributors for further distribution of the Software and Documentation without the prior consent of Actuate. What is charged is the license fee to be paid by the Distributor of the Software as enumerated in Exhibit A to the agreement. Further, Clause 6.01 of the agreement dealing with title states that the Distributor acknowledges that Actuate and its suppliers retain all right, title and interest in and to the original, and any copies (by whomever produced), of the Software or Documentation and ownership of all patent copyright, trademark, trade secret and other intellectual property rights pertaining thereto, shall be and remain the sole property of Actuate. Distributor shall not be an owner of any copies of, or any interest in, the Software, but rather is licensed pursuant to the Agreement to use and distribute such copies. Actuate represents that it has the right to enter into the Agreement and grant the licenses provided therein and confidentiality is protected. Therefore, on reading the contents of the respective agreement entered into by the respondents with the nonresident, it is clear that under the agreement, what is transferred is only a license to use the copyright belonging to the non-resident subject to the terms and conditions of the agreement as referred to above and the non-resident supplier continues to be the owner of the copyright and all other intellectual property rights. It is well settled that copyright is a negative right. It is an umbrella of many rights and license is granted for making use of the copyright in respect of shrink wrapped software/off-the-shelf software under the respective agreement, which authorizes the end user i.e., the customer to make use of the copyright software contained in the said software, which is purchased off the shelf or imported as shrink wrapped software and the same would amount to transfer of part of the Copyright and transfer of right to use the copyright for internal business as per the terms ITA No.802 & 804/Bang/2011 Page 7 of 17 and conditions of the agreement. Therefore, the contention of the learned senior counsel appearing for the respondents that there is no transfer of copyright or any part thereof under the agreements entered into by the respondent with the nonresident supplier of software cannot be accepted.
21. It is further contended by the learned senior counsel appearing for the respondents that in view of the fact that what is supplied by the non-resident to the respondent in India is only a shrink wrapped software/off-the-shelf software, which is not customized to suit the needs of the respondent, the said software is to be treated as goods and there is sale of the software and copy of the software. Therefore, the question of paying any royalty would not arise. In support of the said contention, the learned senior counsel appearing for the respondents has strongly relied upon the decision of the Hon'ble Supreme Court in Tata Consultancy Services' case (supra) (hereinafter referred to as the TCS's case), wherein the Hon'ble Supreme Court was considering the question as to whether the canned software sold by the appellants can be termed to be "goods" and as such assessable to sales tax under the Andhra Pradesh General Sales Tax Act, 1957. Having regard to the broad definition of 'goods' under Section 2(h) of the said Act and also the provisions of Article 366(12) of the Constitution of India, the Hon'ble Supreme Court was pleased to answer the said question for determination by holding that once the 'information' or 'knowledge' is transformed into physical existence and recorded in physical form, it is corporeal property. The physical recording of the software is not an incorporeal right to be comprehended and accordingly, held that the software marketed by the appellants therein indisputably was canned software and thus, sale of the same would attract the provisions of the Andhra Pradesh General Sales Tax Act, 1957.
22. The question as to whether the payment made for import of software or supply of software by the nonresident Companies was royalty or not was not at all in issue in TCS's case and the question was whether canned software sold by the appellants therein amounted to sale of goods under the Andhra Pradesh General Sales Tax Act. Further, the issue of transfer of right to use the goods as per the expanded definition of 'sale' did not come up for consideration in that case. On the other hand the issue in the present case is as to whether the payment would amount to 'royalty' within the meaning of Income Tax Act and DTTA. In the said TCS's case, it has been held that copyright in computer program may remain with the originator of the program, but, the moment copies are made and marketed, if becomes goods, which are susceptible to tax. The contention of the assessee that the ITA No.802 & 804/Bang/2011 Page 8 of 17 consideration received by the non-resident supplier towards the software products would amount to 'royalty' within the meaning of DTAA with respective country was not at all considered in the said case. Therefore, the said decision in TCS's case is not helpful to the respondents in the present cases. It is well settled that the intent of the legislature in imposing Sales Tax and Income Tax are entirely different as Income Tax is a direct tax and Sales Tax is an Indirect Tax and wherefore, mere finding that the computer software would be included within the term 'Sales Tax' would not preclude this Court from holding that the said payments made by the respondents to the non-resident Company in the present cases would amount to 'royalty' unless the respondents are able to prove that the said payment is for the sale of computer software, wherein the income would be from the business and in the absence of any permanent establishment of the non- resident supplier, there is no obligation on the part of the payee to make deduction under Section 195(1) of the Act.
23. It is well settled that in the absence of any definition of 'copyright' in the Income Tax Act or DTAA with the respective Countries, in view of clause 3 of the DTAA, reference is to be made to the respective law regarding definition of 'Copyright', namely, Copyright Act, 1957, in India, wherein it is clearly stated that "literary work" includes computer programmes, tables and compilations including computer [databases]. Section 16 of the Copyright Act, 1957 states that no person shall be entitled to copyright or any similar right in any work, whether published or unpublished, otherwise than under and in accordance with the provisions of the said Act or of any other law for the time being in force, but nothing in this section shall be construed as abrogating any right or jurisdiction to restrain a breach of trust or confidence. Section 14 of the said Act dealing with meaning of 'Copyright' reads as follows:-
"14. Meaning of Copyright. - For the purposes of this Act, "copyright" means the exclusive right subject to the provisions of this Act, to do or authorize the doing of any of the following acts in respect of a work or any substantial part thereof, namely: -
(a) in the case of a literary, dramatic or musical work, not being a computer programme,-
(i) to reproduce the work in any material form including the storing of it in any medium by electronic means;
(ii) to issue copies of the work to the public not being copies already in circulation;
ITA No.802 & 804/Bang/2011 Page 9 of 17
(iii) to perform the work in public, or communicate it to the public;
(iv) to make any cinematograph film or sound recording in respect of the work;
(v) to make any translation of the work:
(vi) to make any adaptation of the work,
(vii)to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-clauses (i) to (vi);
(b) in the case of a computer programme,-
(i) to do any of the acts specified in clause (a);
(ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme:
Provided that such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental.
(c) in the ease of an artistic work,-
(i) to reproduce the work in any material form including depiction in three dimensions of a two-
dimensional work or in two dimensions of a three- dimensional work;
(ii) to communicate the work to the public:
(iii) to issue copies of the work to the public not being copies already in circulation;
(iv) to include the work in any cinematograph film;
(v) to make any adaptation of the work;
(vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in sub-
clauses (i) to (iv);
(d) in the case of a cinematograph film,-
(i) to make a copy of the film, including a photograph of any image forming part thereof;
(ii) to sell or give on hire, or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions;
(iii) to communicate the film to the public;
(e) in the case of a sound recording,-
(i) to make any other sound recording embodying it;
ITA No.802 & 804/Bang/2011 Page 10 of 17
(ii) to sell or give on hire, on offer for sale or hire, any copy of the sound recording regardless of whether such copy has been sold or given on hire on earlier occasions;
(iii) to communicate the sound recording to the public.
Explanation.- For the purposes of this section, a copy which has been sold once shall be deemed to be a copy already in circulation.
It may also be noted that under Section 51 of the Act dealing with "When Copyright infringed" states that Copyright in a work shall be deemed to be infringed - when any person, without a license granted by the owner of the Copyright or the Registrar of Copyrights under the Act or in contravention of the conditions of a license so granted or of any condition imposed by a competent authority under the Act: does anything, the exclusive right to do which is by the Act conferred upon the owner of the Copyright. Section 52 of the Act dealing with Certain acts not to be infringement of copyright states that the following acts shall not constitute an infringement of copyright, namely-
"xxxx (aa) the making of copies or adaptation of a computer programme by the lawful possessor of a copy of such computer programme, from such copy.
(i) in order to utilize the computer programme for the purpose for which it was supplied; or
(ii) to make back-up copies purely as a temporary protection against loss, destruction or damage in order only to utilize the computer programme for the purpose for which it was supplied."
24. It is clear from the above said provisions of the Copyright Act that the right to copyright work would also constitute exclusive right of the copyright holder and any violation of the said right would amount to infringement under Section 51 of the Act. However, if such copying of computer program is done by a lawful possessor of a copy of such computer programme, the same would not constitute infringement of copyright and wherefore, but for the license granted in these cases to the respondent to make copy of the software contained in shrink-wrapped/off-the-shelf software into the hard disk of the designated computer and to take, a copy for backup purposes, the end user has no other right and the said taking backup would have constituted an infringement, but for the license. Therefore, license is granted for taking copy of the software and to store it ITA No.802 & 804/Bang/2011 Page 11 of 17 in the hard disk and to take a back up copy and right to make a copy itself is a part of the copyright. Therefore, when license to make use of the software by making copy of the same and to store it in the hard disk of the designated computer and to take back up copy of the software, it is clear that what is transferred is right to use the software, an exclusive right, which the owner of the copyright i.e., the respondent-supplier owns and what is transferred is only right to use copy of the software for the Internal business as per the terms and conditions of the agreement. The decision of the Delhi High Court in Dynamic Vertical Software India (P.) Ltd.'s case (supra) relied upon by Sri Aravind Dattar, learned senior counsel appearing for the respondents in some of the cases in support of his contention that by no stretch of imagination, payment made by the respondents to the non-resident suppliers can be treated as 'royalty' is not helpful to the respondents in the present cases as in the said case, Delhi High Court was considering the provisions of Section 40(a)(i) of the Act and the order of the High Court reads as follows :-
"What is found, as a matter of fact, is that the assessee has been purchasing the software from Microsoft and sold it further in Indian market by no stretch of imagination, it would be termed as royalty."
Therefore, the contention of the learned senior counsel appearing for the respondents that there is no transfer of any part of copyright or copyright under the impugned agreements or licenses cannot be accepted. Accordingly, we hold that right to make a copy of the software and use it for internal business by making copy of the same and storing the same in the hard disk of the designated computer and taking back up copy would itself amount to copyright work under Section 14(1) of the Act and license is granted to use the software by making copies, which work, but for the license granted would have constituted infringement of copyright and licensee is in possession of the legal copy of the software under the license. Therefore, the contention of the learned senior counsel appearing for the respondents that there is no transfer of any part of copyright or copyright and transaction only involves sale of copy of the copyright software cannot be accepted. It is also to be noted that what is supplied is the copy of the software of which the respondent-supplier continues to be the owner of the copyright and what is granted under the license is only right to copy the software as per the terms of the agreement, which, but for the license would amount to infringement of copyright and in view of the license granted, the same would not amount to infringement under Section 52 of the Copyright Act as referred to above. Therefore, the amount paid to the non-resident supplier towards ITA No.802 & 804/Bang/2011 Page 12 of 17 supply of shrink-wrapped software, or off-the-shelf software is not the price of the C.D. alone nor software alone nor the price of license granted. This is a combination of all and in substance, unless license is granted permitting the end user to copy and download the software, the dumb C.D. containing the software would not in any way be helpful to the end user as software would become operative only if it is downloaded to the hardware of the designated computer as per the terms and conditions of the agreement and that makes the difference between the computer software and copyright in respect of books or prerecorded music software as book and prerecorded music C.D. can be used once they are purchased, but so far as software stored in dumb C.D. is concerned, the transfer of dumb C.D. by itself would not confer any right upon the end user and the purpose of the C.D. is only to enable the end user to take a copy of the software and to store it in the hard disk of the designated computer if license is granted in that behalf and in the absence of license, the same would amount to infringement of copyright, which is exclusively owned by non-resident suppliers, who would continue to be the proprietor of copyright. Therefore, there is no similarity between the transaction of purchase of the book or prerecorded music C.D. or the C.D. containing software and in view of the same, the Legislature in its wisdom, has treated the literary work like books and other articles separately from 'computer' software within the meaning of the 'Copyright' as referred to above under Section 14 of the Copyright Act.
25. It is also clear from the above said analysis of the DTAA Income Tax Act, Copyright Act that the payment would constitute 'royalty' within the meaning of Article 12(3) of the DTAA and even as per the provisions of 9(1)(vi) of the Act as the definition of 'royalty' under clause 9(1)(vi) of the Act is broader than the definition of 'royalty' under the DTAA as the right that is transferred in the present case is the transfer of copyright including the right to make copy of software for internal business, and payment made in that regard would constitute 'royalty' for imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill as per clause
(iv) of Explanation 2 to Section 9(1)(vi) of the Act. In any view of the matter, in view of the provisions of Section 90 of the Act, agreements with foreign countries DTAA would override the provisions of the Act. Once it is held that payment made by the respondents to the non-resident Companies would amount to 'royalty' within the meaning of Article 12 of the DTAA with the respective country, it is clear that the payment made by the respondents to the non-resident supplier would amount to royalty. In view of the said finding, it is clear that there is obligation on the part of the respondents to ITA No.802 & 804/Bang/2011 Page 13 of 17 deduct tax at source under Section 195 of the Act and consequences would follow as held by the Hon'ble Supreme Court while remanding these appeals to this Court. Accordingly, we answer the substantial question of law in favour of the revenue and against the assessee by holding that on facts and circumstances of the case, the ITAT was not justified in holding that the amount(s) paid by the respondent(s) to the foreign software Suppliers was not 'royalty' and that the same did not give rise to any 'income' taxable in India and wherefore, the respondent(s) were not liable to deduct any tax at source and pass the following Order:-
All the appeals are allowed. The order passed by the Income Tax Appellate Tribunal, Bangalore Bench 'A' impugned in these appeals is set aside and the order passed by the Commissioner of Income Tax (Appeals) confirming the order passed by the Assessing Officer (TDS)-I is restored." (emphasis supplied).
8. From the aforesaid referred to judgment dated 15.10.2011 in ITA No.2808/2005 & Others, it is crystal clear that the issue under consideration has been settled by the Hon'ble jurisdictional High Court in assessee's own case and it has been held that payment made by the assessee to non- resident companies would amount to royalty within the meaning of Article 12 of the DTAA with the respective countries and there was obligation on the part of the assessee to deduct tax at source u/s. 195 of the I.T. Act. We therefore do not see any infirmity in the order of the ld. CIT(A), as such we do not find any merit in this appeal of the assessee."
Since facts in the present case are same with that of the earlier assessment year, following the decision of the Tribunal in ITA No.543/Bang/2011 dated 13-4-2012, we do not see any merit in the grounds of appeal of the assessee and accordingly dismiss the same.
4. The assessee has taken another ground that the AO erred in initiating penalty proceedings u/s 271(1)(c) of the of the Income-
tax Act, 1961 [hereinafter referred to as "the Act"].
4.1. While dealing with this issue, the CIT(A) has stated that this ground taken by the assessee was pre-mature as no prejudice has been caused to the assessee merely by virtue of initiation of ITA No.802 & 804/Bang/2011 Page 14 of 17 penalty u/s 271(1)(c) of the Act and further, as per the provisions of sec.246A of the Act, no appeal shall lie against the initiation of penalty proceedings u/s 271(1)(c) of the Act. Hence, he dismissed this ground of appeal.
4.2. We have heard both the parties and considered the facts and materials on record. We do not find any infirmity in the order of the first appellate authority as there cannot be an appeal against the initiation of penalty proceedings. Hence, we dismiss this ground of appeal of the assessee.
5. The assessee has brought one more issue for adjudication relating to charging of interest u/s 234A of the Act.
5.1. We have heard both the sides and considered the facts and material on record. On this issue, the CIT(A) has held that interest u/s 234A is mandatory and the assessee failed to point out any mistake in the computation of interest u/s 234A of the Act.
Hence, the CIT(A) dismissed this ground of appeal of the assessee also. The assessee has not made its case before us also and as such we do not find any infirmity in the order of the first appellate authority and as such we dismiss this ground of appeal of the assessee
6. Let us now turn to the revenue's appeal (ITA No.804/Bang/2011). The effective grounds of appeal are as under:
"2. The ld.CIT(A) failed to appreciate the decision in the case of Ansaldo Energia SPA vs. ADIT 115 TTJ (Chennai) 942 and the decision of the Hon'ble SC in the case of CIT vs. Anjum M.H.Ghuswalla l& other (252 ITR 1) wherein it was held that the levy of interest u/s 234A, 234B & 234C is mandatory in nature.
3. The ld.CIT(A) erred in directing the AO to delete the interest u/s 234B which defeats the intent and purpose of the ITA No.802 & 804/Bang/2011 Page 15 of 17 provisions contained in section 209(1)(d) of the IT Act, and will nullify the powers of the revenue and is detrimental to the interest of revenue."
6.1. In effect, the revenue is aggrieved against the direction of the CIT(A) to the AO to delete the interest levied u/s 234B of the Act. While completing the assessment the AO charged interest u/s 234A and 234B. The assessee has taken a ground in regard to levy of interest u/s 234A and we have disposed of the same while dealing with the assessee's appeal in paragraph 5.1. Regarding levy of interest u/s 234B, when the assessee took the matter on appeal before the CIT(A), the appellate authority, following various decisions of High Courts and Special Bench of the Tribunal, directed the AO to delete the interest charged u/s 234B of the Act.
The revenue is aggrieved and has come on second appeal before us with this issue.
6.2. At the time of hearing, learned Departmental Representative reiterated the grounds of appeal as his submissions. We have also heard the learned counsel for the assessee who reiterated the contents of the appellate order as his submissions.
6.3. We have heard both sides and considered the facts and material on record. The CIT(A), while giving direction to the AO to delete the interest u/s 234B of the Act observed as under:
"2.3.2. On perusal of the assessment order, it is evident that the Assessing Officer had determined the tax payable at `3,43,32,481/-. It also undisputed fact that out of the tax payable determined by the Assessing officer, the tax was deducted to the extent of `3,25,13,820/- and thus, as per Explanation 1 to sub-section (1) of section 234B of Income-tax Act, 'assessed tax' has been computed by the Assessing Officer at `18,18,661/-. According to sub-section (1) of 234B, the appellant was supposed to pay atleast 90% of such ITA No.802 & 804/Bang/2011 Page 16 of 17 'assessed tax' if it is liable to pay advance tax u/s 208 of the Income tax Act. In this regard, the various decisions relied by the appellant support the argument of the appellant, that if the tax was deductible at source on the income, then the appellant cannot be held liable for default u/s 234B of the Income tax Act. The Hon'ble Bombay High Court in the case of Director of Income Tax (International Taxation) v. Ngc Network Asia LIc 222 CTR (Bom) 86 after analysing the decisions in the case of Motorola Inc. vs. DCIT (96 TTJ 1)(Delhi ITAT)(SB), Sedco Forex International Drilling Inc vs. DCIT (72 ITD 415): CIT vs. Madras Fertilisers Ltd. (149 ITR 703 (1984)(Madras HC); and Commissioner of Income-tax Vs. Daimler Benz A.G.(108 ITR 961)(1997)(Bombay HC): on which the reliance has been placed by the appellant held that 'we are clearly of the opinion that when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the payee assessee.' The Honourable Supreme Court of India dismissed the Special Leave Petition (CC 14161/2010) filed by the Department against the decision of the Honourable Bombay High Court in ITA No.778/2009 in the case of CIT vs. UWE JAROSCH, in which the Hon'ble Bombay High Court following the decision in the case of Ngc Network Asia LIc 222 CTR (Bom) 86 dismissed the appeal of the Department, as per the order dated 17-9-2010. This view has also been upheld by the Honourable Delhi High Court in the case of DIT vs. Jacabs Civil Incorporated (330 ITR
578)(2010)(HC Delhi). Respectfully following the above judicial pronouncements, the Assessing Officer is directed to delete the interest charged u/s 234B of the Income tax Act."
Since the CIT(A) has followed the decision of the Mumbai High Court in the case of Director of Income Tax (International Taxation) v. Ngc Network Asia LIc 222 CTR (Bom) 86, Special Bench of ITAT, New Delhi in the case of Motorola Inc. vs. DCIT (96 TTJ 1)(Delhi ITAT)(SB), Sedco Forex International Drilling Inc vs. DCIT (72 ITD 415): CIT vs. Madras Fertilisers Ltd. (149 ITR 703 (1984)(Madras HC); and CIT Vs. Daimler Benz A.G.(108 ITR
961)(1997)(Bombay HC) and given such a direction, we do not find any infirmity in the order of the first appellate authority and as such we uphold the same for the reasons stated therein. The grounds of appeal of the revenue are dismissed.
ITA No.802 & 804/Bang/2011 Page 17 of 17
7. In the result, both the appeal of the assessee and the appeal of the revenue are dismissed.
Order pronounced in the open court at the end of hearing on 12thJune, 2012.
Sd/- sd/-
(George George K) (N.Barathvaja Sankar)
JUDICIAL MEMBER VICE-PRESIDENT
Eks
Copy to :
1. Appellant
2. Respondent
3. CIT(A) concerned
4. CIT
5. DR, ITAT, Bangalore
6. Guard file
By Order
Senior Private Secretary,
ITAT, Bangalore