Income Tax Appellate Tribunal - Pune
Joint Commissioner Of Income-Tax,, vs Sungard Solution India Pvt. Ltd.,, Pune on 17 May, 2019
आयकर अपीऱीय अधिकरण पण
ु े न्यायपीठ "ए" पण
ु े में
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
सुश्री सुषमा चावऱा, न्याययक सदस्य एवं श्री अयिऱ चतुवेदी, ऱेखा सदस्य के समक्ष
BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM
आयकर अपीऱ सं. / ITA No.1440/PUN/2014
यििाारण वषा / Assessment Year : 2007-08
FIS Solutions (India) Pvt. Ltd.,
Upper Ground Floor to 7th Floor
Westend Centre One
Survey No.169/1, Sector II,
Pune - 411007 .... अऩीऱाथी/Appellant
PAN: AACCA7484M
Vs.
The Dy. Director of Income Tax
(International Taxation)-I, Pune .... प्रत्यथी / Respondent
आयकर अपीऱ सं. / ITA No.1080/PUN/2015
यििाारण वषा / Assessment Year : 2007-08
The Jt. Commissioner of Income Tax
(International Taxation), Pune .... अऩीऱाथी/Appellant
Vs.
FIS Solutions (India) Pvt. Ltd.,
Upper Ground Floor to 7th Floor
Westend Centre One
Survey No.169/1, Sector II,
Pune - 411007 .... प्रत्यथी / Respondent
PAN: AACCA7484M
Assessee by : Shri Saubhagya Agarwal
Revenue by : Shri Sanjeev Ghei
सन
ु वाई की तारीख / घोषणा की तारीख /
Date of Hearing : 25.04.2019 Date of Pronouncement: 17.05.2019
2 ITA No.1440/PUN/2014
ITA No.1080/PUN/2015
आदे श / ORDER
PER SUSHMA CHOWLA, JM:
The appeals filed by assessee and Revenue are against separate orders of CIT(A)-IT/TP, Pune, dated 08.05.2014 and CIT(A)-13, Pune, dated 20.05.2015 relating to same assessment year 2007-08 against respective orders passed under section 201(1) & 201(1A) and 271C of the Income-tax Act, 1961 (in short 'the Act').
2. Both the appeals filed by assessee and Revenue relating to same assessee were heard together and are being disposed of by this consolidated order for the sake of convenience.
3. The assessee in ITA No.1440/PUN/2014 has raised the following grounds of appeal:-
1. On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) - IT / TP ['the learned CIT(A)'] erred in treating the payments for software licenses fees (as 'Royalty' as per Section 9(1)(vi) of the Income-tax Act, 1961 ('the Act') a. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that computer software can be considered as literary work under the Copyright Act, 1957.
b. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that computer software can also be termed as scientific work.
c. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that the licensed software qualifies as secret formula or process.
2. On the facts and circumstances of the case and in law, the learned CIT(A) erred to appreciate that the software payment made by the appellant does not fall within the meaning of the term 'Royalty' as per respective Double Taxation Avoidance Agreements ('DTAA'). 3 ITA No.1440/PUN/2014 ITA No.1080/PUN/2015
3. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not providing relief under the beneficial provisions of India - USA and India - Singapore DTAA under section 90(2) of the Act for determining the scope of income chargeable under the head 'Royalties' and tax rate at which income is taxable in India.
4. On the facts and circumstances of the case and in law, the learned CIT(A) failed to appreciate the difference between right to use a copyright in software and sale of copyrighted article (viz. software) and erred in concluding that payment made for purchase of software for trading purposes is 'right to use' and hence taxable as 'Royalty".
5. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in treating the retrospective amendment to Section 9(1)(vi) vide Finance Act 2012 as clarificatory in nature and that the amendment has not created a new charge of withholding tax with a retrospective effect.
6. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding the appellant as 'assessee in default' under Section 201(1) of the Act for not deducting the tax under section 195 of the Act on the payments made for purchase of software and determining the total tax liability of Rs.2,264,484 (including interest of Rs.974,224) under section 201(1A) of the Act.
The Appellant submits that each of the above grounds of appeal are independent and without prejudice to one another.
4. The assessee has also filed additional grounds of appeal, which read as under:-
"6. On the facts and circumstances of the case and in law, the learned Deputy Director of Income Tax (International Taxation)-I, Pune [„the learned AO'] erred in initiating proceedings under section 201(1) read with section 201(1A) of the Act beyond the reasonable period of four years.
7. On the facts and circumstances of the case and in law, the learned AO erred in applying the tax rate of 15% under India - USA Tax Treaty instead of the applicable beneficial rate of 10% (plus applicable surcharge and cess) under the Act while computing the tax demand pursuant to the order passed under section 201(1) read with section 201(1A).
The Appellant submits that each of the above additional grounds of appeal are independent of and without prejudice to one another.
5. The Revenue in ITA No.1080/PUN/2015 has raised the following grounds of appeal:-
4 ITA No.1440/PUN/2014ITA No.1080/PUN/2015
1. On the facts and circumstances of this case, the Ld. CIT(A) erred in holding that no penalty u/s 271C is leviable.
2. On the facts and circumstances of this case, the Ld. CIT(A) erred in holding that no penalty u/s 271C is leviable despite holding that tax and interest u/s 201(1) and 201(1A) was correctly levied by the AO.
3. On the facts and circumstances of this case, the Ld. CIT(A) erred in applying the provisions of section 273B despite the fact that the recourse was available to the assessee u/s 248 of the Act.
6. First, we take up the appeal in ITA No.1440/PUN/2014. The issue raised in the present appeal is against orders of authorities below in treating the payment for software license fees as royalty as per section 9(1)(vi) of the Act and also as per DTAA agreement.
7. The learned Authorized Representative for the assessee at the outset pointed out that additional grounds of appeal are not pressed and hence, the same are dismissed as not pressed.
8. The learned Authorized Representative for the assessee pointed out that the assessee had entered into an End-user agreement with the suppliers and the Assessing Officer was of the view that it is case of payment of royalty since the use of software was in secret process. The Assessing Officer held the case of assessee to be covered under Income Tax Act and also under DTAA, in turn, relying on the ratio laid down by the Hon'ble High Court of Karnataka in CIT Vs. M/s. Samsung Electronics Co. Ltd. in ITA No.2808 of 2005, dated 15.10.2011. He took us through various paras of assessment order. He further pointed out that the issue raised in the present appeal is squarely covered by the order of Tribunal in John Deere India Pvt. Ltd. Vs. DDIT (IT) (2019) 70 ITR (Trib) 73 (Pune).
5 ITA No.1440/PUN/2014ITA No.1080/PUN/2015
9. The learned Departmental Representative for the Revenue placed reliance on the orders of authorities below.
10. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is against non-deduction of tax at source out of payments made for software purchased by assessee. The case of assessee is that it is across counter purchase, wherein the assessee does not acquire any copyright but it purchased copyrighted article for its application purposes. The plea of assessee that it had only acquired license for use of shrink wrapped software or off-shelf software, was not accepted by the Assessing Officer. The Assessing Officer relied on various decisions of AARs and the Hon'ble High Court of Karnataka in CIT Vs. M/s. Samsung Electronics Co. Ltd. (supra) and CIT Vs. Synopsis International Old Ltd. in ITA Nos.11 to 15/2008 & 17/2008, dated 03.08.2010 and held that payment made for supply of software was taxable as royalty both under the Income Tax Act and DTAA. The CIT(A) in turn, relied on the ratio laid down by Pune Bench of Tribunal in the case of Cummins Inc for assessment years 2004-05 and 2006-07 in ITA Nos.73 & 74/PN/2011, order dated 08.08.2013 and the decision of Mumbai Bench of Tribunal in DDIT Vs. Reliance Infocom / Luscent Technologies (TS-433-ITAT- 2013(Mum) and held that the assessee was required to deduct tax out of such payments made for acquiring software.
11. We find that the said issue has been elaborately considered by us in the recent decision of Pune Bench of Tribunal in John Deere India Pvt. Ltd. Vs. DDIT (IT) (supra), wherein it was held as under:-
6 ITA No.1440/PUN/2014ITA No.1080/PUN/2015
"90. In conclusion, we hold that purchase of software by the assessee being copyrighted article is not covered by the term „royalty‟ under section 9(1)(vi) of the Act. Where the assessee did not acquire any copyright in the software, is not covered under Explanation 2 to section 9(1)(vi) of the Act. We further hold that amended definition of „royalty‟ under the domestic law cannot be extended to the definition of „royalty‟ under DTAA, where the term „royalty‟ originally defined has not been amended. As per definition of „royalty‟ under DTAA, it is payment received in consideration for use or right to use any copyright of literary, artistic or scientific work, etc.; thus, purchase of copyrighted article does not fall in realm of „royalty‟. We also hold that since the provisions of DTAA overrides the provisions of Income Tax Act and are more beneficial and the definition of „royalty‟ having not undergone any amendment in DTAA, the assessee was not liable to deduct tax for payments made for purchase of software. In such scenario, the assessee cannot be held to be in default and the demand created under section 201(1) and interest charged under section 201(1A) of the Act is thus, cancelled."
12. Following the same parity of reasoning, we hold that there is no merit in the orders of authorities below where the assessee has purchased shrink wrap software or off-shelf software, which is copyrighted article and not purchased any copyright and hence the same is not liable to deduct tax at source under section 197 of the Act. Hence, the assessee cannot be held to be liable for non deduction of tax under section 201(1) of the Act and interest charged under section 201(1A) of the Act. We thus, direct the Assessing Officer to delete demand created under section 201(1) of the Act and interest charged under section 201(1A) of the Act. The grounds of appeal raised by assessee are thus, allowed.
13. Now, coming to ITA No.1080/PUN/2015, wherein penalty under section 271C of the Act for such non deduction of tax at source out of payment made for purchase of royalty, was deleted by the CIT(A), against which the Revenue is in appeal.
7 ITA No.1440/PUN/2014ITA No.1080/PUN/2015
14. We have already held that the assessee has not defaulted in non deduction of tax at source in the paras hereinabove and hence, the assessee is not liable for any penalty under section 271C of the Act. The grounds of appeal raised by Revenue are thus, dismissed.
15. In the result, the appeal of assessee is allowed and appeal of Revenue is dismissed.
Order pronounced on this 17th day of May, 2019.
Sd/- Sd/-
(ANIL CHATURVEDI) (SUSHMA CHOWLA)
ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER
ऩण
ु े / Pune; ददनाांक Dated : 17th May, 2019.
GCVSR
आदे श की प्रयतलऱपप अग्रेपषत/Copy of the Order is forwarded to :
1. अऩीऱाथी / The Appellant;
2. प्रत्यथी / The Respondent;
3. आयकर आयुक्त(अऩीऱ) / The CIT(A)-IT/TP, Pune;
4. The DIT (TP/IT), Pune;
5. ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, ऩुणे "ए" / DR 'A', ITAT, Pune;
6. गार्ड पाईऱ / Guard file.
ु ार/ BY ORDER, आदे शािस सत्यावऩत प्रतत //True Copy// वररष्ठ तनजी सधिव / Sr. Private Secretary आयकर अऩीऱीय अधधकरण ,ऩण ु े / ITAT, Pune