2017 (10) TMI 1472 - AT - Income Tax

Tribunal ruling on software license payments as royalty under sec. 9(1)(iv)

The tribunal upheld the order of CIT (A) regarding the jurisdiction of the Assessing Officer and the treatment of payments for software licenses as ... Tax deduction at source - royalty - assessee in default - interest for failure to deduct tax - in the context of section 195 - binding effect of High Court precedentTax deduction at source - royalty - assessee in default - interest for failure to deduct tax - binding effect of High Court precedent - in the context of section 195 - Whether payments made for purchase of software licenses constituted royalty attracting obligation to deduct tax at source and consequent assessment of the assessee as an assessee in default with tax and interest liability - HELD THAT: - The tribunal examined earlier Karnataka High Court decisions relied upon by the assessee and found the two Wipro judgments cited were not on the question whether the imported software payments constituted royalty. The first Wipro decision dated 25.08.2010 addressed whether imported software was capital expenditure and not the royalty characterization; the later Wipro judgment of 25.03.2015 merely relied on that earlier decision and therefore did not decide the royalty/TDS question relevant here. By contrast, the tribunal held that the issue before it was covered against the assessee by the Karnataka High Court judgment in CIT vs. Samsung Electronics Co. Ltd., which dealt with the obligation to deduct tax in the section 195 context. As the Wipro authorities relied on by the assessee were not apposite to the specific question of characterization as royalty and the obligation to deduct, the tribunal respectfully followed the Samsung High Court decision and declined to interfere with the CIT(A)'s conclusion treating the assessee as an assessee in default and upholding the tax and interest levied. [Paras 4, 5, 6, 7]Assessee treated as assessee in default for failing to deduct tax on software license payments characterised as royalty; tax and interest upheld and appeal dismissed.Final Conclusion: The Tribunal, applying the Karnataka High Court decision in CIT vs. Samsung Electronics Co. Ltd., dismissed the appeal and upheld the finding that payments for imported software licenses amounted to royalty attracting TDS obligation, with the consequent tax and interest liability sustained. Issues involved:1. Jurisdiction of Assessing Officer and CIT (A) in passing the order.2. Treatment of payments for software licenses as royalty payments under sec. 9(1)(iv) and non-deduction of tax at source.3. Calculation of tax and interest on the payments made by the appellant.4. Consideration of Double Taxation Avoidance Agreements.5. Applicability of case laws and judicial precedents to the facts of the case.Jurisdiction of Assessing Officer and CIT (A):The appellant contended that the Assessing Officer and CIT (A) erred in passing the order without jurisdiction, leading to it being bad in law. The appellant argued that the conclusions drawn were erroneous and not tenable in law. The tribunal examined the grounds raised and considered the submissions made by both parties. The tribunal found that the judgment of Hon'ble Karnataka High Court in a similar case favored the revenue, and since no other argument was presented to counter this, the tribunal declined to interfere in the order of CIT (A).Treatment of payments for software licenses and tax deduction:The Assessing Officer treated the appellant as an assessee in default for not deducting tax at source on payments made for software licenses, considering them as royalty payments under sec. 9(1)(iv). The appellant argued against this treatment, stating that there was no liability to deduct tax at source. The tribunal analyzed previous judgments of the Hon'ble Karnataka High Court related to similar issues. The tribunal found that the earlier judgments cited by the appellant were not relevant to the present case, and the judgment in favor of the revenue in the case of CIT vs. Samsung Electronics Co. Ltd. was applicable. Consequently, the tribunal dismissed the appeal filed by the assessee.Calculation of tax and interest:The Assessing Officer calculated tax at 10% on the payments and levied interest under sec. 201(1)(A) of the Act. The tribunal examined the facts and circumstances of the case and concluded that there was no liability to deduct tax at source on the payments made by the appellant. Therefore, the levy of tax and interest was deemed bad in law and was deleted.Consideration of Double Taxation Avoidance Agreements:The appellant argued that the authorities below had erred in not considering the provisions of Double Taxation Avoidance Agreements properly. The tribunal did not provide a detailed analysis of this issue in the judgment.Applicability of case laws and judicial precedents:The appellant contended that the case laws and judicial precedents relied upon by the authorities below were not applicable to the facts of the case. The tribunal examined the judgments of the Hon'ble Karnataka High Court in the cases of WIPRO Ltd. vs. DCIT and CIT vs. Samsung Electronics Co. Ltd. The tribunal found that the judgments cited by the appellant were not relevant to the present case, and the judgment in favor of the revenue was followed. As a result, the appeal filed by the assessee was dismissed.This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the tribunal's decision on each issue.