2019 (10) TMI 1508 - HC - Income Tax

High Court allows exemption with exceptions in ITA 911/2019 & ITA 817/2019, dismisses Revenue appeals for assessment years 2013-14 & 2015-16.

The High Court allowed the exemption subject to all just exceptions in the cases of ITA 911/2019 and ITA 817/2019 and disposed of the applications ... Income deemed to accrue or arise in India - Taxability of amount received - PE in India - Indo-China DTAA - whether payments made by the assessee’s customers to it constituted royalty, in respect of software supplied? - HELD THAT:- As decided in ZTE Corporation [2017 (1) TMI 1338 - DELHI HIGH COURT] The supplies made (of the software) enabled the use of the hardware sold. It was not disputed that without the software, hardware use was not possible. The mere fact that separate invoicing was done for purchase and other transactions did not imply that it was royalty payment. In such cases, the nomenclature (of license or some other fee) is indeterminate of the true nature. Nor is the circumstance that updates of the software are routinely given to the assessee’s customers. These facts do not detract from the nature of the transaction, which was supply of software, in the nature of articles or goods. This court is also not persuaded with the submission that the payments, if not royalty, amounted to payments for the use of machinery or equipment. Such a submission was never advanced before any of the lower tax authorities; moreover, even in Ericson [2011 (12) TMI 91 - DELHI HIGH COURT] a similar provision existed in the DTAA between India and Sweden. Interest payments and Section 234B is concerned, the court is of the opinion that the issue is covered by GE Packaging (2015 (1) TMI 1168 - DELHI HIGH COURT ). This question of law too is answered against the revenue, and in favour of the assessee. Issues involved:1. Exemption application in ITA 911/2019 and ITA 817/2019.2. Condonation of delay in re-filing application in ITA 911/2019.3. Appeals by Revenue in ITA 911/2019 and ITA 817/2019 regarding assessment years 2013-14 and 2015-16.4. Interpretation of Article 12(3) of the Indo-China Double Taxation Avoidance Agreement (DTAA) and Section 234B of the Income Tax Act, 1961.Exemption Application:The High Court allowed the exemption subject to all just exceptions in the cases of ITA 911/2019 and ITA 817/2019. The applications were disposed of accordingly.Condonation of Delay:In the matter of condonation of delay of 61 days in re-filing the application in ITA 911/2019, the delay was condoned based on the reasons provided in the application. The application was disposed of in light of the condonation.Revenue Appeals and Interpretation of DTAA:The Revenue filed appeals in ITA 911/2019 and ITA 817/2019 concerning assessment years 2013-14 and 2015-16. The High Court had previously considered similar issues in a previous case and rejected appeals by the Revenue. The Court referred to a previous decision regarding the interpretation of Article 12(3) of the DTAA and Section 234B of the Income Tax Act, 1961. The Court reiterated that the facts were similar to a previous case and dismissed the present appeals based on the earlier decision. The Court found no fresh question of law requiring consideration and, therefore, dismissed the appeals.This comprehensive analysis covers the exemption applications, condonation of delay, the Revenue's appeals, and the interpretation of the DTAA and relevant tax provisions as addressed in the judgment delivered by the High Court.