2021 (10) TMI 1154 - AT - Income Tax

Court dismisses Revenue's appeal on non-resident payments, no TDS required.

The Deputy Commissioner of Income Tax, Circle 1 (1), Pune. Versus M/s. Ansys Software Pvt. Ltd.

The Deputy Commissioner of Income Tax, Circle 1 (1), Pune. Versus M/s. Ansys Software Pvt. Ltd. - TMI Issues:1. Rectification petition under section 154 of the Income Tax Act regarding the allowance of expenditure.2. Determination of whether TDS was required to be deducted on payments made to non-resident entities.3. Interpretation of the nature of payments made to non-resident entities as royalty or not.Analysis:1. The appeal by the Revenue was based on a rectification petition under section 154 of the Income Tax Act concerning the allowance of expenditure for the assessment year 2005-06. The assessee sought modification of the appellate order, citing the amendment to section 40(a)(ia) of the Act by the Finance Act, 2010, which operated retrospectively from 01.04.2005. The assessee argued that since TDS was remitted before the due date for filing the return, no disallowance under section 40(a)(ia) should be made. The Ld. CIT(Appeals), relying on a judgment of the Hon'ble Karnataka High Court, allowed the expenditure for the relevant assessment years.2. The main issue revolved around whether TDS was required to be deducted by the assessee on payments made to non-resident entities, particularly on payments deemed as royalty under Section 195 of the Act. The Ld. DR highlighted that failure to deduct TDS on such payments could attract provisions of Section 40(a)(i) of the Act. The Tribunal had previously confirmed disallowances under section 40(a)(ia) for the relevant assessment years. However, the Hon'ble Karnataka High Court, in a subsequent appeal, relied on a Supreme Court judgment to rule that the payments made were not in the nature of royalty, absolving the assessee from the obligation to deduct TDS.3. The core issue was resolved by the Hon'ble High Court, affirming that the payments made by the assessee to non-resident entities were not considered royalty, thereby eliminating the requirement for TDS deduction. This decision, based on a Supreme Court ruling, rendered the appeal by the Revenue against the rectification order under section 154 of the Act inconsequential. As the obligation to deduct TDS was negated by the court's decision, the Revenue's appeal was deemed infructuous and subsequently dismissed.This detailed analysis of the judgment highlights the key legal issues involved, the arguments presented by both parties, and the ultimate decision rendered by the appellate tribunal, providing a comprehensive understanding of the case.