2022 (6) TMI 148 - AT - Income Tax

Tribunal affirms CIT (A) on Software License Taxability, AAR Ruling Binding, Appeals Dismissed

EY Global Services Ltd. Versus ACIT, Circle 1 (2) (2), International Taxation, New Delhi

The Tribunal upheld the CIT (A)'s decision regarding the taxability of Software License, Global technology charges, and GWAN connectivity charges. The ... Effect of ruling of Hon’ble AAR - Income taxable in India - Taxability of Software License - ascertaining the taxability in India of the payments received from EYGBS and EYME and for withholding taxes - ruling of Hon’ble AAR - Binding through advance ruling pronounced by the Authority under section 245R - AO referred to the provisions of section 245S of the Income-tax Act for the proposition of binding nature of the order pronounced by Hon’ble AAR, accordingly, rejected the assessee’s pleas by holding that the order of Hon’ble AAR was binding - HELD THAT:- Upon careful consideration, we find ourselves in agreement with the submissions made by the ld. DR for the Revenue. AO has only followed the ruling of AAR in assessee’s own case and as per the provisions of section 245S of the Act, ruling of Hon’ble AAR is binding upon the Revenue authorities. Once it is clear that the Revenue authorities only followed the ruling of Hon’ble AAR in assessee’s own case, no fault can be found in their orders in appellate proceedings. No case has been made out that authorities below have not correctly followed the ruling of Hon’ble AAR. It is also not a case that Hon’ble High Court has reversed the order of Hon’ble AAR. In this view of the matter, we do not find any infirmity in the order of ld. CIT (A), hence we uphold the same. This appeal filed by the assessee stands dismissed. Issues:Appeals against CIT (Appeals) orders for assessment years, Taxability of Software License, Taxability of Global technology charges and GWAN connectivity charges.Analysis:- The appeals were disposed of together since issues were common and connected.- The first issue was the taxability of Software License. The CIT (A) erred in upholding the assessment order, considering the reimbursement of costs as royalty, despite conflicting rulings from various High Courts and the Supreme Court.- The second issue involved the taxability of Global technology charges and GWAN connectivity charges. The CIT (A) failed to consider that these charges were not in the nature of royalty and ignored relevant legal precedents.- The assessee contended that the payments received were mere reimbursements of costs and not taxable under the Act or the Double Taxation Avoidance Agreement. The AAR ruled that software charges were taxable as royalty, leading to the AO's assessment of royalty income.- The CIT (A) dismissed the appeal, stating that the AAR ruling was binding and the matter was pending before the High Court.- The Tribunal upheld the CIT (A)'s decision, citing the binding nature of the AAR ruling under section 245S of the Income-tax Act.This detailed analysis covers the issues involved in the legal judgment, outlining the arguments presented by the parties and the reasoning behind the decisions made at each stage of the appeal process.