TaxTMI 
TaxTMI 
2009 (9) TMI 526
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....NO 2808/05, ITA NO 2809/05, ITA NO 2810/05, ITA NO 2911/05, ITA NO 2988/05, ITA NO 2989/05, ITA NO 2991/05, ITA NO 3075/05, ITA NO 3076/05, ITA NO 3077/05, ITA NO 3078/05, ITA NO 3079/05, ITA NO 3080/05, ITA NO 503/09, ITA NO 532/09, ITA NO 533/09, ITA NO 542/09, ITA NO 543/09, ITA NO 548/09, ITA NO 549/09, ITA NO 551/09, ITA NO 552/09, ITA NO 556/09, ITA NO 557/09, ITA NO 575/09, ITA NO 576/09, ITA NO 579/09, ITA NO 580/09, ITA NO 584/09, ITA NO 585/09, ITA NO 594/09, ITA NO 595/09, ITA NO 604/09, ITA NO 605/09, ITA NO 606/06, ITA NO 609/06, ITA NO 610/06, ITA NO 610/09, ITA NO 611/06, ITA NO 611/09, ITA NO 612/06, ITA NO 613/09, ITA NO 650/09, ITA NO 656/09, ITA NO 657/09, ITA NO 682/09, ITA NO 737/07, ITA NO 738/07, ITA NO 739/07, ITA NO 740/07, ITA NO 741/07, ITA NO 745/07, ITA NO 747/07, ITA NO 77/07, ITA NO 777/07, ITA NO 780/07, ITA NO 782/07, ITA NO 785/07, ITA NO 786/07, ITA NO 787/07, ITA NO 919/09, ITA NO 921/07, ITA NO 94/07, ITA NO 953/07 Judgment: Shylendra Kumar J.- The above appeals are all by the Revenue directed against orders passed by the Income-tax Appellate Tribunal, Bangalore Bench, whereunder the Tribunal had allowed the appeals filed by different r....
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..... 4. It will be productive to know the facts at least in the leading case to appreciate the legal contentions that have been raised in all these appeals and for such purpose it is useful to borrow the facts as noticed by the Tribunal itself in the present case and that is as under (page 4): "The fact involved in the present case is that the assessee is a branch of Samsung Electronics Company Limited, Korea, engaged in the development, manufacture and export of software for use by its parent company, i.e., Samsung Electronics Co., Ltd., Korea. The assessee develops various kinds of software for telecommunication system for office appliances, for computer systems and for mobile devices, etc. The software developed by the assessee is for in-house use by the parent company. In the assessment year 1999-2000, the assessee imported software products of Rs. 2,28,960 from Tektronix Inc., USA. Similarly, during the other two years, it imported software product, namely, Telelogic Tau TTCN Suite, are readily available software in the market. Hence, payment made to the foreign companies cannot be treated as royalty, as per the provision of section 9(1)(vi) read with the Double Taxation Av....
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....oes out of the purview of "royalty" as defined in terms of section 9(1)(vi) of the Act on the principle that when there is an inconsistency between the provisions of an international Agreement and the provisions of the Act, it is the provisions of the Agreement that have to prevail and, therefore, the conclusion of the original authority and the first appellate authority that it is royalty and, therefore, income is fallacious and not sustainable. 7. Learned counsel for the assessees have contended in these appeals that the nature of payment is not "royalty" even within the meaning and scope of section 9(1)(vi) of the Act for the reason that the non-resident supplier has sold only a copyrighted article and not the copyright itself and on the authority of the decision of the Supreme Court in the case of Tata Consultancy Services v. State of Andhra Pradesh reported in [2004] 271 ITR 401, the payment being in respect of goods, it is not payment in the nature of "royalty" and at the best the payment can have the character of a payment made to a non-resident by a resident-assessee for purchase of some articles/goods in connection with the carrying on of the business of the resident-as....
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....f receipt of section 201 notices/orders, have objected to the legality of raising and enforcing such a demand on the premise that ultimately the payment/ remittance by the payer in India did not result in transforming itself into a receipt bearing the character of income chargeable to tax under the provisions of the Act, under the heads of income other than the head "Salaries" . 11. A few other variations are, such assessees contend, that there had been no obligation on their part to deduct any amount in the payments as they were fully and bona fide satisfied that the amount was not at all taxable in the hands of the non-resident in India and, therefore, had not chosen to apply for any relief or concession in terms of the provisions of section 195(2) and (3) of the Act and in such cases, nevertheless, being called upon to pay the amount by issue of a notice under section 201 of the Act by treating the assessee as a defaulter and in such cases the assessee having filed an appeal against the order of demand issued under section 201 of the Act by invoking the provisions of section 246(1)(i) of the Act and a further appeal to the Tribunal under section 253 of the Act wherein they su....
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....sting in the present case and, therefore, the Tribunal was bound to have recorded an independent finding and, therefore, the impugned order is perverse ? 4. Whether the Tribunal based on the fact that the assessee has imported software from Aaymetrix Asia Pacific, Singapore; Peritus Software Service Inc., USA and Astral Computers Pvt. Ltd., Singapore on payment of Rs. 3,43,095, Rs. 47,89,419 and Rs. 8,89,611 was bound to have taken into consideration the ruling of the Advance Rulings Authority P. No. 30 of 1999, In re [1999] 238 ITR 296 (AAR); the Double Taxation Avoidance Agreement Between India and USA and India and Singapore, provisions of section 9(1)(vi) of the Income-tax Act; Indian Copyright Act, 1957, the revised entry on article 12 of OECD; the Internal Revenue Service Regulation of the USA; the views of the High Powered Committee on e-Commerce and other facts and circumstances of the present case which could have clearly shown that the payments made by the assessee was liable to tax in India and consequently the assessee was bound to deduct tax at source ? 5. Whether the Tribunal should have recorded a finding that it is under section 195(2) and (3) and (4) of the A....
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....1264 of 2006, 1265 of 2006, Sri G. Sarangan, learned senior counsel appears for Smt. Vani, learned counsel for the respondents-assessees in I. T. A. Nos. 2988 of 2005, 2989 of 2005 connected with I. T. A. No. 2991 of 2005, I. T. A. No. 3075 of 2005 connected with I. T. A. Nos. 3076 of 2005, 3077 of 2005, 3078 of 2005, 3079 of 2005 and 3080 of 2005, I. T. A. No. 266 of 2006 connected with I. T. A. No. 265 of 2006, I. T. A. No. 610 of 2006, I. T. A. No. 611 of 2006 connected with I. T. A. No. 609 of 2006. I. T. A. No. 612 of 2006, I. T. A. No. 1055 of 2006 connected with I. T. A. Nos. 1056 of 2006, 1067 of 2006, 1053 of 2006, Sri R. B. Krishna learned counsel appears for the respondents-assessees in I. T. A. No. 2911 of 2005, Sri S. Ganesh, learned senior counsel appearing for M/s. Universal Legal, counsel for the respondents-assessee in I. T. A. No. 1258 of 2006, I. T. A. No. 1268 of 2006 connected with I. T. A. No. 1269 of 2006, 1270 of 2006, Sri S. Parthasarathi, learned counsel appears for the respondents-assessees in I. T. A. Nos. 268 of 2006, 269 of 2006, 270 of 2006. 16. Sri Seshachala contends that the conclusion arrived at by the Assessing Officer that the payment made by....
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....ence the payment made by the respondent company is in the nature of royalty and not outright sale, since the software remains with the transferor. 19. Sri Seshachala would further contend that the advance ruling reported in P. No. 30 of 1999, In re [1999] 238 ITR 296 (AAR) which has been considered by the appellate authority at page 94 of the paper book wherein it is considered by the Advance Rulings Authority with reference to the functioning process, etc., and concluded that such payment amounts to royalty (vide pages 99 and 100). It is contended that it is only deemed income under section 9 of the Act irrespective of the fact whether it is "shrink-wrapped" or "off the shelf/branded software" which requires to be considered and gone into. Sri Seshachala refers to clauses 12 and 13 of the Double Taxation Avoidance Agreement pertaining to the USA, France, Sweden and points out that the contention of the respondent in this regard is two fold: (i) software is "goods" and it does not find a place in the Double Taxation Avoidance Agreement. (ii) Even otherwise the definition under section 12 of the Double Taxation Avoidance Agreement for royalty the word "software" is not m....
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....ther conditions of the Double Taxation Avoidance Agreement are satisfied then it can become income accruing in India and not otherwise. Sri K. P. Kumar relies upon the very decision relied upon by Sri Seshachala and brings to our notice paragraph 8 wherein it is held "application to deduct tax would arise only in the event of chargeable to tax" . Sri Kumar contends that, sale of software is goods and it is a trading receipt thus not chargeable to tax in India. Sri Kumar submits that if a trading receipt arises in India then only it is chargeable to tax and if the payment is made outside India as has been done in the instant case, it will not be liable to tax and as such the respondent company would not be required to deduct the same. Sri Kumar contends if a person is not liable to be charged to tax then the assessee being construed as a person in default under section 200 does not arise. This position the respondent can contend in an appeal before the authorities or the Tribunal as respondent would step into the shoes of the assessee, submits that by reading the entire judgment in Transmission Corporation's case [1999] 239 ITR 587 (SC), it does not restrict the right of the respond....
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....visions of this Act, namely, section 4. Hence, it is contended that once they are outside the purview of chargeability there is absolutely no liability to deduct tax and hence the consequential order passed under section 201 is bad in law. It is contended that the consequences of non-payment are not attracted, if the person has no duty to deduct, as urged. 25. Sri G. Sarangan, senior counsel by relying upon to Transmission Corporation of A. P. Ltd. v. CIT [1999] 239 ITR 587 (SC) and with reference to paragraph 8 of the judgment of the Tribunal which refers to section 195(1), (2), (3) of the Income-tax Act, submits that "any other sum chargeable under the provisions of this Act" would mean that "sum" is chargeable to tax, which could be assessed to tax under the Act; that the consideration would be whether the payment of the "sum" to the non-resident is chargeable to tax under the provisions of the Act or not, submits that if it is taken that the sum is not at all chargeable, what are the consequences is not a question answered in Transmission Corporation of A. P. Ltd.'s case [1999] 239 ITR 587 (SC) because that was not the question that arose for consideration before the court. ....
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....27. The scheme of tax deduction at source applies not only to the amount paid which wholly bears "income" character such as salaries, dividends, interest on securities, etc., but also to gross sums, the whole of which may not be income or profits of the recipient such as payments to contractors and sub-contractors and the payment of insurance commission. It has been contended that the sum which may be required to be paid to the nonresident may only be a trading receipt, and, may contain a fraction of the sum as taxable income. It is true that in some cases a trading receipt may contain a fraction of the sum as taxable income, but in other cases such as interest commission, transfer of rights of patents, goodwill or drawings for plant and machinery and such other transactions, it may contain a large part as taxable income under the provisions of the Act. Whatever may be the position, if the income is from profits and gains of business, it would be computed under the Act as provided at the time of regular assessment. 28. The purpose of sub-section (1) of section 195 is to see that the sum which is chargeable under section 4 of the Act for levy and collection of income-tax, the pay....
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....rth several contentions based on a good number of authorities, both of the Supreme Court and several High Courts, to drive home the points (1) that the payment is not a payment in the nature of a royalty payment; (2) that it is more a payment in the nature of a payment made to acquire a copyrighted article partaking of the character of a payment made to some goods or some merchandize (3) that even assuming for argument' s sake, the payment is to be accepted as a royalty payment under the Income-tax Act, without conceding, even then, in terms of the Double Taxation Avoidance Agreement, it does not retain the character of a royalty payment and as it is an accepted proposition of law that the provisions of the Double Taxation Avoidance Agreement prevail over the provisions of the local laws, viz., the Incometax Act and a deemed definition of royalty in terms of the provisions of the Income-tax Act, particularly as in section 9(1)(vi) of the Income-tax Act are of no consequence and the receipt is not at all an income receipt in the hands of a non-resident recipient; (4) if the payment should acquire the character of a payment for buying merchandize or a product, in the sense, it is a p....
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....f Customs [2000] 116 ELT 6 SC; Punjab National Bank v. R. L. Vaid [2004] 172 ELT 24 (SC); State of Karnataka v. C. Lalitha [2006] 2 SCC 747; Rajendra Singh v. State of U. P. [2007] 7 SCC 378; CCE v. Srikumar Agencies [2008] 232 ELT 577 (SC); Samsung Electronics Co. Ltd. India Software Operations v. ITO (TDS)-I, Bangalore; Tata Consultancy Services v. State of Andhra Pradesh [2004] 271 ITR 401 (SC); Transmission Corporation of A. P. Ltd. v. CIT [1999] 239 ITR 587 (SC); Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC); CIT v. International Data Management Ltd. [2003] 261 ITR 177 (Bom); CIT v. Engineering Analysis Centre of Excellence Pvt. Ltd. (ITA Nos. 2158 and 1270 of 2006); CIT v. Eli Lilly and Co. (India) P. Ltd. [2009] 312 ITR 225 (SC); Director of Income-tax v. Paper Products Ltd. [2002] 257 ITR 1 (Delhi); and CIT v. R. D. Aggarwal and Co. [1965] 56 ITR 20 (SC). 34. These are all appeals under section 260A of the Act. The Income-tax Act is a piece of legislation enacted by Parliament mainly for the purpose of raising revenue to the Central Government and the aim and object is to levy and collect tax on all incomes which co....
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....nue that realization of tax becomes much more difficult when once the income earned has been spent by the assessee, even before the finalization of the tax liability for the assessment year and by the time a demand notice is served following the assessment order, the assessee either may not be left with much funds or may not even be available (in India) for enforcing the tax liability and to get over such situations the framers of the Act have envisaged the scheme of advance payment of tax as indicated in Chapters XV and XVI of the Act providing for an accelerated method of collecting tax, whereunder, some part of the tax liability is recovered in advance at source and remitted to the Income-tax Department which can ensure avoidance of the later lamentation by the Revenue due to the non-availability of the assessee or even due to the non-availability of the assets of the assessee against which the Revenue could have proceeded for recovery of the amount. 39. Under the scheme of the Act and in the wake of the main charging section, i.e., section 4 of the Act in so far as the resident is concerned, all his income, i.e., his global income is taxable in India under the Act. So far as....
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....instance the receipts in the hands of the non-resident supplier/recipient are not at all in the nature of income in the hands of the non-resident suppliers and, therefore, there is no tax liability and that the view taken by the Tribunal is the proper view and no need for interference. 42. A further extension of this argument is to contend that the view taken by the assessing authority and the first appellate authority to the effect that payment is in the nature of a royalty payment to the supplier and, therefore, liability for payment of tax in itself is not available if the receipt in the hands of the non-resident or any part of the amount does not partake of the character of income in the hands of the non-resident in the country of the residence of the non-resident, but if the payment or any part of the payment effected by the resident to a non-resident-assessee is not in the nature of income which has either been deemed to accrue or arise in India, in terms of section 9 of the Act and if there is no actual income earned in India by the non-resident, then also there is no liability on the part of the non-resident for payment, of any tax under the Indian Income-tax Act in resp....
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....rt of the resident payer and consequence of non-deduction of the requisite percentage of the payment at source and not adhering to the requirements of section 195 of the Act is not a matter which is res integra any more but is fully and squarely covered by the judgment of the Supreme Court in the case of Transmission Corporation of A. P. Ltd. v. CIT [1999] 239 ITR 587 (SC). 48. Section 195 of the Act for non-compliance with which obligations as provided in this section, the Revenue had proceeded against the respondents-assessees for recovery in terms of section 201 of the Act. Section 195 of the Act reads as under: "195. Other sums.-(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head ' Salaries' shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: Provided that in the case of interest payable by the Government or a publ....
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....ircumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith." 49. The background to various submissions made by the learned senior counsel appearing for the assessees and as noticed above is to counter the argument of Sri Seshachala, learned senior standing counsel appearing for the Revenue that not only the judgment of the Supreme Court in Transmission Corporation of A. P. Ltd. case [1999] 239 ITR 587 covers the question and against the assessee but also in the wake of the reliance placed by the learned standing counsel for the Revenue on the advance ruling rendered by the Authority for Advance Rulings in the case of ABC, In re as per its order dated April 28, 1999, passed in advance ruling P. No. 30 of 1999, In re which is also reported in [1999] 238 ITR 296 (AAR) in holding that payments of the present nature made to the non-resident recipients who are American companies is fully and squarely covered by this ruling of the advance committee and to get over these two authorities, learned counsel for the assesse....
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....o exercise for determination of the tax liability of the non-resident recipient of the payment. Secondly, the binding nature of the judgment of the Supreme Court in Transmission Corporation of A.P. Ltd.'s case [1999] 239 ITR 587 cannot in any way be diluted or diminished as the Supreme Court being directly involved in the exercise of interpreting the provisions of section 195 of the Act in that case and having interpreted the provisions of section 195 of the Act in the manner in which they have done, such interpretation is the law declared by the Supreme Court and cannot be avoided or wished away by any assessee but at anyrate by any other court in this country including the High Court functioning as an appellate authority under section 260A of the Act, and even if learned senior counsel appearing for the assessees contend to that effect and also that it was not within the knowledge of the assessee, about the so called advance ruling rendered in ABC, In re [1999] 238 ITR 296 answering the questions such as (page 299): "(1) Whether payment due to the applicant under the transaction mentioned in annexure B is liable to tax in India ? (2) If the answer to question No. 1 is in....
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.... be paid to the non-resident is chargeable to tax, tax is required to be deducted. The sum which is to be paid may be income out of different heads of income provided under section 14 of the Act, that is to say, income from salaries, income from house property, profits and gains of business or profession, capital gains and income from other sources. The scheme of tax deduction at source applies not only to the amount paid which wholly bears 'income' character such as salaries, dividends, interest on securities, etc., but also to gross sums, the whole of which may not be income or profit of the recipient, such as payments to contractors and sub-contractors and the payment of insurance commission. It has been contended that the sum which may be required to be paid to the nonresident may only be a trading receipt, and, may contain a fraction of sum as taxable income. It is true that in some cases, a trading receipt may contain a fraction of sum as taxable income, but in other cases such as interest, commission, transfer of rights of patents, goodwill or drawings for plant and machinery and such other transactions, it may contain a large sum as taxable income under the provisions of th....
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....t and came within the ambit of section 18(3B) of the Act. 10. Hence, in our view, there is no substance in the contention of the learned counsel for the appellant that the expression 'any other sum chargeable under the provisions of this Act' would not include cases where any sum payable to the non-resident is a trading receipt which may or may not include 'pure income'. The language of section 195(1) for deduction of income-tax by the payee is clear and unambiguous and casts an obligation to deduct appropriate tax at the rates in force. We make it clear that the learned counsel for the parties have not advanced any submissions with regard to other findings given by the High Court. 11. In this view of the matter, the answer given by the High Court that (i) the assessee who made the payments to the three nonresidents was under obligation to deduct tax at source under section 195 of the Act in respect of the sums paid to them under the contracts entered into; and (ii) the obligation of the respondent-assessee to deduct tax under section 195 is limited only to appropriate proportion of income chargeable under the Act are correct." 53. The interpretation by the Supreme Court b....
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....to whether under section 9 of the Act, any income is deemed to have resulted in the accrual or arisal of income to the non-resident in India, but by simply accepting the operation of the mandate under section 195(1) on every resident payer making a payment to a non-resident recipient in respect of any goods/services supplied by the non-resident, which the resident payer is making use of in the running of its business or any other activity indulged in as part of the business/professional activity of the resident assessee as in such a situation, the payment to the non-resident recipient prima facie bears the character of an income and, therefore, the obligation under sub-section (1) of section 195 springs up. 55. The judgment of the Supreme Court in Transmission Corporation of A.P. Ltd.'s case [1999] 239 ITR 587 is a binding authority for this proposition and there is absolutely no scope for the High Courts even to examine an alternative argument either on the premise that the ruling of the Supreme Court in Transmission Corporation of A. P. Ltd.'s case [1999] 239 ITR 587 is not a binding precedent or on the premise that the said judgment is distinguishable for any other reason for....
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....pinion rendered by the Tribunal on the question answering it in favour of the assessee is of no consequence in law, is not a proper exercise of its appellate powers; an answer of this nature is not binding in law and is necessarily liable to be set aside and the question answered in favour of the Revenue. 58. In this context, an incidental argument was raised though feebly, to the effect that a recovery of the nature as attempted by the Assessing Officer purporting to be for the reason of failure on the part of the assessee to comply with the requirement of section 195(1) of the Act and, therefore, the consequential order under section 201 of the Act cannot sustain the order for the reason that section 201 of the Act does not cover consequential action on the failure of an assessee on non-compliance of the requirements of section 195 of the Act and the provision in turn being linked to section 200 of the Act and section 200 of the Act providing for consequential action only in a situation where any person who has actually deducted the amount in accordance with the preceding statutory provisions enabling for deduction of tax at source and for remittance of the amount to the Reven....
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....the company of which he is the principal officer does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax: Provided that no penalty shall be charged under section 221 from such person, principal officer or company unless the Assessing Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax. (1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that subsection does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at twelve per cent. per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. (2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with th....
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.... 60. The section itself occurs in Chapter XVII of the Act providing for collection and recovery by way of a deduction effected at source of payment and the deduction is in advance, i.e., even before the determination of the actual tax liability of the non-resident foreign company. 61. The amount deducted by the resident who is responsible for making payments to the non-resident is only a provisional or tentative amount which is kept as a buffer for adjusting this amount against the possible tax liability of the non-resident assessee. The amount deducted under section 195 of the Act is not the same as determining the liability of the nonresident assessee for payment of tax under the Income-tax Act, 1961. A non-resident may be or may not be liable to pay any tax. The amount, which is deducted by making payment and which is at a fixed percentage of the amount may be even much more than the actual tax liability of the non-resident company and even may be less than the actual tax liability of the non-resident company in a given case. But these aspects are all not determinative of the actual deduction in terms of section 195(1) of the Act and the rate of deduction is the rates as....
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....ase [1999] 239 ITR 587, the only scope and the manner of reducing the obligation for deduction imposed on a resident payer in terms of section 195(1) of the Act is by the method of invoking the procedure contemplated under sub-section (2) of section 195 of the Act, i.e., only when the person responsible for paying any such sum chargeable under this Act on a nonresident, considers that the whole of such sum would not be income chargeable in the case of the recipient, by making an application to the Assessing Officer to determine by general or special order the appropriate proportion of such sum so chargeable and upon such determination alone, being allowed the liberty of deducting the proportionate sum so chargeable to tax to fulfil the obligation cast under sub-section (1) of section 195 of the Act. 65. In so far as a resident payer who has not admittedly taken any steps nor had made any efforts to have the proportionate amounts so deductible in terms of the determination by the Assessing Officer, i.e., the resident payer who has not filed an application under sub-section (2) of section 195 of the Act cannot, later, after having failed to deduct and remit the amount turn around ....
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....tion of the actual tax liability of the non-resident assessee at the time of the resident payer like the respondents in the present appeals being a premature one for the purpose of actual determination of the tax liability of the non-resident recipient. 67. If one is allowed the liberty of giving a rough and crude comparison to the manner in which the provisions of section 195 of the Act operates on a resident payer who makes payment to a non-resident recipient and if the payment bears the character of a semblance of an income receipt in the hands of the non-resident recipient, then the obligation on the part of the resident payer who makes such a payment to the non-resident recipient is like a guided missile which gets itself attached to the target, the moment, the resident-assessee makes payment to the non-resident recipient and there is no way of the resident payer avoiding the guided missile zeroing in on the resident payer whether by way of contending that the amount does not necessarily result in the receipt of an amount taxable as income in the hands of the non-resident recipient under the Act or even by contending that the non-resident recipient could have possibly avoid....
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.... has clearly committed an error in law in embarking upon to answer the question of the actual tax liability of a non-resident recipient in respect of an amount received by it from a resident payer while examining an appeal at the instance of an assessee complaining of the correctness or otherwise of enforcement of a demand raised in terms of section 201 of the Act even when admittedly the resident payers were not in any way enabled not to deduct any amount or to deduct an amount which is a part of the amount actually liable to be deducted by the resident payer which is the amount to be arrived at, by working out the amount in terms of the provisions of the Finance Act relevant and applicable to the case, providing for the rate/percentage at which the resident payer was required to be deducted from the payment and remit the same to the account of the Revenue as part of the obligation of the resident payer in terms of section 195(1) of the Act. 72. On the lines of reasoning and logic that we have indicated above and on the proper understanding and application of the provisions of section 195 of the Act, as interpreted and declared by the Supreme Court in Transmission Corporation o....
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....ect of the matter. 73. One another reason for our holding that the Assessing Officer, even in a situation where an application is made by the resident payer, under section 195(2) of the Act, for the determination of the proportion of the actual amount being remitted to the non-resident recipient so that the resident payer can deduct only the reduced amount and remit it to the credit of the account of the Revenue and while doing so, i.e., while examining an application under section 195(2) of the Act, the Assessing Officer cannot embark on an exercise as though it is meant to determine the actual tax liability of the non-resident assessee is that if such a situation is permitted to take place and if the income of the non-resident is sought to be assessed in advance, even in the hands of a resident payer, there can arise conflicting decisions and versions, in so far as the tax liability of the non-resident is concerned as even after a determination under section 195(2) of the Act, whereunder the tax liability of the non-resident is determined in the hands of the resident payer and that too prematurely, then the exercise may not be productive as it will be always open to the non-re....
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....ction (1) of section 246A of the Act). 75. An appeal under section 246A(1)(ha) of the Act to the first appellate authority against a demand notice/order under section 201 of the Act cannot serve the purpose of seeking correction of the demand/order on the premise that the receipt in the hands of the non-resident recipient was getting out of the net of taxation under the Income-tax Act, 1961, due to one or the other reason. 76. In all these appeals, there being no dispute nor can there be any dispute regarding the payments made by the resident payers, bearing the character of an income receipt in the hands of the non-residents as the payments whether are in respect of a merchandise, i.e., a payment for buying/purchasing/acquiring a packaged software product and is a commercial transaction or even be in the nature of a royalty payment, as was opined by the Assessing Officers and affirmed in appeals by the first appellate authorities, nevertheless, the payment definitely being in the nature of a payment resulting in some possible income in the hands of the non-resident recipient, the obligation imposed on the resident payers in terms of section 195(1) of the Act springs into ....
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....d from the resident payers figuring as respondents in all these appeals, we answer all other questions relating to the correctness or otherwise of the orders passed by the Tribunal in the negative in favour of the Revenue and against the assessees, allow the appeals, set aside the orders passed by the Tribunal and restore the orders passed by the assessing authorities and affirming orders passed by the first appellate authorities, so far as it relates to confirming the demand raised on all these respondents-assessees in terms of the provisions of section 201 of the Act for the failure of the respondents-assessees to comply with the requirement of section 195(1) of the Act. 80. Accordingly, these appeals are allowed. In I. T. A. Nos. 919 of 2007 and 921 of 2007: 81. While these two batches of appeals had also been heard along with the above appeals, it is noticed that they strike a slightly different note, in the sense, though ultimately the question may be one of the extent and the manner of obligation of a resident payer to deduct an amount at a percentage of the payment made to a non-resident recipient, these matters have reached this court under section 260A of the Act ....
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....ely. 86. We notice that though the registry has assigned one appeal number before this court and the appellants-Revenue has only paid one set of court fee both in I. T. A. Nos. 919 of 2007 and 921 of 2007, i.e., a sum of Rs. 12 on the memorandum of appeal, in reality, these two appeals are batch of appeals against the common order of the Tribunal passed on July 18, 2007, disposing of all the 43 appeals before it and, therefore, the registry should have necessarily assigned 11 numbers of appeals instead of one appeal in I.T. A. No. 919 of 2007 and 31 numbers of appeals instead of I. T. A. No. 921 of 2007 and should have also recovered commensurate court fee from the appellants. Registry is also hereby directed to take such corrective measures in all other appeals, wherein also such situations arise and act for correcting the number of appeals and also for recovering the deficit court fees, which was payable by the appellants. 87. In so far the question of law raised in these appeals are concerned it is one of maintainability of an appeal under section 248 of the Act, by a resident payer/assessee who had in fact deducted the amount in terms of sub-section (1) of section 195 and....
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....t liable to income-tax in India and consequently no TDS as held by the Assessing Officer and confirmed by the Appellate Commissioner needs to have been deducted? Not correct, In the nega tive, against the assessee and in favour of the Revenue 3 Whether the Tribunal was correct in merely following the judgment passed by its in the case of Samsung Elec tronics Co. Ltd. Which has not been accepted by the Revenue and appealed against before this hon'ble court where the facts were not entirely identical to one subsisting in the present case and, therefore, the Tribu nal was bound to have recorded an independent find ing and, therefore, the impugned order is perverse? Definitely wrong, answered in the negative, against the assessee and in favour of the Revenue 4 Whether the Tribunal based on the fact that the assessee has imported software from Aaymetrix Asia Pacific, Singapore; Peritus Software Service Inc., USA and Astral Computers Pvt. Ltd., Singapore, on pay ment of Rs. 3,43,095, Rs. 47,89,419 and Rs. 8,89,611 was bound to have taken into consideration the Rul ing of the Advance Ruling Authority (238 ITR 296); the Double Taxation Avoidance Agreement between India an....