TaxTMI 
TaxTMI 
TaxTMI 
2014 (5) TMI 744
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....ner is not a speaking order as none of the contentions of the Appellant have been dealt with while rejecting them and adjudication has been made solely based on a case law in which facts were different as also Appellant's contentions were not dealt with. It is submitted it be so held now. 2. Learned Commissioner has erred in upholding the learned AO's decision to consider the appellant to be assessee in default u/s.201(1) of the Act and subject to interest u/s.201(1A) of the Act. It is submitted it be so held now. 2.1 Learned Commissioner has erred in disregarding the contentions that appellant has not made payment of any income chargeable to tax in India and therefore the question of deducting tax at source u/s.195 of the Act does't arise. It is submitted it be so held now. 2.2 In the facts and circumstances of the case the payment made by the appellant are of nature of business income in the hands of the recipients and in absence of existence of business connection/Permanent Establishment of the recipients in India the Income is not chargeable to tax in India. It is submitted to be held so now. 3. The learned Commissioner has erred in upholding the order of learned Assessing ....
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....s before the final hearing of appeal. 2. Briefly stated facts of the case are that the AO framed an order u/s.201(1) & 201(1A) r.w.s. 195 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") dated 28/03/2011. While framing the order, the Assessing Officer observed that before making the payments as recorded in his order at page Nos.1, 2 & 3, the assessee was required to deduct the tax u/s.195 of the Act and deposit the same in the Government account as the said payment for purchase of software licence is royalty u/s.9(1)(vi) and payment for annual maintenance contract, technical support, upgrades, bug fixes, enhancement, data transfer & update services, etc., is fee for technical services u/s.9(1)(vii) of the Act. The AO did not accept the contention of the assessee's reply filed on 18/06/2008, which are summarized as under:- "(i) The transactions relate to mainly purchase of standard software license on payment of specified price and none of the software is developed at assessee's instance/request and therefore it is mere purchase of goods and the AMC is also related to purchase of software and these payments are not covered as royalty. (ii) The amount paid ....
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....ainst the order of the ld.CIT(A), the assessee is in further appeal before us. 3. Apropos to Ground Nos.1 & 1.1, the ld.counsel for the assessee submitted that the ld.CIT(A) has decided against the appellant solely o the basis of Karataka High Court decision in the case of CIT vs. Samsug Electronics Co.Ltd. 203 Taxman 477 that even purchase of software amounts to payment of Royalty and hence liable to TDS under the provisions of IT Act. The appellant respectfully submits that thereafter recently Delhi High Court on 22/11/2013 in the case of Director of Income Tax vs. Infrasoft Ltd. reported at 39 Taxman.com 88, (copy of which was filed during the course of hearing before the Hon'ble Tribunal) has specifically dealt with the decision of Samsung Electronics Co.Ltd. and dissented from the view taken therein. Ultimately, it is held by the Delhi High Court that when the assessee purchases a computer software, there is no transfer of copy right or right to use copy right but a limited right to use the copy righted materials does not give rise to any Royalty income. The relevant paras in the decisions are 86 to 99. The Delhi High Court also analyzed the different agreements for purchase ....
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....is liable to TDS. If he believes that such payment is not liable to tax, he is justified in not deducting tax and he cannot be treated as assessee in default u/s.201(1) of the Act and cannot be liable to also interest u/s.201(1A) of the Act. Reliance is placed on following decisions, copies of which are attached with this compilation. (i) Air Canada (Delhi ITAT 88 ITD 545) (ii) HCL Infosystem Ltd. (Delhi ITAT 76 TTJ 505) (iii)Chennai Special Bench - Prasad Products Pvt.Ltd. (125 ITD 263)(SB) 4.1. The ld.counsel for the assessee submitted that the payments are made by the appellant during the year under consideration for purchase of software to various overseas parties and for their upgradation, debugging, maintenance, etc. details of which are given by the learned AO in the assessment order on page No.10, TDS on which as per the AO aggregates to Rs.26,26,105/- and interest u/s.201(1A) comes to Rs.11,35,774/-, thus aggregating to Rs.37,67,879/-. All these payments are made during F.Y. 2007-08 when following decisions ruled the roost in favour of the assessee. Copies placed on record. (i) Delhi Special Bench in the case of Motorola 95 ITD 269 decided on 22/6/2005 (Since the deci....
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....t and hence also does not cover sale of copyrighted article. CIT vs. Davy Ashmore India Ltd. 190 ITR 626. (Relevant pages for DTAA between India & USA at 124 to 158 paper-book II). 6. Apropos to Ground Nos.4, 4.1 & 4.2, the ld.counsel for the assessee submitted that the retrospective amendment in the Act cannot compel a person to do something at an earlier date. This is absolutely impossible of performance. The defionition of Royalty was amended by Finance Act 2010 and 2012 to include in its sweep perhaps the purchase of software retrospectively w.e.f. 1/4/1976 but that does not mean that assessee who acted bona fide on the basis of law as understood in F.Y 2007-08 and did not deduct TDS from such payment should be made to suffer by considering him as assessee in default. The appellant relies on Mumbai ITAT decision in the case of Channel Guide India Ltd. 25 Taxman.com 25, copy of which is attached at page no.74 to 86 of the paper book No.II and also Ahmedabad ITAT decision in the case of Sterling Abbressive Ltd., a copy of which is attached with this compilation at page Nos.324 to 333 as well as Mumbai ITAT decision in the case of New Bombay Park Hotel Pvt.Ltd., a copy of which i....
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..... (pages 101 to 107 of paper-book-II at page No.105 to 107, para 9 to 13) 8. The assessee has placed on record an application praying therein request for admission of the additional evidences. 8.1. For additional evidences, the ld.counsel for the assessee submitted that the appellant has in its paper-book No.III filed on 24/10/2013 with the Registry in which at page No.201 to 206, are the certificates from the overseas suppliers to the effect that they did not have permanent establishment in India with a request letter that the same being additional evidences be admitted as they go to the root of the issue. If the ground No.2 and sub-grounds 2.1 & 2.2 of the appellant that it was not liable to TDS u/s.201(1) and consequently not liable to interest u/s.201(1A) following the contentions mentioned against those grounds is allowed on the ground that the appellant was not liable to deduct TDS due to its bona fide belief that payment for purchase of software is not Royalty, then possible these additional evidences may not be required. However, if the Hon'ble Bench feels that the question whether software sale has to be considered as business income in the hands of payees is to be gone ....
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....ectronics Co.Ltd. vs. ITO (2005) 93 TTJ (Bang) 658 (ITA Nos.264 to 266/Bang/2002, dated 18th Feb., 2005) has recently held that where the software imported which is a shrink wrapped software or off the shelf software, same amounts to purchase of goods and not payment of royalties. The payment is for use of copy rights article and not for acquiring any copy right. This view has been arrived at after considering various decisions on the subject as well as the decision of Hon'ble Supreme Court in Tata Consultancy Services' case (supra). We, accordingly, hold that the payments for import of software do not amount to payment of royalty chargeable under s.9(1)(vi) of the Act. The payments partakes the character of purchase and sale of goods. Actually, the payee has no permanent establishment in India. Hence, it can be concluded that no income is deemed to accrue or arise in India. Accordingly, the provision of s.195 is not applicable to such payment. The assessee therefore cannot be fastened with liability by treating it as in default under s.101 of the Act. We, accordingly, set aside the order under s. 201(1) as well as charging of interest under s.201(1A) of the Act." 10.1. The ld.cou....