TaxTMI 
TaxTMI 
2016 (6) TMI 889
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....under:- ''1.'The order passed by the Commissioner of Income-tax Appeals ["CIT(A)"] under section 250(6) of the Income-tax Act, 1961 ("Act") confirming the order of the Assessing Officer ("AO") passed under section 201(1)/201(lA) is not in accordance with law, contrary to the facts and circumstances of the present case and is in violation of principles of equity and natural justice. 2. The learned CIT(A) erred in law and on facts by not considering the favorable decision of the Honorable Chennai Tribunal in the assessee's own case for the same assessment year wherein the Honorable Tribunal has held that there was no requirement for the appellant to deduct tax at source under section 195 of the Act and hence, no disallowance is warranted under 40(a)(i) of the Act. 3. The learned CIT(A) and the AO have erred in treating the appellant as an 'assessee in default' within the meaning of section 201(1) of the Act, without appreciating the fact the payments made to the non-residents towards the purchase of software products were not chargeable to tax India under the provisions of the Act and under the applicable tax treaties. Further, the Hon'ble I....
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....se software products to various customers in India. The assessee company case was selected under scrutiny and assessment was completed/sec. 143(3) of the Act by disallowing payments to non-resident company towards purchase of software products u/s.40(a) (i) of the Act. The ld. Assessing Officer disallowed expenditure treated as royalty payments to non-resident companies and the ld. Commissioner of Income Tax (Appeals) has confirmed the order of the ld. Assessing Officer. On further appeal the Tribunal has deleted the addition and passed the order in the year 2014. The present proceedings arise out of order u/s.201(1) and 201(1A) of the Act. The ld. Assessing Officer found that the assessee company purchased software license from M/s. ACI Worldwide Singapore (Pte) Limited, Singapore and M/s.Integrated Research Pvt (Australia) and distributes to various banks in India and received foreign remittances of Rs. 35.78 crores during the financial years 2002-03 to 2009-2010. On examination of the form 15CA, it was found that the assessee company has made foreign remittances to the companies without deducting taxes u/sec. 195 of the Act and survey operations were conducted u/s.133A of the Ac....
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....g addressed to the ld. Assessing Officer on remittances accompanied by a certificate issued by the Chartered Accountant. The ld. Assessing Officer dealt on the provisions of law and the form No. 15CA and 15CB to be obtained from Chartered Accountant alongwith undertaking to be submitted electronically. The ld. Assessing Officer examined in detail the remittances and purchase of software licence from M/s. ACI Worldwide Asia Pte. Ltd Singapore Rs. 14,50,30,104/- and M/s. Integrated Research Pte Ltd, Australia Rs. 2,40,92,877/-. The contention of the Department that in the quantum assessment the said payments are treated as Royalty and assessee company fails to deduct TDS. The ld. Assessing Officer observed that the license to use the software could constitute Royalty and the payments for purchase and use of software are covered u/s.9(1)(vi) of the Act. The ld. Assessing Officer dealt on the provisions of Sec. 9(1)(vi) of the Act in the order and referred to the DTAA between India and Australia in respect of Royalty under Article 12 and also DTAA between India and Singapore for royalty and fees from technical services and as per the wordings of DTTA of both the countries, even conside....
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.... of DTAA and explained that purchase of software does not come within the purview of Royalty and Tribunal in the assessee's own case for the assessment years 2003-04 to 2010- 2011 in ITA Nos.2190 to 2196 & 2199/Mds/2013 dated 5.06.2014 has decided the issue of disallowance u/s.40(a)(i) of the Act in favour of the assessee and is binding on the appellate authority, but the ld. Commissioner of Income Tax (Appeals) deferred on the decision and observe that the provisions of Sec. 40(a)(i) and Sec. 201(1) and 201(1A) of the Act are independent. The ld. Commissioner of Income Tax (Appeals) observed that the payments of Royalty is taxable in the hands of recipient and referred to the provisions of Sec. 9 and Explanations and the assessee is required to deduct TDS u/s.195 of the Act while making foreign remittance for software license which the assessee company has failed to do so and treated as assessee in default as per provisions of sec. 201(1) and 201(1A) and dismissed the assessee's grounds and directed ld. Assessing Officer to verify the other TDS payment and partly allowed the appeal. Aggrieved by the ld. Commissioner of Income Tax (Appeals) order, the assessee filed an appeal befor....
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....sions, the provisions of sec. 40(a)(i) of the Act overrule the contemporary TDS provisions u/s. 201(1) & 201(1A) of the Act. The Co-ordinate Bench of this Tribunal has treated the payments not in the nature of Royalty in ITA Nos.2190 to 2196 & 2199/Mds/2013, dated 5th June, 2014 at page 35, para 47 to 60 of his order observed as under:- '47. We heard the detailed arguments advanced from both sides and perused the judgments and orders and also the notes placed before us on the technical aspects of software. 48. On going through the facts and details of the case before us, we find that the assessee company has entered into agreements with ACI Singapore and IRPL Australia for supply of standard software products, which in turn, are to be sold in India to the customers of the assessee company mainly, Banks and Financial Institutions. The software transmitted to the assessee company is installed on a server with identifying location and machine No. of the customer. As per the terms of agreements, the assessee company do not have any exclusive right to distribute the software products. It obtains orders on its own account for customers in India and thereafter places orders with ....
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....r and selling the same further in Indian market, the consideration paid for such purchase could not be termed as "Royalty". It is held that in order to constitute Royalty, what is contemplated, is a payment that is depending on user of copyright and not a lump sum paid for the acquisition of copyrighted article 51. In the present appeals also, what has been purchased by the assessee from ACI Singapore and IRPL Australia was only copyrighted articles and not copyright, proper. Within the meaning of Indian Copyright Act, 1957, a copyright is an exclusive right to reproduce software including storage of the same in electronic machines with exclusive right to sell it. In the present case, the assessee does not have ownership of the software and does not have right to reproduce the said software. It is in fact only procuring copyrighted software product meant for a particular customer in India. The technical role of the assessee is limited in installing and running the software product in the system of customers in India. Therefore, we find that the assessee is right in its contention that the payments made by the assessee company in the previous year relevant to the assessment....
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....n'ble Delhi High Court in the case of Infrasoft Ltd., 264 CTR 329, really supports the argument of the assessee. In the said decision, even after the amendment, the Hon'ble Delhi High Court has held that the amount received by the assesse from a non-resident company for granting license to use copyright software to its own business purposes could not be brought to tax as Royalty under Article 12(3) of Indo-US DTAA. The court observed that where it is a case of mere transfer of right to use copyrighted material like software programme, the consideration paid by the assessee does not give rise to Royalty in the hands of vendees. The judgment of the Hon'ble Delhi high court in the case of infrasoft Ltd. itself supports the view that no change has been brought in sec. 9(1)(vi) by Finance Act, 2012, in the concept of Royalty. 55. The learned Commissioner relied on a recent decision of ITAT, Mumbai Bench, rendered in the case of Reliance Infocom Ltd., 98 DTR (Mumbai)(Trib) 66, wherein the Tribunal has held that the payments made to suppliers for the software can be said to be payments for the use or right to use copyrights and, therefore, such payments amount to Royalty and liab....