TaxTMI 
TaxTMI 
2016 (8) TMI 47
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....of customers in the world as goods) purchased from salesforce.com, Singapore on furnishing Form No. 15 CA or 15 CB as Royalty income taxable in India u/s 9(1 )(vi) of the Act is totally bad in law in view of the following judgments: (a) Tata Consultancy Services Vs. State Andhra Pradesh 271 ITR 401 (05.11.2004) (S.C.) (b) Ericsson A.B. and others ( Delhi High Court) (c) Infrasoft Ltd. (ITA 1034/2009) (Delhi High Court) (d) Adit (International Taxation) Hyderabad Vs Batronics India Ltd. ITAT Hyderabad 'A' Bench ITA n 9181 Hyd. 2010 announced on 27.01.2014 (e) Larsen & Tourbo Ltd.- IT AT 'B' Bench Ahmedabad ITA No. 732 (Ahd.) 2013 announced on 13.05.2014 ii) That Treating the Income of the assessee as chargeable to tax in India U/S 195 of the Act is totally bad in law in view of the following judgment: G.E. India Technology Centre (P) Ltd. iii) That applying the amended provisions introduced by Finance Act, 2012 of Explanation 4 to section 9(1)(vi) of the Act which has been made retrospectively w.e.f. 01.06.1976 and Explanation 2 to 195(1) of the Act which has been made retrospectively w.e.f. 01.04.1962 wh....
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....d software called "shrink-wrapped readymade software package" used for carrying on business activities of the assessee. The assessee had submitted that it was standard software which was available in the open market for the customers in the world and it was not a package specifically designed for the assessee. Thus, the assessee had submitted that the payment is covered under Article 12 of the Treaty which clearly exempts the assessee form the liability to deduct tax at source (TDS). Ld. CIT(A) upheld the addition made by the Assessing Officer by relying upon the judgement dated 24.09.2009 of Hon'ble Karnataka High Court in the case of CIT Vs Samsung Electronics Co. Ltd., reported in 320 ITR 209. 3. Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before us now. 4. Ld. A.R. submitted that the issue relating to payment for "shrink-wrapped readymade software package" with deduction of tax at source had been discussed in several cases, and it had been held that such payments do not come under the ambit of royalty and no tax is required to be deducted at source. 4.1 Ld. A.R. submitted that the assessee is covered by Article 5 & 7 of DTAA, whereby any income ....
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....Section 194C casts an obligation to deduct TAS in respect of "any sum paid to any resident". Similarly, Sections 194EE and 194F inter alia provide for deduction of tax in respect of "any amount" referred to in the specified provisions. In none of the provisions we find the expression "sum chargeable under the provisions of the Act", which as stated above, is an expression used only in Section 195(1). Therefore, this Court is required to give meaning and effect to the said expression. It follows, therefore, that the obligation to deduct TAS arises only when there is a sum chargeable under the Act. Section 195(2) is not merely a provision to provide information to the ITO(TDS). It is a provision requiring tax to be deducted at source to be paid to the Revenue by the payer who makes payment to a nonresident. Therefore, Section 195 has to be read in 11 conformity with the charging provisions, i.e., Sections 4, 5 and 9. This reasoning flows from the words "sum chargeable under the provisions of the Act" in Section 195(1). The fact that the Revenue has not obtained any information per se cannot be a ground to construe Section 195 widely so as to require deduction of TAS even in a case wh....
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....efund. Section 237 read with Section 199 implies that only the recipient of the sum, i.e., the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments. The payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words "chargeable under the provisions of the Act" to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when 14 the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, Section 195(2) provides a remedy by which a person may seek a determination of the "appropriate proportion of such sum so chargeable" where a proportion of the sum so chargeable is liable to tax. The entire basis of the Department's contention is based on administrative convenience in support of its interpretation. According to the Department huge....
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.... be open to the AO to disallow such claim for deduction. Similarly, vide Finance Act, 2008, w.e.f. 1.4.2008 sub-Section (6) has been inserted in Section 195 which requires the payer to furnish information relating to payment of any sum in such form and manner as may be prescribed by the Board. This provision is brought into force only from 1.4.2008. It will not apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage. Applicability of the judgment in the case of Transmission Corporation (supra) In Transmission Corporation case (supra) a nonresident had entered into a composite contract with the resident party making the payments. The said composite contract not only comprised supply of plant, machinery and equipment in India, but also comprised the installation and commissioning of the same in India. It was admitted that the erection and commissioning of plant and machinery in India gave rise to income taxable in India. It was, therefore, clear even to the payer that payments required to be made by him to the non-resident included an element of in....
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....n 195(1) which in clear terms lays down that tax at source is deductible only from "sums chargeable" under the provisions of the I.T. Act, i.e., chargeable under Sections 4, 5 and 9 of the I.T. Act." 5. On perusal of the facts before us, it is observed that the assessee has made payment on 09.01.2012 for purchase of software. Admittedly, the assessee had purchased the software for the purpose of its business and the money paid to salesforce.com Singapore PTE Ltd. was the purchase price. Further, it is observed that salesforce.com Singapore PTE Ltd. and assessee are separate independent entities and there has been no evidence brought on record by the authorities below which could reveal that any one of these two entities are dependents on the other, either financially or in any other manner whatsoever. 5.1 It has been further submitted by Ld. A.R. that the Shrink Wrapped Readymade Software has been considered as goods or article vide a judgement of Hon'ble Supreme Court in the case of Tata Consultancy Services Vs State of Andhra Pradesh reported in 271 ITR 401. 5.2 Further it is observed that Explanation (4) to Section 9(1)(vi) has been inserted to include any such paym....