TaxTMI 
TaxTMI 
2017 (7) TMI 606
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....the provisions of Section 194J of the IT Act are applicable. Further, the decisions relied upon by the CIT (A) are not pronounced by the jurisdictional courts and the matter is yet to reach finality. 3. On the facts and in the circumstances of the case the learned CIT (A) erred in law in holding that the provisions of Section 41(1) on the disallowance made by the AO on cessation of liability, without appreciating the fact that there was not amount payable to M/s Ruprah Interiors, as claimed by the assessee and it is clear that there was cessation of liability involved. 4. On the facts and in the circumstances of the case in learned CIT (A) erred in law in deleting the disallowance u/s 40(a) of Rs. 6709.94 lacs without appreciating the fact that the assessee had made the payment which comes under the category "payment of royalty" and the assessee was under obligation to make deduction of tax source. 5. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT (A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 6. The appellant craves ....
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....payable to M/s. Rupa Interior and was no longer payable therefore the same was written back in the current year. The Assessing Officer held that it is a case of cessation of liability and accordingly added the said amount of Rs. 3,37,553 in the income of the assessee. On appeal, the assessee submitted before the CIT (Appeals) that this amount was outstanding with reference to the acquisition of capital asset being payment for interior work which was noted in the books of accounts. Therefore this amount was never claimed as expenditure and was writtenback because there was no claim of the said amount form the concerned person. After considering the fact as explained by the assessee, the CIT (Appeals) has deleted the addition made by the Assessing Officer under Section 41(1). 10. Before us, the ld. DR has submitted that the CIT (Appeals) has accepted the submissions of the assessee without verifying the fact that whether this amount was capitalized by the assessee and not claimed as expenditure in the earlier assessment year. Therefore in the absence of examination of the relevant record the finding given by the CIT (Appeals) is based on assumption. 11. On the other hand, the l....
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....ed in respect of the claim of the depreciation. The Assessing Officer accordingly disallowed the depreciation claimed by the assessee in respect of the IPR by invoking the provisions of Section 40(a)(ia) of the Act. 15. On appeal, the CIT (Appeals) deleted the addition by following the decision of the Mumbai Bench of the Tribunal in the case of SKOL Beverages 142 ITD 49 as well as the decision dt.29.1.2010 of Delhi Bench of the Tribunal in the case of SMS Demag Pvt. Ltd. Vs. DCIT in ITA No.3636/Del/2008. 16. Before us, the learned Departmental Representative has submitted that the assessee entered into an agreement with Tally Dubai on 27.1.2009 and purchased IPR. The assessee has purchased the rights in respect of use of trade mark in software etc from Tally Dubai, therefore the payment is in the nature of royalty. Since the assessee has not deducted TDS the provisions of Section 40(a)(ia) are attracted in respect of the claim of depreciation. She has further contended that the assessee vide earlier agreement dt.31.1.2006 sold the same IPR to Dubai which clearly states that all rights, interest, benefits in the software and solutions of TSTL including IPR, trade mark and good....
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....ards the question whether the payment for purchase of IPR in software is in the nature of royalty, we find that this issue is now covered by the decision of Hon'ble jurisdictional High Court in the case of CIT Vs. Samsung Electronics Co. Ltd. (supra) wherein the Hon'ble High Court has held in paras 27 to 30 as under : " 27. The question as to whether the payment made for import of software or supply of software by the non-resident companies was royalty or not was not at all in issue in TCS case (supra) and the question was whether canned software sold by the appellants therein amounted to sale of goods under the Andhra Pradesh General Sales-tax Act. Further, the issue of transfer of right to use the goods as per the expanded definition of 'sale' did not come up for consideration in that case. On the other hand, the issue in the present case is as to whether the payment would amount to 'royalty' within the meaning of IT Act and DTAA. In the said TCS case (supra), it has been held that copyright in computer program may remain with the originator of the program, but, the moment copies are made and marketed, it becomes goods, which are susceptible to ta....
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....ing a computer programme,- (i) to reproduce the work in any material form including the storing of it in any medium by electronic means; (ii) to issue copies of the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound recording in respect of the work; (v) to make any translation of the work; (vi) to make any adaptation of the work; (vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-cls. (i) to (vi); (b) in the case of a computer programme,- (i) to do any of the acts specified in cl. (a); (ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme : Provided that such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental. (c) in the case of an artistic work,- (i) to reproduce the work in any material form including depiction in three dimensi....
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....r damage in order only to utilise the computer programme for the purpose for which it was supplied." 29. It is clear from the abovesaid provisions of the Copyright Act that the right to copyright work would also constitute exclusive right of the copyright holder and any violation of the said right would amount to infringement under s. 51 of the Act. However, if such copying of computer program is done by a lawful possessor of a copy of such computer programme, the same would not constitute infringement of copyright and wherefore, but for the licence granted in these cases to the respondent to make copy of the software contained in shrink wrapped/off-the-shelf software into the hard disk of the designated computer and to take a copy for back up purposes, the end-user has no other right and the said taking back up would have constituted an infringement, but, for the licence. Therefore, licence is granted for taking copy of the software and to store it in the hard disk and to take a back up copy and right to make a copy itself is a part of the copyright. Therefore, when licence to make use of the software by making copy of the same and to store it in the hard disk of the desi....
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....ement, which, but for the licence would amount to infringement of copyright and in view of the licence granted, the same would not amount to infringement under s. 52 of the Copyright Act as referred to above. Therefore, the amount paid to the non-resident supplier towards supply of shrink-wrapped software or off-the-shelf software is not the price of the CD alone nor software alone nor the price of licence granted. This is a combination of all and in substance, unless licence is granted permitting the end user to copy and download the software, the dumb CD containing the software would not in any way be helpful to the end user as software would become operative only if it is downloaded to the hardware of the designated computer as per the terms and conditions of the agreement and that makes the difference between the computer software and copyright in respect of books or pre-recorded music software as book and pre-recorded music CD can be used once they are purchased, but so far as software stored in dumb CD is concerned, the transfer of dumb CD by itself would not confer any right upon the end user and the purpose of the CD is only to enable the end user to take a copy of the soft....
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....paid by the respondent(s) to the foreign software suppliers was not 'royalty' and that the same did not give rise to any 'income' taxable in India and wherefore, the respondent(s) were not liable to deduct any tax at source and pass the following order : All the appeals are allowed. The order passed by the Tribunal, Bangalore Bench 'A' impugned in these appeals is set aside and the order passed by the CIT(A) confirming the order passed by the AO (TDS)-I is restored." Following the decision of the jurisdictional High Court in the case of CIT Vs. Samsung Electronics Co. Ltd. (supra), we hold that the payment for purchase of IPR in software is in the nature of Royalty. 19. As regards the applicability of the provisions of Section 40(a)(ia) of the Act for disallowance of claim of depreciation, we find that when the assessee has capitalised this amount and not claimed as a revenue expenditure then the claim of depreciation cannot be disallowed by invoking the provisions of Section 40(a)(ia) of the Act. This issue has been dealt with by the co-ordinate bench of this Tribunal in the case of SKOL Beverages Ltd. Vs. ACIT (supra) as well as Kawasa....
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....ource and the assessee has capitalized the same in the fixed assets and claimed only depreciation is subjected to the provisions of sec. 40(a)(i) or not ?. We quote the provisions of sec. 40(a)(i) as under: 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",- (a) in the case of any assessee- [(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,- (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under subsection (1) of section 200 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted ....
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.... 16.3 The deduction u/s 32 is not in respect of the amount paid or payable which is subjected to TDS; but is a statutory deduction on an asset which is otherwise eligible for deduction of deprecation. Depreciation is not an outgoing expenditure and therefore, the provisions of sec. 40(a)(i) of the Act are not attracted on such deduction. This view has been fortified by the decision of the Hon'ble Punjab & Haryana High Court in the case of Mark Auto Industries Ltd. (supra) in pars 5 & 6 as under: "5. Adverting to questions (ii) and (iii), the issue which arises for consideration is whether the assessee could be disallowed claim for depreciation under Section 40(a)(i) of the Act on the ground that the payments made for technical knowhow which had been capitalized, no tax deduction at source has been made thereon. The Tribunal while accepting the plea of the assessee, in para 3, had noticed as under: "3. Ground no. 4 is against deletion of an addition of Rs. 6,88,1751- made by the AO on account of deduction of depreciation on technical know-how as the assessee failed to deduct tax in accordance with the provision contained in section 40(a)(i). The finding of th....