TaxTMI 
TaxTMI 
TaxTMI 
2017 (10) TMI 50
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....peal:- "1. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that payments made by the assessee for purchase of a copyrighted article being software product, cannot be treated as royalty in view of explanation-4 of section 9(1) of the Act and therefore disallowable u/s. 40(a)(i) of the Act as no tax was deducted there from? 2. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the entire guarantee commission is not taxable in the year in which guarantee is given though assessee has spread over the income by treating it as advance guarantee commission received? 3. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the payments made by assessee to its HO in Singapore towards data communication charges and annual Microsof t billing and tru up charges were not in nature of Royalty/FTS but merely in nature of reimbursement. The Ld. CIT(A) af ter having admitted in para 13 of its order that the payment was for right to use of sof tware failed to appreciate that the same could not be in nature of reimburs....
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....der of the CIT(A) had carried the matter in appeal before us. The revenue by way of ground of appeal no.1 had assailed the order of the CIT(A) holding that as the payments made by the assessee for purchase of a copyrighted article being software product, cannot be treated as royalty in view of Explanation 4 of Section 9(1) of the 'Act', therefore, no disallowance u/s 40(a)(i) was called for in the hands of the assessee. The facts pertaining to the issue under consideration are that the assessee had purchased AML license software for a consideration of Rs. 16,83,036/- from IMTF, Switzerland. The assessee on being called upon by the A.O to explain as to why no tax was deducted at source while making the payment to IMTF, Switzerland, submitted that as the remittance was made on account of license software sold by the company and was not in the nature of payment for royalty or fees for technical services, therefore, no tax was deductible at source under the said head. The A.O however did not find favour with the aforesaid contention of the assessee and being of the view that the consideration paid by the assessee was for use or right to use of computer software, therefore, the same was....
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....e assessee being the Permanent Establishment of a non resident based in France, it would be entitled to claim the benefits available to it under the relevant DTAA. Article 13(3) of the Indo-France tax treaty defines the term royalties as payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary artistic or scientific work. Software would fall in the category of a literary work. The A.O in the assessment order passed has at length discussed various decisions holding that payment made for the purchases of software would be in the nature of royalty such as the Karnataka High Court decision in the case of CIT Vs. Samsung Electronics Company Limited (320 ITR 209), the Delhi Tribunal decision in the case of Gracemac Vs. ADIT [8 ITR (Tribunal) 522] and the AAR decision in the case of Citrix Systems Asia Pacific Private Limited (343 ITR 1). The assessee on the other hand, in the course of the present appellate proceedings has brought to the attention of the undersigned an equally long list of decisions in favour of its stand that payment for purchase of software would not be in the nature of a payment of royalty. The issue remains unres....
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....also noted that the amendment made to the definition of royalty u/s. 9(1)(vi) of the Act by Finance Act, 2012 could not be read into the provisions of the DTAA and concluded that the payments made were for the supply of goods and were not in the nature of royalty as far as the provisions of the DTAA were concerned. 8. The jurisdictional Mumbai Tribunal in the cases of DDIT Vs. Solidworks Corporation (51 SOT 34) and ACIT Vs. Sonata Information Technology Ltd. (55 SOT 455) after considering both the decisions of the Delhi High Court in the Nokia Networks case (supra) and the Karnataka High Court decision in the Samsung Electronics case (supra) preferred to follow the Delhi High Court decision in the Nokia Networks case to hold that the consideration paid for the use of software would not be in the nature of a payment of royalty. 9. In view of the aforementioned decisions, supported by the conclusions reached by the jurisdictional Mumbai Bench of the Tribunal, i t is hereby held that the payments for purchase of software licences by the assessee was not in the nature of royalty and accordingly the assessee was not required to deduct the tax at source while making such payment. T....
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....t was held that when software is incorporated in a CD it becomes a tangible property and the payment made for acquiring the same is not a payment by way of royalty. We further find that a similar view had also been arrived at by the coordinate bench of the ITAT, Mumbai in the case of ACIT Vs. Sonata Information Technology Ltd. (2013) 152 TTJ 590 (Mum). We thus being of the considered view that no infirmity does emerges from the order passed by the CIT(A) on the issue under consideration by relying on the aforesaid judgment of the High Court of Delhi in the case of Infrasoft ltd. (supra), and finding ourselves to be in agreement with the view taken by the coordinate benches of the Tribunal in the aforementioned cases, therefore, uphold his order. The Ground of appeal No. 1 is dismissed. 8. The issue raised in ground of appeal no. 2 relates to the addition of Rs. 2,60,72,707/- made by the A.O in respect of guarantee commission in the hands of the assessee. That during the year under consideration the assessee bank which is following mercantile system of accountancy had recognised guarantee commission in its books of accounts, as income over the period of the guarantee. However, the ....
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....for its Indian branch and did not contain any mark-up. The A.O however did not find favour with the contentions of the assessee and concluded that the services rendered by the H.O of the assessee bank to the Indian branch were squarely covered by the definition of royalty/fees for technical services. The A.O in the backdrop of his aforesaid observations concluded that as the royalty was deemed to accrue and arise in India u/s 9(1)(vi)(c) and s. 9(1)(vii)(c), since the services/facilities had been utilized by the Indian branch for the purpose of the business in India and also for the purposes of making or earning income in India, thereafter, they were deemed to accrue or arise in India. The A.O thus on the basis of his aforesaid conviction computed the tax liability on the payment of Rs. 42,54,428/- @10% as per Article 13 of the India-France Tax Treaty. 12. That on appeal the CIT(A) after deliberating on the issue under consideration held that the addition made by the A.O in the hands of the Head office of the assessee with reference to the reimbursement of expenses made by the P.E. of the assessee was found to be not justified and thus deleted the same. 13. That during the course....
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.... services to a rate lower or a scope more restricted than the rate of scope provided for in this Convention, the same rate or scope as provided for in that Convention Agreement or Protocol shall also apply under this Convention. There is no warrant for the restrictive interpretation placed oil 7 of the Protocol to the Double Taxation Avoidance Agreement between India and France in such a manner that that if a reference is made to one Convention signed after September 1, 1989 between India and another OECD member State for the purposes of ascertaining if it had a more restrictive scope or a lower rate of tax, then that Convention alone has to be referred to for both purposes or that it is not permissible for the assessee, in terms of clause 7 of the Protocol, to rely upon one Convention between India and an OECD member State for the purposes of taking advantage of a lower rate of tax and then refer to another Convention between India and another OECD member State to take advantage of a more restricted scope. The words "a rate lower or a scope more restricted" occurring therein envisage that there could he a benefit on either score, i.e., a lower rate or a more restricted scope. One ....
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....ta communication charges, Annual Miscrosoft Enterprise Software product billing and true up charges incurred etc., rendered for its Indian branch. We being of the considered view that the issue involved in the present appeal before us is squarely covered by the aforesaid order of the Tribunal, therefore, respectfully follow the same. The Ground of appeal no. 3 and 4 raised by the revenue before us are dismissed. 15. The ground of appeal no. 5 relates to the taxability of the interest of Rs. 1,38,09,350/- paid by the assessee to its H.O and other overseas branches on borrowings. The facts pertaining to the issue under consideration are that the A.O during the course of the assessment proceedings, being of the view that the P.E in India and the Head office and other branches were separate entities for the purpose of computation of income and the determination of the taxable profits, therefore, concluded that the payment of interest of Rs. 1,38,09,350/- by the assessee P.E. were part of the interest income of the recipient head office and the overseas branches and hence chargeable to tax in India in the hands of the assessee. That on appeal the CIT(A) observed that the Tribunal in th....
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....d interest, however, cannot be taxed in India in the hands of the assessee-bank, a foreign enterprise being payment to self which cannot give rise to income that is taxable in India as per the domestic law. Even otherwise, there is no express provision contained in the relevant tax treaty which is contrary to the domestic law in India on this issue. This position applicable in the case of interest paid by Indian branch of a foreign bank to its head office equally holds good for the payment of interest made by the Indian branch of a foreign bank to its branch offices abroad as the same stands on the same footing as the payment of interest made to the head office. At the time of hearing before us, the learned representatives of both sides have also not made any separate submissions on this aspect of the matter specifically. Having held that the interest paid by the Indian branch of the assessee bank to its head office and other branches outside India is not chargeable to tax in India, it follows that the provisions of section 195 would not be attracted and there being no failure to deduct tax at source from the 1rsaid payment of interest made by the permanent establishment the questi....
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....ty? 2. Whether on the facts and in the circumstances of the case, the DRP was justif ied in holding that interest payable by the Indian Permanent Establ ishment of the foreign bank to its H.O. and other overseas branches, is deductible in computing the total income? 3. Whether on the facts and in the circumstances of the case, the DRP was justif ied in holding that interest income payable by the India Permanent Establishment of a foreign bank to its H.O. and branch of f ices abroad cannot be taken into account for the purpose of computing the income of H.O. liable to be taxed in India without appreciating that in view of decision in case of ABN Amro Bank 343 ITR 81 (Cal) later affirmed by Hon'ble Supreme Court also, for al l purposes P.E. & G.E. are to be treated as separate entities? 4. Without prejudice to ground No. 2 & 3 above, whether on the facts and in the circumstance of the case, the DRP was justif ied in not di rec t ing the A.O. to make disal lowance u/s. 14 -A following the decision of ITAT, Mumbai in assessee's own case for A.Y. 2001-02 in ITA No. 954/Mum/2005 and decision of ITAT, Mumbai in the case of Oman International Bank SAOG 35 CCH 207 (Mumbai T....
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....axation)-4(2)(2), Mumbai Vs. M/s. Societe Generale, Mumbai (ITA No. 4542/Mum/2015), therefore, our decision on the said issue in the aforesaid appeal shall apply mutatis mutandis for adjudicating the Grounds of appeal no. 2 and 3 raised by the revenue in its present appeal before us. The Grounds of Appeal No. 2 and 3 raised by the revenue are thus dismissed in terms of our aforesaid observations. 24. The ground of appeal no. 4 relates to disallowance under Sec. 14A of the expenses relatable to the interest paid by the assessee P.E to its H.O and Overseas Branches, which was held by the DRP to be not taxable in India. The ld. A.R adverting to the ground of appeal no. 4 raised by the revenue before us, submitted that the same does not emerge from the orders of the lower authorities. Per Contra, the ld. D.R relied on the order passed by this bench of the Tribunal while disposing of the appeal of the revenue for AY: 2001-02. The ld. D.R taking us through the order passed by the Tribunal while disposing of the appeal of the revenue for A.Y. 2001-02, drew our attention to Para 44-45 of the order. It was submitted by the ld. D.R that the Tribunal in its aforesaid order after concluding t....