TaxTMI 
TaxTMI 
2019 (8) TMI 1325
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.... under the normal provisions. 3. Firstly we espouse ground No.3 of the assessee's appeal, which is against the confirmation of disallowance of Rs. 90,59,117/- made u/s.40(a)(ia) of the Income-tax Act, 1961 (hereinafter also called `the Act') for failure to deduct tax at source from payment of software expenses. 4. The factual matrix of this ground is that the assessee claimed deduction of Rs. 90,59,117/- towards software expenses. No deduction of tax at source was made on payment made to a resident payee. Relying on the judgment in the case of CIT Vs. Samsung Electronics Co. Ltd. & Ors., the AO made the disallowance u/s 40(a)(ia) of the Act, which came to be countenanced in the first appeal. The assessee is aggrieved by the sustenance of such disallowance. 5. We have heard both the sides and gone through the relevant material on record. The assessee paid Rs. 90.59 lakh to an Indian party towards Annual license fee for renewal of Microsoft software license, which was claimed as revenue expenditure. The revenue nature of the expenditure was not disputed by the AO. However, the authorities below held such payment to be in the nature of Royalty requiring deduction of tax at source a....
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.... deduction from out of the payments made by them in favour of the non-resident recipients even as consideration for acquiring what is known as 'shrink wrapped software' or what is sought to be described as 'ready to sell, off the shelf, packaged software product'....'. The assessee approached the Hon'ble Supreme Court, which remitted the matter to the Hon'ble High Court for rendering a fresh decision. After considering all the aspects, the Hon'ble Karnataka High Court in the second round in CIT Vs. Samsung Electronics Co. Ltd. (2012) 345 ITR 494 (Kar.) has held that the assessee having imported shrink wrapped software/off-the-shelf software from non-resident companies under software licence agreement whereby licence is granted to the assessee for taking copy of the software, store the same in the hard disk of the designated computer and to take a back up copy while the ownership of the copyright continues to vest in the supplier, there is only a transfer of right to use copy of the software for the internal business as per the terms and conditions of the agreement and, therefore, the payment made to the suppliers of the software constitutes 'royalty' within the ....
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....yalty and further held that since royalty income had accrued/arisen to assessee company through its PE in the form of branch office in India, the same was chargeable to tax in India as per Article 13 of DTAA. The CIT(A) concurred with the AO. The ITAT held that such income was not liable to be taxed as royalty. The Hon'ble High Court held that what has been transferred is not copyright or right to use copyright but a limited right to use copyrighted material and hence did not give rise to any royalty income. It noted that the licensee had no right to deal with the product just as an owner would be in a position to do and further there was no transfer of any right in respect of copyright by assessee and it was a case of mere transfer of a copyrighted article. As the payment was for a copyrighted article and represented purchase price of an article, it held that the same could not be considered as royalty either under the Act or the DTAA. Similar view has been reiterated in CIT Vs. ZTE Corporation (2017) 392 ITR 890 (Delhi). 9. It can be seen from the discussion made in the immediately preceding paragraphs that there is a cleavage of opinion amongst the High Courts. Whereas the Hon....
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....jurisdiction .... the questions of law arising for decision in a reference should be determined by the High Court which exercises territorial jurisdiction over the situs of the AO. Else it would result in serious anomalies. An assessee affected by an assessment order at Bombay may invoke the jurisdiction of the Delhi High Court to take advantage of the law laid down by it and suited to him and thus get rid of the law laid down to the contrary by the High Court of Bombay not suited to the assessee. This cannot be allowed.' 12. The assessee in CIT vs. Balak Capital P. Ltd. (2017) 391 ITR 112 (P&H) was based in Gujarat whose assessment order was passed by the ITO, Surat. The first appeal was also filed before the CIT(A), Surat. Further appeal was filed by the assessee before the Tribunal at Ahmedabad. Thereafter, when the registered office of the assessee was transferred to Amritsar, the appeal also got transferred. The assessee preferred appeal against the order passed by the Tribunal before the Hon'ble Punjab & Haryana High Court. The Hon'ble High Court held that since initial process of assessment was started at Surat and final assessment was framed by AO at Surat, it lacked terr....
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....ht, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred. 16. There are certain noticeable points of this amendment. Firstly, it is for the removal of doubts and hence clarificatory in nature. Secondly, it has been inserted retrospectively from 1.6.1976 covering the year under consideration. Next, it clearly provides that the transfer of any rights in respect of `any right, property or information', being the same expression as used in the clause (b) of section 9(1)(vi) which attracts taxation of income from royalty payable by a resident, shall include transfer of all or any right for use or right to use a computer software, which also covers within its ambit the granting of a licence. What is further relevant to note next is that it is not only that the expression `rights in respect of any right, property or information' shall `include' use or right to use a computer software, but it will `always' be considered to have been so included, which gives further strength to the retrospective effect of the ins....
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....ent year and not the date of judgment. The second reason is that the Courts declare the law and do not legislate it. Any judgment of the Hon'ble Supreme/High Courts is considered as the position of law applicable from the inception of the provision unless it is specifically stated to have prospective effect. The Hon'ble Supreme Court in M.A. Murthy vs. State of Karnataka & Ors. (2003) 264 ITR 1 (SC) has held that : `Normally, the decision of this Court enunciating a principle of law is applicable to all cases irrespective of its stage of pendency because it is assumed that what is enunciated by the Supreme Court is, in fact, the law from inception.' We are, ergo, unable to accord our imprimatur to the contention put forth on behalf of the assessee that the position of law at the point of payment of royalty was any different vis-à-vis the position later clarified in the case of Samsung Electronics (supra). The argument of the assessee that it could not have contemplated liability to deduct tax at source at the material time would have been correct, if it had been a case of retrospective amendment to some substantive provision making certain income chargeable to tax from an e....
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....to 40%. Considering the fact that the assessee offered these incomes in India for taxation only at 10% under the minimum alternate tax as per section 115JB of the Act, he allowed foreign tax credit of Rs. 1,01,36,140/- (10% of Rs. 10.13 crore income, which suffered double taxation in India and abroad). The assessee's alternate contention that the foreign tax credit should be allowed at 11.33%, including surcharge etc. of 1.33%, did not find favour with the AO, who held that the assessee was entitled to the foreign tax credit only for the basic rate of 10% under the MAT. The ld. CIT(A) accorded his seal of approval to the view taken by the AO, against which the assessee has approached the Tribunal. 23. We have heard both the sides and gone through the relevant material on record. The crux of the above factual position is that the assessee's foreign branches in five countries constituted its PEs, who suffered income tax in such jurisdictions. The assessee paid total tax of Rs. 1.91 crore in foreign countries. Because of the assessee being a resident of India and liable to pay tax in India on its global income including that earned by its foreign branches, such income earned by the P....
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....credit for the full tax paid abroad or the tax paid only on the doubly taxed income? The ld. AR candidly admitted that his case is covered u/s.90(1)(a)(i) and not under (ii) of section 90(1)(a) of the Act. We will, therefore, focus only on sub-clause (i) of section 90(1)(a) of the Act as per which the Central Government may enter into an agreement with the Government of any country outside India for the granting of relief in respect of "income on which have been paid both income-tax under this Act and income-tax in that country or specified territory, as the case may be." This sub-clause, therefore, pre-supposes that 'income' which is sought to be reduced from the total income of the assessee under the Act must have also been included in the total income of the assessee in the other country. We find that even if the assessee is chargeable to tax under the Act on its global income, it may still be possible that some income is chargeable in the foreign tax jurisdictions but not chargeable under the Act due to exemption available (which is different from income chargeable but deductible under the relevant provisions). If a particular income is included only in the total income under t....
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.... and clause (ii) of the Explanation 1 to section 115JB at the material time. Thus, it is evident that in so far as computation of the assessee's book-profit u/s.115JB is concerned, the same includes within its ambit the amount of income which is otherwise eligible for deduction u/s.10A and, as such, the assessee also suo motu included such income in the computation u/s 115JB. It is seen as an admitted position that the assessee filed its return in India considering not only the income earned from Indian operations but also from its foreign branches. The AO determined tax on income under the normal provisions of the Act at Rs. 12.75 crore and under section 115JB at Rs. 17.25 crore. Eventual assessment has been made by considering the income u/s 115JB. 30. Again coming back to section 90(1)(a)(i), the position is that relief is to be allowed in respect of income on which tax has been paid in India and the other country. The assessee admitted before the AO that the income which suffered double taxation both in foreign countries and India is Rs. 10.13 crore. In that view of the matter, it becomes clear that the relief under section 90(1)(a)(i) of the Act has to be granted only to the ....
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....quite different. It was on the point that whether tax on income paid abroad, which income otherwise qualifies for the benefit u/s 10A of the Act, should be granted relief? On the other hand, admittedly income which has been deducted u/s 10A in the normal computation is chargeable under the computation u/s 115JB and it is not the case of the AO that foreign tax relatable to such deductible income under the normal provisions should not be allowed credit. The Hon'ble High Court in Wipro Ltd. (supra) has further laid down in para 59 that: `However, the said provision makes it clear that such deduction shall not, however, exceed that part of the income tax (as computed before the deduction is given) which is attributable to the income which is to be taxed in United States.' We, therefore, hold that the assessee is entitled to credit for the tax paid in foreign countries only to the extent of the doubly taxed income and not the remaining amount, whose corresponding income is not a part of the computation of income u/s 115JB under the Act. 33. Now we turn to the second aspect of the issue about the extent of foreign tax credit to be allowed in respect of the doubly taxed income. Whereas ....
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....which the assessee paid taxes and then allow the benefit accordingly after granting reasonable opportunity of hearing to the assessee. 35. Ground No.2 of the assessee's appeal is against the confirmation of disallowance u/s.14A of the Act read with Rule 8D of the Income-tax Rules, 1962 (hereinafter also called `the Rules') at Rs. 80,93,070/-. 36. Briefly stated, the facts of the case are that the assessee claimed dividend income amounting to Rs. 8,74,13,850/- earned on mutual funds as exempt from tax. The Assessing Officer (AO) observed that no disallowance was offered by the assessee u/s.14A of the Act. On being called upon to explain the reasons for not offering the disallowance, the assessee submitted that a suo motu disallowance of Rs. 3,13,492/- was offered. The AO, not satisfied, computed the disallowance u/s.14A r.w. Rule 8D at Rs. 80,93,070/-. The ld. CIT(A) echoed the assessment order on this point. 37. We have heard both the sides and gone through the relevant material on record. The assessment year under consideration is 2008-09. Unlike earlier years, Rule 8D is applicable for the purpose of making disallowance u/s.14A. The disallowance made by the AO is in two parts....
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....nsidered for computing average value of investments which yield exempt income during the year. In view of the afore referred precedents, we set aside the impugned order to this extent and remit the matter to the file of Assessing Officer for re-computing the disallowance under Rule 8D(2)(iii) by considering only such investments in calculating the average value of investments, which have yielded exempt income during the year. The assessee will be allowed hearing opportunity in the fresh proceedings. 40. The ld. AR further contended that a suo motu disallowance of Rs. 3,13,492/- was offered by the assessee under section 14A. The AO is directed to verify this claim and then accordingly compute the amount disallowable u/s.14A r.w. Rule 8D(2)(iii). 41. Ground No.4 of the assessee's appeal is against the confirmation of addition of Rs. 5,84,000/-, being, the value of lapsed ESPOs in the income computed under the normal provisions of the Act as well as the profits computed u/s.115JB. 42. We have heard both the sides and gone through the relevant material on record. Both the sides are in agreement that the facts and circumstances of this ground are similar to those of the immediately p....
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....anpower (DTM) and/or rendering of technical services outside India and hence income from providing onsite development of computer software is not eligible for deduction u/s.10A. 47. Similar issue has been determined by the Tribunal in the assessee's own case for the A.Y. 2007-08 holding that the amount relatable to DTM and onsite software services should be considered as eligible for deduction u/s.10A of the Act. Since facts and circumstances are admittedly similar, following the view taken for the A.Y. 2007-08, we determine this issue in favour of assessee. 48. Ground No.8 of the assessee's appeal is against the ld. CIT(A) in not directing the AO to allow set off of brought forward losses and unabsorbed depreciation of earlier years against the business income, short term capital gain and income from other sources in computing total income in accordance with the provisions of Chapter VI. Ground No.2 of the Revenue's appeal is against the direction of the ld. CIT(A) in holding that if the unit of the assessee is independent then its loss could not be adjusted against the profits of other units for the purposes of computing deduction u/s.10A. 49. We have heard both the sides and ....