TaxTMI 
TaxTMI 
2020 (7) TMI 97
X X X X Extracts X X X X
X X X X Extracts X X X X
....#39;. Act, 1961 ("Act"), lacks jurisdiction and is liable to be struck down. 1.2. The learned AO has erred in law and on facts in computing the total income of the assessee at INR 63,71,64,640/-. 2. Taxability of receipts towards sale of software products 2.1. The Honourable DRP has erred in upholding the draft assessment order after rejecting the appellant's objections merely for the reason that the issue was decided against the appellant by the DRP in the earlier years, even as it noted that the binding decisions of the jurisdictional Mumbai Bench of the Income Tax Appellate Tribunal on identical issue in the appellant's own case for the earlier assessment years 2003-04, 2005-06 and 2006-07, 2007-08, 2009-10, 2011-12, 2013-14 and 2014-15 were concluded in favour of the appellant. 2.2. On the facts and the circumstances of the case and in law, the learned AO and DRP have erred in holding that the income from sale of shrink-wrapped software is taxable in India, being in the nature of royalty under the provisions of section 9(1)(vi) of the Act as well as Article 12(3) of the Double Taxation Avoidance Agreement CDTAA'') between India and USA. 2.3. On the facts....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s", and was used for 3D modeling. It was observed by the A.O, that the software was sold by the assessee through distributors/resellers to the end-users in India. Accordingly, the assessee had entered into software distribution agreements with resellers in India who would buy shrink wrapped software from the assessee, and in turn sell the same to the customers in India. It was noticed by the A.O that the assessee had suo motto offered a sum of Rs. 1,17,41,400/- to tax as royalty received from one concern viz. M/s Geometric Ltd. However, it was observed by the A.O that as per "Form No. 26AS" the total receipts of the assessee during the year were reflected at Rs. 63,71,64,638/- on which an amount of Rs. 6,72,23,331/- was deducted towards tax at source. It was further noticed by him that the asseseee had in its return of income claimed credit for the TDS of Rs. 6,72,23,331, without offering the corresponding receipts as its income for the year under consideration. On being called upon to explain as to why the entire receipt from the sale of software may not be treated as 'royalty' income, and accordingly be brought to tax in its hands, it was submitted by the assessee that the Tribun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s owned by SolidWorks and the copyright, trademark and proprietary rights were retained by it and not transferred to the end-user. At the same time, the A.O held a conviction that the software was not goods or tangible property but was an intangible intellectual property, which being similar to patent, invention, design, secret formula etc. would fall within the meaning of 'process' as mentioned in 'Explanation 2' to the definition of 'royalty' under the Act. In support of his aforesaid view, the A.O relied on the CBDT Circular No. 621 of 19/12/1991 to hold that payment for acquisition of software was to be held as 'royalty'. Insofar the claim of the assessee that the issue was covered in its favor by the orders of the Tribunal in its own case for the preceding years, the A.O observed that the same had been assailed by the revenue before the Hon'ble High Court, and thus had not yet attained finality. Also, it was observed by the A.O, that the Hon'ble High Court of Karnataka in the case of CIT Vs. Samsung Electronic Co. Ltd (2012) 345 ITR 494 (Kar), had concluded, that the payments received by the assessee from the resellers in India for the acquisition of computer software was in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....09.2019, and assessed the income of the assessee company at Rs. 63,71,64,640/-. 7. The assessee being aggrieved with the order passed by the A.O u/s 143(3) r.w.s 144C(13), dated 26.09.2019, has carried the matter in appeal before us. The ld. Authorised representative (for short "A.R") for the assessee, at the very outset submitted that the issue involved in the present appeal i.e as to whether or not the sale receipts from the licensees of the software was to be held as 'royalty', was squarely covered in the favor of the assessee by the orders of the Tribunal in its own case for the preceding years. In order to buttress his aforesaid claim, the ld. A.R drew our attention to the orders passed by the Tribunal in the assessee's own case for the preceding years viz. A.Y 2003-04, A.Y 2005-06, A.Y 2006-07, A.Y 2007-08, A.Y 2009-10, A.Y 2011-12, A.Y 2013-14, A.Y 2014-15 and A.Y 2015-16. It was submitted by the ld. A.R, that the Tribunal in all the aforesaid orders had consistently held that the sale receipts from the licensees of the software could not held as 'royalty' in the hands of the assessee. In order to buttress his aforesaid claim, the ld. A.R took us through the order of the Tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee's own case for the A.Y.2002-03 in ITA No. 3095/Mum/2007 order dated 15th December 2009 and for the A.Y.2005-06 in ITA No.5097/Mum/2008 order dated 1st April 2010 and for A.Y.2006-07 in ITA No.3219/Mum/2010 order dated 08.02.2012 and for A.Y.2007-08 in ITA No.8721/Mum/2010 order dated 31.03.2016 and for A.Y.2009-10 in ITA No.7790/Mum/2012 order dated 31.03.2016. Therefore, in the said circumstances, the order passed by the Assessing Officer on the direction of the DRP is wrong against law and facts and is liable to be set aside and the receipt is not liable to be treated as royalty. It is also argued that when no patent right was sold however computer programs were sold which could not be taxed in view of the provision u/s.9(1) of the Act therefore in the said circumstances the amount in question is not liable to be treated as royalty. However, on the other hand, the learned representative of the department has refuted the said contentions and argued that the Hon'ble Karnataka High Court has decided the issue in favour of the revenue in the cases of CIT Vs. Synopsis International Old Ltd., 212 Taxman 0454 (Kar. HC), dated 03.08.2010, CIT V. Samsung Electronics Co. Ltd.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xpressed below by the coordinate benches: .....It will be wholly inappropriate for us to choose views of one of the High Courts based on our perceptions about reasonableness of the respective viewpoint, as such an exercise will be de facto amount to sitting in judgment over the views of the High Courts something diametrically opposed to the very basic principles of hierarchical judicial system. We have to, with our highest respect of both the Hon'le High Courts, adopt an objective criterion for deciding as to which of the Hon'ble High Court should be followed by us. 8. We find guidance from the judgment of Hon'ble Supreme Court in the matter of CIT Vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1972) 88 ITR 192 (SC). Hon'ble Supreme Court has laid down a principle that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted". This principle has been consistently followed by the various authorities as also by the Hon'ble Supreme Court itself. In another Supreme Court judgment Petron Engg. Construction 6 ITA No. 7027/MUM/2018 (A.Y: 2015-16) Dassault Systems Solidworks Corporation (P.) Ltd. & Anr. Vs. CBDT ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... decision of the Hon'ble Supreme Court in the Commissioner of Income Tax V. Vegetable Product Ltd. (1973) 88 ITR 192 and in Mauri Yeast India Pvt. Ltd. Vs. Stte of U.P. (2008) 14 VST 259 (SC) : (2008) 5 S.C.C. 680 has held that, if two views in regard to the interpretation of a provision are possible, the Court would be justified in adopting that construction which favours the assessee. Reliance can also be placed in this regard on the 7 ITA No. 7027/MUM/2018 (A.Y: 2015-16) Dassault Systems Solidworks Corporation decision of Hon'ble Supreme Court in Bihar State Electricity Board and another Vs. M/s. Usha Martin Industries and another : (1997) 5 SSC 289. We accordingly adopt the construction in favour of the assessee. [Capgemini Business Services India Ltd. Vs. ACIT (TS 100 ITAT 2016 (Mum)] 6. In view of the above discussion and having noted that there is no material difference in the facts of the case for this year vis-à-vis the facts of the assessment year 2006-07 as discussed above, respectfully following the views of the coordinate benches, we uphold the grievance of the assessee. It is, therefore, held that the receipts of Rs. 19,20,14,000/- on account of receipts for ....