TaxTMI 
TaxTMI 
TaxTMI 
2020 (10) TMI 450
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.... came to be posted before us for the four years, referred above. 3. At the outset, the Ld A.R submitted that the assessee company is engaged in the business of manufacture and trading of computer systems and peripherals. It also provides marketing support services for Acer brand products. The assessee has purchased software from non-residents and it did not deduct TDS from the payments made towards the said purchases. Hence the assessing officer has treated the assessee as assessee in default and initiated proceedings u/s 201(1) of the Act for assessment years 2009-10 to 2012-13. In this regard, the AO has placed his reliance on the decision rendered by Hon'ble jurisdictional Karnataka High Court in the case of Samsung Electronics Co Ltd (2011) (345 ITR 494) (Kar), wherein it was held that the payment made for purchase of license to use a software is "royalty" income in the hands of non-resident. Accordingly, the AO held that the assessee should have deducted tax at source u/s 195 of the Act from the payments made to the non-residents towards consideration for purchase of license to use software. Accordingly the AO raised demand u/s 201(1) and also charged interest u/s 201(1A) of ....
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..... We have carefully considered the rival submissions. The payment in question was made to the non-resident in the previous year relevant to AY. 10-11. Therefore the law as on 31.3.2010 the last date of the previous year was that payment for purchase of off shelf software was not in the nature of royalty. In Sonata Information Technology Ltd. v. ACIT (103 ITD 324) decision rendered on 31.1.2006, it was held that payments for software licenses do not constitute royalty under the provisions of the Act and hence disallowance under section40(a) (ia) of the Act would not be applicable. The change in the legal position on taxation of computer software was on account of the ruling of the Karnataka High Court in CIT v. Samsung Electronics Co. Ltd. (320 ITR 209), which was pronounced on 15.10.11 that is much later than the closure of the FY 2010-11. Subsequently, the Finance Act 2012 also introduced, retrospectively, Explanation 4 to section 9(1 (vi) of the Act to clarify that payments for, inter alia. License to use computer software would qualify as royalty. During the FY 10-11, the assessee did not have the benefit of clarification brought by the respective amendment. As such, for the F....
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....ishment in India, the sum in question is not chargeable to tax in the hands of non-resident. Consequently, the disallowance made IT(TP)A Nos.405 & 474/Bang/2015 u/s. 40(a)(ia) of the Act has to be deleted. We direct accordingly. Ground No.14 by the assessee is accordingly allowed." 6. In the case of M/s Teekays Interior Solutions Pvt Ltd (supra), the co-ordinate has considered the issue of making disallowance u/s 40(a)(ia) of the Act on the basis of subsequent decision rendered by Hon'ble Karnataka High Court in the case of Samsung Electronics Co Ltd (supra). The decision rendered by the co-ordinate bench is extracted below:- "9. The next issue contested by the assessee relates to disallowance of expenditure claimed towards software purchase. The assessee had purchased a software named AutoCAD version 2011 at a cost of Rs. 1,10,775 and claimed the same as revenue expenditure. The A.O., however, held the same to be capital in nature. The A.O. also noticed that the assessee has not deducted tax at source u/s 194J of the Act. Accordingly, he proceeded to disallow the depreciation by invoking the provisions of section 40(a)(ia) of the Act. In the appellate proceedings, the learned C....
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....ia) of the Income Tax Act, 1961 (in short 'the Act') of payment towards software licenses treated by the Assessing Officer as royalty for want of TDS. The assessee has also raised additional grounds which are as under : Corporate tax matters 21. " Without prejudice to the grounds 2 to 4, the Learned CIT(A) has failed to appreciate that during the Financial Year 2008-09 relevant to the Assessment Year 2009-10, the Appellant was not liable to withhold tax on the payments made as there was no provision under the Act mandating the deduction of tax at source on the payments made on purchase of computer software and there were many favorable judicial precedence including the jurisdictional tribunal rulings. 22. Without prejudice to the grounds 2 to 4, the learned CIT(A) erred in not appreciating the fact that explanation 5 to Section 9(1)(vi) was inserted vide Finance Act, 2012 with effect from 1 June 1976 and was hit by the doctrine of 'impossibility of performance'." The additional grounds raised by the assessee are not new issues but an additional plea/argument raised by the assessee regarding the disallowance made by the Assessing Officer under Section 40(a)(ia) of th....
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....arried out by the assessee. It is also not in dispute that this issue of considering the payment for purchase of software as royalty is a highly debatable issue and various High Courts have taken divergent views on this issue. The co-ordinate Bench of this Tribunal in the case of ACIT Vs. Aurigene Discovery Technologies (P) Ltd. (supra) has considered an identical issue in paras 3 to 5 as under : " 03. We heard the rival submissions and gone through the relevant orders. The assessee resubmitted the plea taken before the lower authorities and placed on the ruling of the Hon'ble Bangalore ITAT in Sonata Information Technology Ltd v. ACIT (103 ITD 324) which had held that payments for software licenses do not constitute royalty under the provisions of the Act and hence disallowance under section40(a) (ia) of the Act would not be applicable. The change in the legal position on taxation of computer software was on account of the ruling of the Karnataka High Court in CIT v. Samsung Electronics Co. Ltd. (320 ITR 209), which was pronounced on 15.10.11 that is much later than the closure of the FY 2010-11. Subsequently, the Finance Act 2012 also introduced, retrospectively, Explanat....
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....r as tax withholding liability is concerned, it depends on the law as it existed at the point of time when payments, from which taxes ought to have been withheld, were made. The tax-deductor cannot be expected to have clairvoyance of knowing how the law will change in future." Further, software payment was included in definition of royalty only vide Explanation to section 9(1)(vi)inserted retrospectively vide Finance Act, 2012 and when the purchase was made, the appellant did not have the benefit of clarification brought by the retrospective amendment. It is impossible to fasten liability for deducting tax at source retrospectively as tax is to be deducted at source at the time when the payment is credited or made. This view has been upheld by the Bangalore Tribunal in the case of DCIT vs M/s WS Atkins India Pvt Ltd (ITA No 14671Bang12014 and the Mumbai Tribunal in the case of Channel Guide India Ltd. vs ACIT ([2012] 25 taxmann.com 25). 5.2 The ITAT 'C' Bench in the case M/s WS Atkins India Pvt. Ltd and in the case of Infotech Enterprises Ltd of the Hyderabad Bench of the Tribunal wherein it has been held that section 40(a)(ia) would not apply to disallow payments when ....
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....ification brought about by the retrospective amendment. The contention of the appellant is correct that the softwar e payment disallowed by the AO did not warrant withholding of the tax u/s 40(a) (ia) and 40(a)(ia) (by an order of corrigendum dt 20.11.2015) of the Ac t. Therefore disallowance made by the AO on account of software payment want of withholding of tax is hereby deleted." 05. The CIT(A) followed the decision of this Tribunal in M/s WS Atkins India Pvt. Ltd, supra, which referred the decisions of Hyderabad Bench of the Tribunal in Infotech Enterprises Ltd in ITA 115/HYD/2011 wherein it has been held that section 40(a)(ia) would not apply to disallow payments when TDS was not done and subsequently become taxable on account of a retrospective legislation. It has also referred to the decisions of the Delhi & Mumbai Tribunal in SMS Demag Pvt Ltd , 132 ITJ 498 & Sonic Biochem Extractions Pvt. Ltd. 23 ITR (Trib) 447, respectively. We uphold the decision of the CIT(A) and dismiss the grounds raised by the Revenue." Thus it is clear that the co-ordinate Bench of this Tribunal while deciding this issue has taken note of various decisions in favour of the assessee on the poi....