AI Drafter 
TaxTMI 
TaxTMI 
2022 (1) TMI 1089
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.... are as under: "1. General Ground 1.1. The learned Assistant Commissioner of Income Tax, Circle- 4(1)(2), Bangalore (`A0') has erred in passing the assessment order under section 143(3) of the Income Tax Act, 1961 (`the Act') in the manner passed by him and the Commissioner of Income Tax- (Appeals)-4 (`CIT(A)') has erred in confirming the said assessment order. The said order being bad in law is liable to be quashed. 2. Grounds relating to treatment of marketing expenses as royalty under section 9(1)(vi) Notional Tax Effect : (1,16,00,53593.6%). 38,97,780 2.1. The learned AO and CIT(A) erred in treating the marketing expenses amounting to Rs. 1,16,00,535 as royalty under section 9(1)(vi) and d....
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.... to Rs. 1,16,00,535 was not liable for TDS under section 195 and consequently disallowance confirmed under section 40(a)(1) should be deleted. The Appellant prays accordingly." Additional ground "1. Assuming without admitting that the credits/payments to nonresidents was liable for disallowance under section 40(a)(i), the said disallowance, if any, should be restricted to 30% of the expenditure as per the Non Discrimination Article in the Double Taxation Avoidance Agreements. The appellant prays accordingly." Brief facts of the case are as under: 2. The assessee is an Indian Company engaged in the business of developing, marketing and operating games and gaming infrastructure for mobile phones. For the relevant As....
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....4A read with rule 8D(2)(iii) of the Act. 3. Aggrieved by the order of Ld.AO, assessee preferred appeal before Ld.CIT(A). 3.1 The Ld.CIT(A) held that the advertisement expenses paid to Facebook and other entities constitutes use of industrial, commercial or scientific equipment under section 9(1)(vi) of the Act whether active or passive and hence 'Royalty' under the Act. As regards taxability as "Fees for technical services", it was held by the Ld.CIT(A) that since the process is automated and there is no human intervention, the payments do not qualify as Fees for technical services under section 9(1)(vii) of the Act. 3.2 The disallowance under section 14A was deleted by the CIT(A) in the absence of exempt income. 4. Aggrieved by....
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.... 4.3 The Ld.AR thus submitted that the assessee does not have any control or possession over the way in which these advertisements are digitally advertised by the Facebook and other entities. No access to the technology behind the airing of the advertisement on the website is provided to the assessee. He thus advocated that the payment does not amount to Royalty under the Act. 4.4. On the contrary, the Ld.Sr.DR submitted that the decision rendered by Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence P Ltd (supra) cannot be blindly followed. She submitted that each payment made by the assessee needs to be examined on the basis of the agreement entered between the assessee and the suppliers of software in order....
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....facturers and then reselling the same to resident Indian end-users.4 (iii) The third category concerns cases wherein the distributor happens to be a foreign, non-resident vendor, who, after purchasing software from a foreign, non-resident seller, resells the same to resident Indian distributors or end-users.5 (iv) The fourth category includes cases wherein computer software is affixed onto hardware and is sold as an integrated unit/equipment by foreign, non-resident suppliers to resident Indian distributors or endusers. 5.2 After analysing the provisions of Income tax Act, provisions of DTAA, the relevant agreements entered by the assessees with non-resident software suppliers, provisions of Copy right Acts, the circula....
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....ragraph 4 of this judgment." 5.3 It is pertinent to mention that the Hon'ble Supreme Court has analysed the provisions of Copy right Act and their applicability to the payments made for use of software. We also notice that the decision rendered by Hon'ble Karnataka High Court in the case of Samsung Electronics Co Ltd (supra) has been reversed by Hon'ble Supreme Court in paragraph 101-102 of its order. Similarly decision of coordinate bench of this Tribunal in case of Google India Pvt. Ltd. vs. JCIT reported in (2018) 93 taxmann.com 183 relied by Ld.Sr.DR has been remanded back to ITAT by Hon'ble Karnataka High Court. This decision of Hon'ble Karnataka High Court is reported in (2021) 127 taxmann.com 36. 5.4 However, as rightly pointed....