2026 (5) TMI 188

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....f 2016 is filed against the order, dated 09.06.2014, in I.T.A.No.1535/Mds/2009, for the assessment year 2002-03. Subject-matter of this Appeal relates to an order of assessment, under Sections 201 and 201 (1A) of the Income Tax, 1961. (ii) T.C.A.No.652 of 2016 is filed against the order, dated 09.06.2014, in I.T.A.No.1536/Mds/2009, for the assessment year 2003-2004. Subject-matter of this appeal relates to an order of assessment under Sections 201 and 201(1A) of the Income Tax Act, 1961. (iii) T.C.A.No.653 of 2016 is filed against the order, dated 09.06.2014, in I.T.A.No.460/Mds/2010, for the assessment year 2002-2003. Subject-matter of this appeal relates to an order of assessment under Section 201 of the Income Tax Act, 1961. 3. Brief background of the case: The appellant engaged in the business of development and export of computer software. For the assessment years 2002-2003 and 2003-2004, it filed its returns of income declaring total income of Rs. 13,50,59,260/- and Rs. 10,95,03,660/-, respectively. During these years, the remittance of Rs. 5,42,18,347/- (for Assessment Year 2002-2003) and Rs. 4,23,31,103/- (for Assessment Year 2003-2004) to M/s.Sprint....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....,347/- for hiring 'IPLC' under Section 40(a)(i) of the Act, for non-deduction of TDS. This action was also resisted by the assessee, but same was negatived and passed disallowing the deduction claimed. This order also challenged by the assessee before the Commissioner of Income Tax (Appeals) and the appeal was also allowed by Commissioner of Income Tax (Appeals) in favour of the assessee. 7. As against the orders of the Appellate Authority, the Revenue filed the following appeals before the Tribunal:- 1) I.T.A.No.1535/Mds/2009, (Assessment Year 2002-2003) - in respect of TDS proceedings under Section 201. 2) I.T.A.No.1536/Mds/2009, (Assessment Year 2003-2004) - in respect of proceedings under Section 201. 3) I.T.A.No.460/Mds/2016 (Assessment Year 2002-2003) - in respect of the order under Section 40(a)(1). 8. In the above three appeals, as well as in few more appeals and the cross-objection filed by the assessee for the subsequent assessment years, the ITAT passed a common order dated 09.06.2014, reversing the order of the Commissioner of Income Tax (Appeals). 9. Assailing the order of the Income Tax Appellate Tribunal, the assessee has filed the....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....nts and hence, the impossibility of performance at the time of making such payments? 8. Whether on the facts and circumstances of the case the Tribunal was right in not considering the applicability of Article 26 (3) of the India-USA DTAA which provides for non-discrimination in allowance of expenditure in the nature of interest, royalties and other disbursement, whereby for the purpose of determining the taxable profits, these amounts will be deductible under the same conditions had they been paid to the residents? 9. Whether on the facts and circumstances of the case the Tribunal ought to have held that provisions of Section 40 (a) (i) of the Act are applicable only on amounts outstanding and payable to the Non-resident as at the close of the previous year and not to the amounts which have already been paid and are not payable as at the close of the previous year?" 10. At the outset, the Learned Counsel for the appellant/assessee submitted that the issues as couched centres on the question about the remittance made to the non-resident company for providing telecommunication services. The issue is whether such remittance will fall within the meaning of 'Royalt....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ntical issue, had read in Explanation 6 to Section 9(1) of the Act and Section 40(a)(i) and held that the expenditure in respect of payment to non-resident company for providing internet services to the customers will not fall within the ambit of the term 'Royalty' as defined under Section 9 of the Act. 16. The Learned Counsel representing the Department contended that the Explanation to Section (2) to Section 9(1)(vi) of the Act, simpliciter, would mean that consideration paid to a non-resident company has to be considered as 'royalty'. The removal of any doubts, Explanations 4, 5 & 6 was inserted as a clarification. Therefore, the remittance to M/s.Sprint Communications has to be considered as royalty and not as expenditure simpliciter. 17. From the Division Bench in the assessee's case referred above, this Court understand that, following the judgment of the Hon'ble Supreme Court rendered in Engineering Analysis Centre of Excellence Pvt. Ltd v. CIT reported in (2021) 432 ITR 471 (SC), which overruled its earlier view in M/s.Verizon Communications Singapore PTE Ltd v. ITO (International Taxation) reported in 261 ITR 575 (Mad), the Madras High Court has held that the explana....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....e control over the equipment, the use of process will render payment liable to be treated as royalty was based on application of Explanations 4, 5 and 6 added by way of Finance Act, 2012 and we see from a reading of the said judgment, that the assessee's case based on decision in the case Asia Satellite Telecommunications Private Limited v. DIT (2011) 332 ITR 340 (Delhi) and various rulings of the Authority on Advance Rulings was rejected by holding that such decisions are of no assistance in view of the amendment which was introduced by Finance Act, 2012 by insertion of Explanations 5 and 6. 12.8.2. In Verizon Communications Singapore PTE Ltd v. ITO (supra), the decision in the case of Poompuhar Shipping Corporation Limited v. ITO (2013) 38 taxmann.com 150 (Madras), was relied upon, wherein for the purposes of determining whether the payments made constituted royalty, recourse was had to the meaning assigned to it by taking into consideration newly inserted Explanations 4 and 5 under the Finance Act, 2012. 12.8.3. It was precisely on application of the newly inserted Explanations vide Finance Act, 2012, whereafter it became irrelevant whether or not the asses....