AIT-2009-433-HC - Allindiantaxes

AIT-2009-433-HC IN THE HIGH COURT OF KARNATAKA
AT BANGALORE ITA No. 2808 of 2005 1. The Commissioner of Income Tax (International Taxation)
Rastrothana Building, Nrupathunga Road, Bangalore 2. The Income Tax Officer TDS-I
Rastrothana Building, Nrupathunga Road, Bangalore.....Appellants Versus M/s Samsung Electronics Co. Ltd.
India Software Operations
Level 6th and 7th, Prestige Meridian-II, No. 30, M.G. Road, Bangalore- 560
001.....Respondent [By Sri K.P. Kumar Sr. Counsel for universal Legal] Coram: MR. JUSTICE D V SHYLENDRA KUMAR AND MR. JUSTICE ARVIND KUMAR Date of Judgment: September 24, 2009 AIT Head Note: Whether the Tribunal was correct in holding that an appeal
was maintainable u/s.248 of the Act, even though there was no adjudication
by the Authorities under the Act in accordance with Section 195(3), (4) &
(5) read with Section 200 of the Act?
2. Whether the Tribunal was correct in holding that the payments made by
the Assessee Company for purchase of software from Aaymetrix Asia Pacific,
Singapore; Peritus Software Service Inc., USA and Astral Computers Pvt.
Ltd., Singapore for the amounts of Rs.3,43,095/-, Rs.47,89,419/- and
Rs.8,89,611/- was not liable to income tax in India and consequently no TDS
as held by the Assessing Officer and confirmed by the Appellate
Commissioner needs to have been deducted?
3. Whether the Tribunal was correct in merely following the judgment passed
by its in the case of Samsung Electronics Co. Ltd. Which has not been
accepted by the Revenue and appealed against before this Hon'ble Court
where the facts were not entirely identical to one subsisting in the
present case and therefore the Tribunal was bound to have recorded an
independent finding and therefore the impugned order is perverse?
4. Whether the Tribunal based on the fact that the Assessee has imported
software from Aaymetrix Asia Pacific, Singapore; Peritus Software Service
Inc., USA and Astral Computers Pvt. Ltd., Singapore on payment of
Rs.3,43,095/, Rs.47,89,419/- and Rs.8,89,611/- was bound to have taken into
consideration the Ruling of the Advance Ruling Authority (238 ITR 296); the
Double Taxation Agreement between India and USA and India and Singapore,
provisions of Section 9(1)(vi) of the Income Tax Act; Indian Copyright Act,
1957, the Revised entry on Article 12 of OECD; the Internal Revenue Service
Regulation of USA; the Views of the High Powered Committee on E-Commerce
and other facts and circumstances of the present case which could have
clearly shown that the payments made by the Assessee was liable to tax in
India and consequently the Assessee was bound to deduct tax at source?
5. Whether the Tribunal should have recorded a finding that it is under
section 195(2) and (3) and (4) of the Act, the chargeability to tax or not
of the recipient is decided and having failed to obtain such a decision the
assessee was bound to deduct tax at source as held by the Apex Court in 239
ITR 587.
6. Whether the assessee can question the taxability of the recipient in
section 201(1) and 201(1 A) of the Act proceeding when the assessee has to
show only "without good and sufficient reasons failed to deduct and pay
tax", which has not been shown in the facts of the present case and non
taxability cannot be taken as a sufficient reason, when section
195(2)(3)(4) of the Act certificate is not obtained.
7. Whether the Tribunal was correct in holding that the assessee is not
liable to deduct TDS in respect of payments made for purchase of software
as the same cannot be treated as income liable to tax in India as Royalty
or Scientific Work under section 9 of the Act read with Double Taxation
Avoidance Agreements and treaties.
8. Whether the Tribunal was correct in holding that since the assessee had
purchased only a right to use the copyright i.e. the software and not the
entire copyright itself, the payment cannot be treated as Royalty as per
the Double Taxation Avoidance Agreement and Treaties which is beneficial to
the assessee and consequently section 9 of the Act should not take into
consideration.
9. Whether the Tribunal was correct in holding that the payment partakes
the character of purchase and sale of goods and therefore cannot be treated
as royalty payment liable to Income Tax." J U D G M E N T The above appeals are all by the revenue directed against the orders passed
by the Income Tax Appellate Tribunal, Bangalore Bench, where under the
Tribunal had allowed the appeals filed by different resident - assessees in
respect of different assessment years by holding that the resident -
assessees were not liable for deduction of any part of the payments made by
them to non-resident suppliers as price (for consideration) for the
software which the resident - assessees had acquired/purchased from the non-
residents for the purposes of the activities/business of the resident -
assessees in the background of the nature of their liability/obligation
under the provisions of section 195 of the Income Tax Act, 1961 [for short
'the Act'] by holding that the subject payments were not in the nature of
royalty payments within the meaning of section 9(1)[vi] of the Act and if
it is not royalty it is not income and if it was not income in the hands of
the non-resident assessees it is not chargeable to tax even as per section
4 of the Act and if so there is no obligation on the part of the
respondents - resident - assessees to deduct any amount in terms of section
195 of the Act and therefore the orders passed under section 201 of the Act
calling upon the respondents - assessees to pay the amount by treating them
as an assessee in default in respect of the amount as has been contemplated
for deduction under section 195 of the Act are all not sustainable. 2. The Income Tax Appellate Tribunal acting as the second appellate
authority under the Act having passed the leading judgment in the case of
M/s. Samsung Electronics Co., Ltd., India Software Operations. No. 67.
Infantry Road, Bangalore - 560 001 as per its Judgment dated 18.02.2005
passed in 1TA Nos.264 to 266/Bang/2002 relating to assessment years 1999-
00, 2000-01 and 2001-02 in the ease of M/s. Samsung Electronics Co. Ltd.,
India Software Operations. No. 67, Infantry Road, Bangalore - 560 001
holding that the Income Tax Officer as well as the first appellate
authority were both wrong in taking the view that the payments made by the
resident payer for purchase of computer programme which is also called
software in commercial parlance is in the nature of a royalty payment and
therefore obligation to deduct and remit the amount under section 195 of
the Act had not been cast on the remitter. 3. The Income Tax Appellate Tribunal has by and large followed the ruling
rendered in Samsung Electronics Co., Ltd., case in respect of all other
assessees for different assessment years. 4. It will be productive to know the facts at least in the leading case to
appreciate the legal contentions that have been raised in all these appeals
and for such purpose it is useful to borrow the facts as noticed by the
Tribunal itself in the present case and that is as under: "The fact involved in the present case is that the assessee is a
branch of Samsung Electronics Co Company Limited, Korea, engaged in
the development, manufacture and export of software for use by its
parent company, i.e., Samsung Electronics Co., Ltd., Korea. The
assessee develops various kinds of software for telecommunication
system for office appliances, for computer systems and for mobile
devices etc.,. The software developed by the assessee is for in-house
use by the parent company. In the assessment year 1999-00, the assessee imported software
products of Rs. 2,28,960/- from Tektronix inc., USA. Similarly, during
the other two years, it imported software product, namely, Telelogic
Tau TTCN Suite, are readily available software in the market. Hence,
payment made to the foreign companies cannot be treated as Royalty, as
per the provision of Sec.9(1)(iv) read with Double Taxation Avoidance
Agreements IDTAA for short) between India and USA, India and France
respectively. The contention of the assessee was not accepted by the
ITO (TDS). It was held by the Assessing Officer that the assessee was
a defaulter by not deducting tax from the remittance made by the
assessee for purchase of these softwares. The reply of the assessee
was not accepted by the Assessing Officer and it was held that as per
the provision of Sec.9(1)(vi) of the Act, the payment made by the
assessee is Royalty. Hence, the assessee was bound to deduct the tax.
The TTO also placed reliance on the definition of the term 'Royalty',
as mentioned in DTAA (supra). Accordingly, it was held by the ITO that
the assessee was a defaulter within the meaning of Sec.201(1) of the
Act, for non-deduction of tax. Further, the interest u/s.201(1A) was
also levied for the three years, as follows: |Asst Years |201(1) |201(1A) |
|1999-00 |Rs. 25,440 |Rs. 12,211 |
|2000-01 |Rs. 1,202 |Rs. 216 |
|2001-02 |Rs. 16,87,270 |Rs. 58,447 |
|Total |Rs. 17,13,912