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2015 (6) TMI 1205 - HC - Income TaxTDS u/s 195 - remittances towards the cost of the software products imported from foreign suppliers - addition u/s 40(a)(ia) - Whether it is not royalty? - HELD THAT - In view of the judgment of this Court in Samsung Electronics Pvt Ltd 2011 (10) TMI 195 - KARNATAKA HIGH COURT as already the earlier order of the Tribunal is set aside by this Court, the impugned order passed, which is running counter to the said judgment, requires to be set aside and therefore, the appeal is allowed and the substantial question of law is answered in favour of the Revenue and against the assessee. However, in the event the assessee succeeds before the Apex Court, it is clear that this order also cannot come into effect. The assessing authority shall therefore, pass an order under S.260(1A) of the Act, based on the outcome of the assessee s appeal before the Apex Court. If the assessee loses his battle before the Apex Court, then before giving effect to this order, the assessing authority shall consider the application of Art.24(4) of the DTAA between India and the Netherlands.
Issues:
1. Whether remittances towards the cost of software products imported from foreign suppliers constitute royalty under the Income Tax Act, 1961? 2. Applicability of Section 195 and Section 40(a)(i) of the Income Tax Act. 3. Consideration of Double Taxation Avoidance Agreement (DTAA) between India and the Netherlands. 4. Effect of judgment in the case of Commissioner of Income Tax vs. Samsung Electronics Pvt Ltd. 5. Impact of pending appeal before the Apex Court on the decision. Analysis: 1. The primary issue in this case was whether the remittances made towards the cost of software products imported from foreign suppliers should be considered as royalty under the Income Tax Act, 1961. The Tribunal had initially held that these remittances did not constitute royalty, leading to no liability for tax deduction under Section 195 and no applicability of Section 40(a)(i) of the Act. 2. The High Court, however, overturned the Tribunal's decision based on a previous judgment in the case of Commissioner of Income Tax vs. Samsung Electronics Pvt Ltd. The Court set aside the Tribunal's order and ruled in favor of the Revenue, stating that the remittances should be considered as royalty, thereby attracting the provisions of Section 40(a)(i) of the Act. 3. The Court also considered the Double Taxation Avoidance Agreement (DTAA) between India and the Netherlands. Even though the assessee had not raised this issue before, the Court emphasized the importance of DTAA as a beneficial piece of delegated legislation. It was mentioned that if the assessee is entitled to benefit from the DTAA, it cannot be denied. 4. The impact of a pending appeal before the Apex Court was also discussed. The Court stated that if the assessee succeeds in the Apex Court, the order passed by the High Court would not come into effect. In case of the assessee losing the appeal, the assessing authority was directed to consider the application of Art.24(4) of the DTAA before giving effect to the High Court's order. 5. In conclusion, the appeals by the Revenue were allowed, and the substantial question of law was answered in favor of the Revenue and against the assessee. The Court emphasized that the outcome of the pending appeal before the Apex Court would have a significant impact on the final decision and directed the assessing authority to act accordingly based on the Apex Court's decision.
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