2019 (11) TMI 1683 - AT - Income Tax

TDS u/s 195 - payment made by the assessee company to non-resident - whether it is in nature of royalty? - whether the payment in question constitute royalty within the meaning of the Act as well as the Double Taxation Avoidance Agreement (DTAA) with the respective countries of which the payees were tax residents? - HELD THAT - As the case of the assessee is identical to the case decided by the Hon'ble Karnataka High Court in the case of Samsung Electronics 2011 (10) TMI 195 - KARNATAKA HIGH COURT and therefore, the decision of the Hon'ble Karnataka High Court has to be followed. The fact that an appeal against the said decision of the Hon'ble Karnataka High Court is pending before the Hon'ble Supreme Court cannot be the basis not to follow the decision of the Hon'ble Karnataka High Court. We also observe that the ground of appeal filed by the assessee are general and there is no reference to any particular provisions of DTAA based on which it is claimed that the sum in question is not taxable in India. Validity of initiation of reassessment proceedings on the ground that proviso to Sec.147 of the Act is applicable and the reopening is based purely on a change of opinion - These grounds were rightly rejected by the CIT(A) as there was no proceedings u/s.143(3) for AY 2005-06 and therefore the proviso to Sec.147 of the Act will not be applicable. Similarly, the reopening of assessment was made in AY 2005-06 on the basis of the decision of the Hon'ble Karnataka High Court in Assessee's own case 2012 (8) TMI 87 - KARNATAKA HIGH COURT and therefore it cannot be said that the reopening of assessment was based on change of opinion. In the circumstances, we find no merits in these appeals by the assessee.

Summary

Issues:
1. Whether the payment made by the assessee for purchase of software licenses to non-residents constitutes royalty under the Income Tax Act, 1961.
2. Whether the assessee was required to deduct tax at source under section 195 of the Income Tax Act.
3. Validity of initiation of reassessment proceedings for Assessment Year 2005-06 based on change of opinion.

Analysis:
1. The primary issue in this case revolved around whether the payment made by the assessee for software licenses to non-residents constituted royalty under the Income Tax Act. The Revenue contended that tax should have been deducted at source under section 195 of the Act. The Revenue authorities disallowed claimed expenditures for non-deduction of tax at source, citing Sec.40(a)(ia) of the Act. The assessee argued that the payment was not royalty, but this plea was rejected based on a decision of the Karnataka High Court. The Tribunal held that the case was identical to the court's decision, and the appeal against it did not prevent following the court's decision. The Tribunal dismissed the appeals by the assessee, upholding the disallowance of claimed deductions.

2. The second issue was whether the assessee was required to deduct tax at source under section 195 of the Income Tax Act. The Revenue authorities held that tax should have been deducted on the payment for software licenses to non-residents. The assessee's argument that the payment was not royalty was rejected, and the disallowance of claimed expenditures was upheld. The Tribunal found the case similar to a Karnataka High Court decision and dismissed the appeals by the assessee, confirming the disallowance due to non-deduction of tax at source.

3. Regarding the validity of initiation of reassessment proceedings for Assessment Year 2005-06, the assessee challenged the initiation, claiming it was based on a change of opinion. However, the Tribunal noted that there were no proceedings under Sec.143(3) for the year in question, making the proviso to Sec.147 inapplicable. The reassessment was initiated based on a previous decision of the Karnataka High Court in the assessee's case, indicating no change of opinion. Consequently, the Tribunal found no merit in the appeals by the assessee and dismissed them.

In conclusion, the Tribunal upheld the Revenue's position that the payment for software licenses constituted royalty, requiring tax deduction at source. The Tribunal also found the reassessment proceedings valid, dismissing the appeals by the assessee.