2019 (8) TMI 48 - AT - Income Tax

TDS u/s 195 - disallowance of payment made to Aveva Solutions Ltd. UK for copyrighted software products u/s 40(a)(ia) - non-deduction of tax at source as required - HELD THAT - The issue of non-deduction of TDS at source on payment made to its parent company Aveva Solutions Ltd., England, in light of provisions of section 201(1) and 201(1A) and held that the assessee was not liable to deduct tax at source and also it cannot be treated as assessee in default for the impugned year in respect of payment made for purchase of copyrighted software. Therefore, considering all and in assessee s owns case 2017 (9) TMI 513 - ITAT MUMBAI we are of the considered view that payment made by the assessee to its parent company for purchase of copyrighted software to be distributed in India for end users cannot be considered as royalty within the definition of royalty as defined u/s 9(1)(vi) consequently, the assessee is not required to deduct tax at source u/s 195 of the Act and hence, no disallowance could be made u/s 40(a)(ia). Therefore, we direct the Assessing Officer to delete additions made towards disallowance u/s 40(a)(ia) of the Act. Short credit of TDS - HELD THAT - Assessee submitted that the issue may be setaside to the file of the Assessing Officer to verify the facts to ascertain whether is there any credit for TDS and also to grant credit, therefore, we set-aside the issue to the file of the AO and directed the Assessing Officer to call necessary enquiries in light of evidence filed by the assessee including TDS certificate if, any and grant relief accordingly. Levy of interest u/s 234B and 234C is mandatory and consequential in nature, therefore, we direct the AO to verify the facts in light of provisions of section 234B and compute interest as applicable on the basis of total income computed for the year under consideration. We further direct the Assessing Officer to compute 234C interest on returned income.

Issues Involved:
1. General ground of appeal.
2. Payments made by the Appellant to AVEVA Solutions Limited (AVEVA UK) as royalty.
3. Disallowance under Section 40(a)(ia) of the Act.
4. Short grant of TDS credit.
5. Levy of interest under Section 234B of the Act.
6. Levy of interest under Section 234C of the Act.
7. Initiating penalty proceedings under Section 271(1)(c) of the Act.

Issue-wise Detailed Analysis:

1. General Ground of Appeal:
The assessee argued that the total income was incorrectly assessed at ?1887,70,640/- against the returned income of ?5,31,20,670/-. The CIT(A) was also claimed to have disregarded the submissions and held that the assessee failed to prosecute the appeal. This ground was dismissed as not pressed and did not require specific adjudication.

2. Payments Made by the Appellant to AVEVA Solutions Limited (AVEVA UK) as Royalty:
The assessee contended that the payments made to AVEVA UK under a distribution agreement were not royalty and thus not subject to tax under Article 13 of the India-UK Tax Treaty or Section 9(1)(vi) of the Act. The Assessing Officer (AO) and CIT(A) held that the payments were indeed royalties and required TDS under Section 195 of the Act. The Tribunal found that the payments were for distributing copyrighted software and not for acquiring copyrights, referencing the decision in the assessee's own case for AY 2007-08. Thus, the payments were not considered royalties, and the assessee was not required to deduct tax at source.

3. Disallowance Under Section 40(a)(ia) of the Act:
The AO disallowed the payment to AVEVA UK amounting to ?13,06,49,972/- for non-deduction of tax at source under Section 195 of the Act. The Tribunal, referencing previous decisions, held that the payments were not royalties and thus not subject to TDS under Section 195, leading to the conclusion that no disallowance under Section 40(a)(ia) was warranted. The AO was directed to delete the additions made under this section.

4. Short Grant of TDS Credit:
The assessee claimed a short credit of taxes deducted at source amounting to ?6,81,907/-. The Tribunal set aside this issue to the AO to verify the facts and grant the appropriate credit for TDS based on the evidence provided, including TDS certificates.

5. Levy of Interest Under Section 234B of the Act:
The assessee challenged the levy of interest amounting to ?1,00,86,236 under Section 234B. The Tribunal noted that the levy of interest under this section is mandatory and consequential. The AO was directed to verify the facts and compute the interest based on the total income for the year.

6. Levy of Interest Under Section 234C of the Act:
The assessee also contested the levy of excess interest amounting to ?27,624 under Section 234C. Similar to Section 234B, the Tribunal directed the AO to compute the interest on the returned income, as the levy is mandatory and consequential.

7. Initiating Penalty Proceedings Under Section 271(1)(c) of the Act:
The initiation of penalty proceedings was challenged by the assessee. The Tribunal found this ground premature and dismissed it as infructuous, indicating it did not require adjudication at that point.

Conclusion:
The appeal was partly allowed for statistical purposes. The Tribunal directed the AO to delete the disallowance under Section 40(a)(ia) and to verify and grant the correct TDS credit. The interest under Sections 234B and 234C was to be computed as per the provisions based on the total income. The penalty proceedings issue was dismissed as premature.

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