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2019 (8) TMI 697 - AT - Income TaxTDS u/s 195 - assessee is a Indian company and the payees are foreign companies based in US, Ireland, Singapore, Australia, Israel etc. with their residential status being that of resident and non-resident respectively - default u/s. 201(1) - DTAA provisions - HELD THAT - Assessee has raised common grounds of appeal feeling aggrieved by the order of AO, and on the issue of DTAA, the assessee had raised general ground and therefore, in our considered opinion, there is no prohibition for the AO to pass a common order for all the assessment years. In all the cases before the AO, the payee (recipient) was non-resident. It is not disputed that payment was made for purchase of software. It is also not disputed before the AO that tax was not deducted as mandated by law before making payment. Therefore, all the necessary conditions as required under law for invoking provisions of s. 201 were in place and therefore in our view, the action on the part of lower authorities is in accordance with law. We hold accordingly. Regarding the arguments of the learned AR of the assessee that the orders passed by the AO are time barred, we respectfully follow the tribunal order in the case of Google as reproduced above and hold that these orders are not time barred as these are passed within six years. In the result, all the six appeals filled by the assessee in the proceedings u/s 201 201 (1A) are dismissed. Mistake rectifiable u/s 154 - addition of grossing up of tax u/s 195A - HELD THAT - There may be an argument that it is not an apparent mistake rectifiable u/s 154, the AO has also increased the demand in respect of Surcharge and Education Cess and it is a fact that the demand of TDS is as per provision of Income Tax Act in some years where the rate of withholding tax as per DTAA is higher and hence, not raising demand in respect of Surcharge and cess is an apparent mistake rectifiable u/s 154 and therefore, we hold that these orders u/s 154 are not bad in law although some demands raised in these orders may be bad in law and the same can be deleted on merit. Rate of tax is 15% in USA, UK, Austria and Canada and 20% in Spain because as per the assessee it is 10% for these countries also - HELD THAT - We find that as per Para 13 of the combined impugned order, learned CIT (A) has directed the AO to levy surcharge and cess only in respect of royalty payments made to vendors which are resident of such countries with which the DTAA with India allows withholding of more than 11.33% and in respect of other payments, he has deleted the levy of surcharge and cess. Hence, we find no merit ion these grounds also and these are also rejected. Interest u/s 201 (1A) - HELD THAT - This is a settled position of law as per the judgment of Hon ble apex court rendered in the case of Hindustan Coca Cola Beverage Pvt. Ltd. Vs. CIT 2007 (8) TMI 12 - SUPREME COURT that if tax is paid by the deductee, demands from deductor for tax u/s 201 (1) cannot be raised but the deductor has to pay interest u/s 201 (1A) till the date of payment taxes by the deductee. Hence, in our considered opinion, the ratio of this judgment is this that if tax was deductible by the payer, interest u/s 201 (1A) is payable by him till the payment of such tax by him or by the payee. Accordingly, we hold that there is no merit in Ground No. 7 and it is also rejected. Rectification u/s 154 - HELD THAT - A categorical finding is given by CIT (A) that as per the agreements between the assessee company and various parties to whom payments were made, the assessee company had to deduct TDS if required by law or by the income tax authorities and hence, there is no basis to infer that the assessee company had to bear the cost of taxes payable on remittances was to be borne by the assessee company. This finding of CIT (A) could not be controverted by the learned DR of the revenue and we find no infirmity in the ultimate finding of CIT (A) that there was no apparent mistake in the order passed by the AO which can be rectified u/s 154 On this aspect, we uphold the order of CIT (A). These grounds are rejected. Levy of surcharge and cess - This is the case of the department that in respect of royalty payment to those countries also for which DTAA prescribes withholding tax rate of 10%, surcharge and cess should be levies because no proof is brought on record by the assessee about proof of residency of those parties in those countries - HELD THAT - It is stated by CIT (A) that the assessee has submitted the details regarding software payments, name of vendor, country of vendor and amount paid and he has also stated in the same Para that he has gone through the details carefully. He has noted in the same Para that it was claimed by the assessee before him that withholding tax rate for payment of royalty to all countries in dispute except Greece is 10% but he has held that this claim is not correct and he has noted the withholding tax rate on payment of Royalty in respect of USA, UK, Austria, and Canada is 15% and the same for Spain is 20%. This shows that learned CIT (A) has not accepted the claim of the assessee without examination and verification. Hence, if this is the contention of the revenue that the vendors of Ireland, Netherland, Singapore, Israel, France, Germany, Australia and Belgium etc. are not residents of respective countries, the revenue should have brought on record some evidence in this regard. In the absence of any evidence even in one case that the vendor of a country of 10% withholding tax rate is in fact resident of some other country having higher withholding tax rate, we do not find any reason to interfere in the order of CIT (A). This Ground is also rejected.
Issues Involved:
1. Validity of the order passed by the CIT(A). 2. Jurisdiction and validity of notice, proceedings, and order. 3. Liability under sections 201(1) and 201(1A) of the Income Tax Act. 4. Declaration of the assessee as in default under section 201(1). 5. Jurisdiction, legality, and limitation of orders passed under sections 201(1) and 201(1A). 6. Legality of passing a single order for multiple assessment years. 7. Violation of judicial discipline by disregarding previous judgments. 8. Analysis of various explanations and clauses under section 9(1)(vi) of the Act and provisions of Double Taxation Avoidance Agreements (DTAA). 9. Confirmation of liability against the appellant contrary to the provisions of the IT Act and DTAA. 10. Classification of payments for software licenses as royalty payments. 11. Application of Explanation 4 to section 9(1)(vi) and retrospective default. 12. Retrospective default in tax deduction at source based on retrospective amendment. Detailed Analysis: 1. Validity of the Order Passed by the CIT(A): The Tribunal noted that the CIT(A) had passed a common order for multiple assessment years, which was challenged by the assessee. The Tribunal held that there was no prohibition in law for passing a common order for common questions of law. The grounds of appeal raised by the assessee were similar across all assessment years, and thus, a common order was deemed appropriate. 2. Jurisdiction and Validity of Notice, Proceedings, and Order: The assessee contended that the notices and proceedings were without jurisdiction and invalid. The Tribunal, however, upheld the jurisdiction of the authorities, stating that the proceedings were initiated correctly under the provisions of the Income Tax Act. 3. Liability Under Sections 201(1) and 201(1A) of the Income Tax Act: The assessee denied liabilities under sections 201(1) and 201(1A). The Tribunal held that the payments made by the assessee to foreign entities for software purchases were in the nature of royalty under section 9(1)(vi) and thus subject to tax deduction at source. The failure to deduct tax at source made the assessee liable under sections 201(1) and 201(1A). 4. Declaration of the Assessee as in Default Under Section 201(1): The Tribunal confirmed the CIT(A)'s decision declaring the assessee as in default under section 201(1) due to non-deduction of tax at source on payments for software licenses, which were classified as royalty. 5. Jurisdiction, Legality, and Limitation of Orders Passed Under Sections 201(1) and 201(1A): The assessee argued that the orders were without jurisdiction, not as per law, and barred by limitation. The Tribunal held that the orders were within the jurisdiction and not barred by limitation, referencing the decision in the case of Google where a six-year limitation period was applied for non-resident payees. 6. Legality of Passing a Single Order for Multiple Assessment Years: The Tribunal rejected the assessee's contention that a single order for multiple assessment years was unsustainable. It was held that there was no legal prohibition against passing a common order for multiple years when the issues involved were common. 7. Violation of Judicial Discipline by Disregarding Previous Judgments: The assessee claimed that the CIT(A) and AO violated judicial discipline by disregarding previous judgments in the assessee's own case. The Tribunal acknowledged the binding nature of previous decisions but emphasized the need to follow the correct legal principles, referencing the jurisdictional High Court's decisions in similar cases. 8. Analysis of Various Explanations and Clauses Under Section 9(1)(vi) of the Act and Provisions of DTAA: The Tribunal found that the CIT(A) had conducted a detailed analysis of the relevant explanations, clauses under section 9(1)(vi), and DTAA provisions. However, it was necessary to apply the correct legal principles as established by higher judicial authorities. 9. Confirmation of Liability Against the Appellant Contrary to the Provisions of the IT Act and DTAA: The Tribunal upheld the CIT(A)'s decision confirming the liability against the appellant, stating that the payments for software licenses were correctly classified as royalty under both the Income Tax Act and relevant DTAAs. 10. Classification of Payments for Software Licenses as Royalty Payments: The Tribunal confirmed that payments made by the assessee for software licenses were royalty payments under section 9(1)(vi) and relevant DTAAs, thus subject to tax deduction at source. 11. Application of Explanation 4 to Section 9(1)(vi) and Retrospective Default: The Tribunal held that Explanation 4 to section 9(1)(vi), inserted by the Finance Act, 2012 with retrospective effect from 1-6-1976, was applicable. The assessee's argument against retrospective default was rejected, and the Tribunal emphasized the binding nature of legislative amendments. 12. Retrospective Default in Tax Deduction at Source Based on Retrospective Amendment: The Tribunal dismissed the assessee's contention that there could not be a retrospective default in tax deduction at source based on retrospective amendments. The orders passed by the authorities were upheld as being in accordance with the law. Separate Judgments: The Tribunal delivered a single judgment for all issues raised, without separate judgments by individual judges. Conclusion: All appeals filed by the assessee and the revenue were dismissed, and the orders passed by the CIT(A) and AO were upheld. The Tribunal emphasized the need to follow binding precedents and correctly apply legal principles, confirming the classification of software payments as royalty and the assessee's liability under sections 201(1) and 201(1A).
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