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2020 (12) TMI 527 - AT - Income TaxNon deduction of tds u/s 195 - Levy of interest u/s 201(1A) - withholding tax on purchase of software - AO held that the payment made for purchase of license to use a software was royalty income in the hands of non-resident accordingly, assessee should have deducted tax at source under section 195 - HELD THAT - In the instant case, assessee was under bonafide belief that it was not required to deduct tax at source from the payments made for purchase of software as relying on Teekays Interior Solutions P Ltd 2019 (4) TMI 193 - ITAT BANGALORE and Infineon Technologies India P Ltd 2020 (8) TMI 808 - ITAT BANGALORE . Subsequently, Hon ble Karnataka High Court in CIT vs. Samsung Electronics Co. Ltd 2011 (10) TMI 195 - KARNATAKA HIGH COURT held that the payments made for purchase of software was in the nature of royalty and the said decision came to be pronounced on 15.10.2011. Accordingly, the present facts of case assessee could not be treated as an assessee in default in respect of payments made for purchase of licensed software prior to 15.10.2011, being the date of pronouncement of the decision in the case of Samsung Electronics Co. Ltd (supra). Accordingly, demand raised in the hands of the assessee u/s 201(1) and 201(1A) cannot not be sustained and the demands raised in respect of payments made prior to 15.10.2011 in assessment year 2012-13 deserves to be quashed. We delete penalty levied under section 201 (1) and (1A) Penalty under section 271C for non-deduction of TDS - HELD THAT - As expressed in the present facts of the case, assessee cannot be held to be in default for non-deduction of TDS. Under such circumstances the penalty levied under section 271C deserves to be quashed and set-aside.
Issues:
- Non-deduction of tax at source on purchase of software - Applicability of sections 201 and 271C of the Income Tax Act - Validity of penalty under section 271C - Interpretation of judicial decisions on tax deduction Analysis: 1. The appeals were filed against orders passed by the Ld. CIT (A) for assessment year 2010-11. The main contention was the non-deduction of tax at source on the purchase of software licenses. The appellant argued that the requirement for withholding tax was introduced after the transactions took place and that the payments were not liable for deduction under the Act or tax treaty provisions. The appellant also challenged the imposition of interest under section 201(1A) and the penalty under section 271C. 2. The Ld. CIT (A) upheld the actions of the Assessing Officer (AO) by relying on judicial decisions, including the Karnataka High Court ruling in a specific case. The AO treated the appellant as in default for not deducting tax at source on software purchases. However, the appellant contended that they were under a genuine belief that TDS was not required based on precedents from the Tribunal. 3. The Tribunal analyzed the facts and relevant legal provisions. It noted that the Karnataka High Court's decision on software purchases being considered as royalty income was pronounced after the transactions in question. Therefore, the demands raised under sections 201(1) and 201(1A) for payments made before the court's decision could not be sustained. The Tribunal set aside the penalties imposed under these sections based on the legal position. 4. The Tribunal referred to its previous decisions in similar cases where it held that the appellant could not be treated as in default for non-deduction of TDS on software purchases made before the court's ruling. Consequently, the penalties under section 271C were also quashed. The Tribunal allowed the appeals filed by the appellant and directed the deletion of the demands raised under sections 201(1) and 201(1A) as well as the penalties under section 271C. 5. In conclusion, the Tribunal ruled in favor of the appellant, considering the timing of the judicial pronouncements and the appellant's reasonable belief regarding TDS requirements. The judgments highlighted the importance of legal precedents and the impact of court decisions on tax liabilities, ultimately leading to the setting aside of penalties and demands raised by the tax authorities. Judges: - Shri. B. R. Baskaran, Accountant Member - Smt. Beena Pillai, Judicial Member
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