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2014 (1) TMI 391 - AT - Income TaxTDS u/s 194J - Whether payments made for computer software be considered as royalty or not Held that - There is no requirement to give specific direction on the applicability of the jurisdictional High Court judgment as it is binding on AO to follow the principles laid down by the Hon ble jurisdictional High Court - AO is also directed to examine whether the principles laid down by the Hon ble Bombay High Court in the case of CIT vs. Kotak Securities Ltd 2011 (10) TMI 24 - Bombay High Court wherein the view that due to the bonafide belief if a person does not deduct the tax while making payment, then there can be no disallowance under section 40(a)(ia) of the Act. - This aspect also should be considered by AO - The issue was restored to the file of AO. Rectification of mistake - Disallowance under section 40(a)(ia) Whether tax already paid by the deductee be recovered again from the assessee - Held that - Since provisions of section 40(a)(ia) and section 201 operate in a different context, the Bench thought it fit not to give any specific direction but only to place on record the fact whether the recipient paid the taxes or not - This direction was already given in the order Thus no direction can be given specifically for application.
Issues:
1. Mistakes in the ITAT order regarding the judgment of the jurisdictional High Court, consideration of payments for computer software as royalty, and the binding decision of the Supreme Court. 2. Disallowance of an amount under section 40(a)(ia) due to non-deduction of TDS on software purchase. 3. Specific directions requested by the assessee on the High Court judgment and Supreme Court principles. Analysis: Issue 1: Mistakes in the ITAT Order The assessee raised objections against the ITAT order concerning three key mistakes. Firstly, the judgment of the jurisdictional High Court in a specific case was discussed during arguments, but no finding was included in the order. Secondly, the issue of considering payments for computer software as royalty was not pursued due to a pending matter before the High Court of Bombay. Lastly, the ITAT directed the Assessing Officer (AO) to examine the tax payments by certain companies based on a Supreme Court decision but did not provide direction on disallowance under section 40(a)(ia). Issue 2: Disallowance under Section 40(a)(ia) The primary issue revolved around the disallowance of a substantial amount under section 40(a)(ia) due to non-deduction of Tax Deducted at Source (TDS) on software purchases from Indian residents. The ITAT noted that the issue was in favor of the assessee based on a previous decision but referred the matter back to the AO following a High Court decision on payments to non-residents being classified as royalty. The AO was directed to reevaluate the issue considering various judicial authorities' pronouncements and the nature of the transactions. Issue 3: Specific Directions Requested The assessee sought specific directions on the applicability of the High Court judgment and the Supreme Court principles regarding tax payments by recipients under section 40(a)(ia). The ITAT modified the order to include directions for the AO to consider the High Court judgment's view on non-deduction of tax due to a genuine belief. However, regarding the Supreme Court principles, the ITAT clarified that the context of recovery under section 201 differs from disallowance under section 40(a)(ia), and no specific direction was given on this matter. In conclusion, the Miscellaneous Application by the assessee was partly allowed, addressing the specific directions requested while clarifying the application of legal principles in the context of the case. This detailed analysis highlights the key issues raised, the ITAT's considerations, and the modifications made to the order to address the concerns raised by the assessee.
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