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2020 (10) TMI 931 - AT - Income TaxTDS u/s 195 - Non deduction of TDS on subscription charges - demand raised u/s 201(1) and 201(1A) - as per AO payment so made by the assessee for getting the license to use data base of M/s Gartner group is in the nature of royalty - HELD THAT - As decided in M/S. ACER INDIA PRIVATE LTD. case 2020 (10) TMI 450 - ITAT BANGALORE assessee cannot 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 2009 (9) TMI 526 - KARNATAKA HIGH COURT . Accordingly, the demand raised in the hands of the assessee u/s 201(1) and 201(1A) for assessment years 2009-10 to 2011-12 could not be sustained and the demands raised in respect of payments made prior to 15.10.2011 in assessment year 2012-13 could also not be sustained. - Decided in favour of assessee.
Issues Involved:
1. Whether the payment made by the assessee to M/s Gartner Group constitutes royalty. 2. Whether the assessee is liable to deduct tax at source on the payments made to M/s Gartner Group. 3. Whether the assessee can be treated as an assessee in default for not deducting tax at source prior to the clarification by the High Court. Issue-wise Detailed Analysis: 1. Payment Constituting Royalty: The primary issue revolves around whether the payment made by the assessee to M/s Gartner Group for subscription charges to access their database and research products constitutes royalty. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that such payments are in the nature of royalty under the provisions of the Income-tax Act, 1961 and the Double Taxation Avoidance Agreement (DTAA). This view was supported by the Karnataka High Court's decisions in the cases of CIT vs. Infosys Technologies Ltd. and CIT vs. Samsung Electronics Co. Ltd., which classified similar payments as royalty. 2. Liability to Deduct Tax at Source: The assessee argued that it had been making similar payments in previous years without deducting tax at source, based on a favorable decision by the Tribunal in earlier assessment years (AY 2001-02, 2002-03, and 2003-04). The Tribunal had previously ruled that payments made to M/s Gartner Group were not liable for taxation in India, and thus, no tax was required to be deducted at source under Section 195 of the Act. However, the Karnataka High Court later reversed this decision, holding that such payments are indeed in the nature of royalty, thereby necessitating tax deduction at source. 3. Assessee in Default Prior to High Court Clarification: The assessee contended that it was under a bona fide belief, based on the Tribunal's earlier decision, that no tax deduction at source was required. This belief persisted until the Karnataka High Court clarified the law on October 15, 2011. The assessee argued that it should not be treated as an assessee in default for the period before this clarification. The Tribunal examined similar issues in other cases, such as M/s Acer India Private Limited vs. DCIT, where it was held that the liability to deduct tax at source cannot be imposed retrospectively based on subsequent judicial rulings or amendments. The Tribunal cited several cases, including Infineon Technologies India P Ltd and Teekays Interior Solutions P Ltd, to support the principle that TDS liability cannot be fastened retrospectively. Tribunal's Conclusion: The Tribunal concluded that the assessee could not be treated as an assessee in default for payments made prior to the Karnataka High Court's decision on October 15, 2011. The Tribunal directed the AO to delete the demands raised under Sections 201(1) and 201(1A) of the Act for the payments made before this date. This decision was consistent with the principles established in previous cases, where the courts held that retrospective imposition of TDS liability is not permissible. Final Order: The Tribunal allowed the assessee's appeal, setting aside the CIT(A)'s order and directing the AO to delete the demands raised for the relevant assessment year. The decision emphasized that the assessee's bona fide belief, based on earlier Tribunal rulings, shielded it from being treated as an assessee in default for the period before the High Court's clarification.
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