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TMI Blog2009 (9) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate power u/s 250 of the Act and, therefore all orders passed by Tribunal for allowing the appeals of the assessee filed under section 253 of the Act and, therefore order passed by the Tribunal declared illegal and not sustainable. - 1053/06 and others - - - Dated:- 24-9-2009 - SHYLENDRA KUMAR D. V. and ARAVIND KUMAR JJ. ITA NO 1053/06, ITA NO 1055/06, ITA NO 1056/06, ITA NO 1060/06, ITA NO 1061/06, ITA NO 1062/06, ITA NO 1066/06, ITA NO 1067/06, ITA NO 1203/06, ITA NO 1204/06, ITA NO 1205/06, ITA NO 1206/06, ITA NO 1207/06, ITA NO 1208/06, ITA NO 1209/06, ITA NO 1210/06, ITA NO 1211/06, ITA NO 1212/06, ITA NO 1213/06, ITA NO 1214/06, ITA NO 1215/06, ITA NO 1216/06, ITA NO 1217/06, ITA NO 1218/06, ITA NO 1219/06, ITA NO 1220/06, ITA NO 1221/06, ITA NO 1222/06, ITA NO 1223/06, ITA NO 1224/06, ITA NO 1225/06, ITA NO 1236/06, ITA NO 1237/06, ITA NO 1238/06, ITA NO 1239/06, ITA NO 1240/06, ITA NO 1241/06, ITA NO 1242/06, ITA NO 1243/06, ITA NO 1244/06, ITA NO 1246/06, ITA NO 1247/06, ITA NO 1248/06, ITA NO 1250/06, ITA NO 1251/06, ITA NO 1258/06, ITA NO 1264/06, ITA NO 1265/06, ITA NO 1268/06, ITA NO 1269/06, ITA NO 1270/06, ITA NO 265/06, ITA NO 266/06, ITA NO 268/0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contemplated for deduction under section 195 of the Act are all not sustainable. 2. The Income-tax Appellate Tribunal acting as the second appellate authority under the Act having passed the leading judgment in the case of Samsung Electronics Co. Ltd., India Software Operations, No. 67. Infantry Road, Bangalore-560 001 as per its judgment dated February 18, 2005, passed in I. T. A. Nos. 264 to 266/Bang/2002 ([2005] 276 ITR (AT) 1 (Bangalore)) relating to the assessment years 1999-00, 2000-01 and 2001-02 in the case of M/s. Samsung Electronics Co. Ltd., India Software Operations, No. 67, Infantry Road, Bangalore-560 001 holding that the Income-tax Officer as well as the first appellate authority were both wrong in taking the view that the payments made by the resident payer for purchase of computer programme which is also called software in commercial parlance is in the nature of a royalty payment and, therefore, obligation to deduct and remit the amount under section 195 of the Act had not been cast on the remitter. 3. The Income-tax Appellate Tribunal has by and large followed the ruling rendered in Samsung Electronics Co. Ltd.' s case in respect of all other assessees for dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 17,13,912 70,874 Against the said orders, the assessee moved appeals before the Commissioner of Income-tax (Appeals). However, by the impugned common order dated November 29, 2001, the appeals were dismissed by the Commissioner of Income-tax (Appeals). Against the said finding, the assessee is in appeal before the Tribunal." 5. The Tribunal for the purpose of allowing the appeals of the assessees though has concluded in all the cases that it was not incumbent on the assessees to deduct any amount under section 195 of the Act and if so the consequence under section 201 of the Act also does not follow, has examined the character of payment in the hands of the non-resident recipient and has held that it is not payment in the nature of royalty for the reason that the payment does not partake of the character of royalty in terms of the relevant articles of the Double Taxation Avoidance Agreement (for short "the DTAA") entered into with several countries and relevant for the purpose of each payment. 6. While the nature of payment is tested on the touchstone of a royalty payment as defined in respect of the Double Taxation Avoidance Agreements and the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the software, also known as "shrinkwrapped ready to sell, off the shelf software" having regard to the purpose for which the different assessees might have acquired the software and the manner of its use/application such as the assessee in the case of some of these appeals like M/s. Sonata Corporation being traders of the software which they acquired/purchased from the non-resident supplier acting as a distributor for non-resident supplier but other assessees as in the case of Samsung itself have acquired the software for producing the end product in which the software is employed or utilized or even wherein software can find applications in the manufacturing/production activity of the assessee itself such as in the case of GE India Technologies Private Limited, etc. 10. The questions that have arisen for examination in the different appeals by the Revenue are framed with corresponding variations depending upon the facts and circumstances of the particular assessee, but the basic question as to whether there was an obligation to deduct and remit the amount in terms of section 195 of the Act in respect of remittances made to the non-resident is sought to be made as a common questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 12. In the background of such variations, the questions of law representative/illustrative of each category that have been raised in these appeals and for examination of which questions, these appeals have been admitted are noticed as under: "1. Whether the Tribunal was correct in holding that an appeal was maintainable under section 248 of the Act, even though there was no adjudication by the authorities under the Act in accordance with section 195(3), (4) and (5) read with section 200 of the Act ? 2. Whether the Tribunal was correct in holding that the payments made by the assessee-company for purchase of software from Aaymetrix Asia Pacific, Singapore; Peritus Software Service Inc., USA and Astral Computers Pvt. Ltd., Singapore for the amounts of Rs.3,43,095, Rs. 47,89,419 and Rs. 8,89,611 was not liable to incometax in India and consequently no tax deducted at source as held by the Assessing Officer and confirmed by the Appellate Commissioner needs to have been deducted ? 3. Whether the Tribunal was correct in merely following the judgment passed by it in the case of Samsung Electronics Co. Ltd. which has not been accepted by the Revenue and appealed against before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the copyright, i.e., the software and not the entire copyright itself, the payment cannot be treated as royalty as per the Double Taxation Avoidance Agreement and Treaties which is beneficial to the assessee and consequently section 9 of the Act should not take into consideration. 9. Whether the Tribunal was correct in holding that the payment partakes of the character of purchase and sale of goods and, therefore, cannot be treated as royalty payment liable to income-tax." 13. It is in the background of such developments and the questions having arisen for examination in these appeals, arguments are advanced. 14. While Sri Seshachala, learned senior standing counsel appears for the appellant-Revenue along with Sri K. V. Aravind, learned junior standing counsel, in all these cases, many learned senior counsel instructed by their counsel on record have appeared and made submissions for the assessees as mentioned below and we have examined all such submissions. 15. Sri K. P. Kumar, learned senior counsel appears for M/s. Universal Legal, counsel for the respondents-assessees in I. T. A. Nos. 2808 of 2005, 2809 of 2005, 2810 of 2005 and for M/s. King and Partridge, learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is noticed in the assessment order that the Assessing Officer had held that though the rate of tax on royalty as per section 115A is as per the Double Taxation Avoidance Agreements and a different percentage is fixed for different categories, has come to the conclusion that the entire payment, is to be taxed at 10 per cent. as giving the maximum benefit to the assessee is just and proper. 17. Per contra Sri K. P. Kumar. learned senior counsel appearing for the respondent would pose the following question for being answered, namely, whether the NRI is chargeable to tax in India and attempts to answer the question by contending that the Tribunal in paragraph 5.1 at page 35 has held that the assessee was not correct in law in contending that this case is not covered by section 9(1)(vi) of the Act. 18. Sri Seshachala would contend that the first appellate authority at page 93 has examined the effect of the Double Taxation Avoidance Agreements, the definition assigned thereunder and also the meaning to be assigned to them. He contends that the royally as defined under section 9(1)(vi) of the Act and the same defined under articles 12 and 13 of the Double Taxation Avoidance Agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment relied upon by the Revenue has not at all been examined by the Tribunal. Sri Seshachala has formulated the following points for addressing the arguments. (i) The assessee was bound to deduct tax under section 195 of the Act and he cannot contend that it is not the income of the recipient. (ii) The payment is covered by section 9(1)(vi) of the Act. (iii) The Tribunal did not consider whether the assessee can question the taxability of the recipient under section 201(1) and 201(1A). (iv) Software is a scientific work and liable to tax under section 9 read with the Double Taxation Avoidance Agreement and relies upon the decision in the case of Transmission Corporation of A. P. Ltd. v. CIT [1999] 239 ITR 587 (SC)) at paragraph 8. 22. Sri K. P. Kumar, learned senior counsel appearing for the respondent would contend that the words used in section 195 is "chargeable to tax" . Hence, a person deducting tax under section 195 would have to necessarily first see whether the same is chargeable to tax and then only if it is so he has to deduct and if it is not deemed income within the scope of section 9(1)(vi) of the Act. then if it is to be taken to be a trading receipt it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not "intellectual property" and does not by sale, transfer any right in the copyright itself but it is only the sale of a copy of the copyrighted material, that no intellectual property is embedded in the disc and thus it amounts to goods. 23. Elaborating the submission Sri Kumar contends that: by reading article 366(12) of the Constitution with section 2(7) of the Sale of Goods Act, software is to be held as goods and the ratio in TCS case [2004] 271 ITR 401 (SC) is squarely applicable and thus software mark and seal becomes goods which aspect has been looked into and considered in the TCS case. Sri Kumar contends that prior to amendment to section 201 of the Act, it contained a qualifying words "no such person"; this means it refers to section 200 and thus the respondent does not come within the ambit of deemed defaulter, as the payment was not in the nature of a royally payment. 24. It is contended by the learned counsel for the assessee that once they do not come under the charging provisions, namely, section 4 the question of deducting the tax does not arise as required under section 195 inasmuch as section 195 contemplates the deduction of tax only in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year is chargeable under section 4(2). Section 4 provides that in respect of income chargeable under sub-section (1), income-tax shall be deducted at source where it is so deductible under any provision of the Act. If the sum that is to be paid to the non-resident, is chargeable to tax, tax is required to be deducted. Emphasising the word "if" that if $ 5000 is carried from this country then obviously it is not income, there is no question of deducting the money at source; that if a gift is made there is no element of income in the payment and draws attention to the Board's circular which says that if a commission is paid to the person who carries on a commission business abroad and services are rendered in the other country that is not to be subject to tax that if goods are bought in the foreign country and brought to this country then there is no liability to tax in this country. 26. The submission by learned counsel for the assessees is as under, the sum which is to be paid may be income out of different heads of income provided under section 14 of the Act, that is to say, income from salaries, income from house property; profits and gains of business or profession; c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum is to be deducted and it is the statutory obligation of the person responsible for paying such "sum" to deduct tax thereon before making payment. He has to discharge the obligation of tax deduction at source that the intention of the Legislature is gross sum with reference whatever, then the provisions of the Act could have been omitted. 30. Sri Ganesh learned senior counsel appearing for the assessee would contend that the assessee was able to demonstrate that the payment made to a non-resident was not at all chargeable to tax and, therefore, no obligation on the resident payer to deduct on payment. Sri Ganesh submits that Transmission Corporation of A. P. Ltd.'s case [1999] 239 ITR 587 (SC) is not an authority to hold that even when there is no chargeability there is an obligation to deduct tax under section 195(1) of the Act, unless one has gone through the process of section 195(2) of the Act. 31. Sri Ganesh submits that the judgment of the Supreme Court fully supports the case of the assessee, that the entire payment is not chargeable to levy in terms of the charge under section 4 of the Act, then no obligation to deduct at all under section 195 of the Act. 32. Lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qually bad in law and if the Tribunal has ultimately allowed the appeals of the assessees to arrive at this result, there is absolutely no need for the High Court to interfere in the appeals filed by the Revenue under section 260A of the Act. 33. Learned counsel for the assessees, in support of their contentions, have relied on the following judgments: CIT v. Superintending Engineer [1985] 152 ITR 753 (AP); CIT v. Vijay Ship Breaking Corporation [2003] 261 ITR 113 (Guj); Vijay Ship Breaking Corporation v. CIT [2009] 314 ITR 309 (SC); CIT v. Cooper Engineering Ltd. [1968] 68 ITR 457 (Bom); CIT v. Vasavi Pratap Chand [2002] 255 ITR 517 (Delhi); ITO v. Shriram Bearings Ltd. [1987] 164 ITR 419 (Cal); CIT v. Wesman Engineering Co. P. Ltd. [1991] 188 ITR 327 (SC); ITO v. Sriram Bearings Ltd. [1997] 224 ITR 724 (SC); CIT v. Tata Engineering and Locomotive Co. Ltd. [2000] 245 ITR 823 (Bom); CIT v. P. V. A. L. Kulandagan Chettiar [2004] 267 ITR 654 (SC); Deputy CIT v. Torqouise Investment and Finance Ltd. [2008] 300 ITR 1 (SC); Anjaleem Enterprises (P) Ltd. v. CCE [2006] 2 SCC 336; CCE v. Hewlett Packard P. India Sales (P) Ltd. [2007] 8 SCC 404; Sprint R P G In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in purpose of levying tax on the income of the resident or non-resident, i.e., where under certain circumstances certain types of incomes are exempted from the net of taxation, which means that the assessee though has received the amount which otherwise definitely could have been treated as income will not become income for the purpose of computation of the liability to tax under the Act in view of the exemption. 37. It is, therefore, clear that both the charging section and the exemption provisions should always be construed strictly and there is no scope for unduly expanding the scope of levy, by a process of interpretation. 38. Having regard to the scheme of the Income-tax Act, namely, that income of the previous year is brought to tax in the following year, known as assessment year and for the Assessing Officer to finalize the assessment and to determine the specific tax liability of the assessee, it necessarily involves an exercise of gathering information, seeking for further explanation and then passing orders, etc., there is bound to be a time gap between the actual earning of the income and the date of determination of the tax liability and as it was the experience of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emed to have accrued or deemed to have arisen to the nonresident in India, such income, is income which is taxable in India. 40. In all the above appeals, the discussion proceeds on the premise that the payments have all been made to foreign suppliers who are all non-residents within the meaning of sections 4, 5, 6 and 9 of the Act and by the conjunctive reading of these provisions if it is to be held that the payment in the hands of non-resident is in the nature of payment which can be otherwise be called income, the significance for the present purpose is that the resident payers such as the appellants are definitely under an obligation to make deductions in terms of section 195 of the Act and to remit the same within the stipulated period to the account of the Revenue. A failure may result in the defaulting resident (assessee) payer being treated as a defaulter or even being proceeded against, for recovery of the amount which the resident payer should have deducted and remitted to the credit of the Income-tax Department. 41. It is in this background, considerable effort has been put in by the learned senior counsel appearing for the assessees to impress upon us that in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ckages as though it is an exercise of passing an assessment order for determining the tax liability of the non-resident assessee receiving the payment although the respondents in all these appeals are quite aware that it is not actually an exercise for determination of the tax liability of the non-resident but is only in the context of the obligation of a resident-assessee making payments to the non-resident as contemplated under section 195 of the Act. 46. It is precisely because the payers, i.e., the resident assessees are aware that in terms of section 195 of the Act they are under an obligation to so deduct a percentage of the payment while making payment to the nonresident and also to remit that amount to the Revenue within the stipulated time and as this is an obligation which cannot be otherwise got rid of or can be wriggled out of learned counsel for the assessees have resorted to the above noticed arguments and a good number of authorities are cited in support of such contentions. 47. However, on the part of the Revenue, the submission of Sri Seshachala, learned senior standing counsel is straight and simple and to point out that the nature of the obligation on the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable: (3) Subject to rules made under sub-section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make an application in the prescribed form to the Assessing Officer for the grant of a certificate authorizing him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1). (4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation. (5) The Board may, having regard to the convenience of assessees and the interests of Revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act are attracted even when the entire payment to a foreign nonresident does not partake of the character of income but only some part of that payment partakes of the character of income and even then the deduction is obligatory on the part of the payer if the entire payment does not necessarily become income and that the present situations and appeals are not appeals involving such questions but only appeals involving the question as to whether the payment or any part of the payment has a character of income within the meaning of section 9 of the Act read with the charging section and that, the contention being that no part of the payment made to the non-resident can become income either under the Income-tax Act or enjoys an exemption under the Double Taxation Avoidance Agreements, and if so then no part of such payment being taxable in India and, therefore, in the absence of fulfilment of requirement of section 195(1) of the Act, the further non-compliance with the requirements of sub-sections (2), (3), (4), (5) of section 195 of the Act may not even arise for examination, such argument cannot be accepted for the simple reason that in the first instance there is no exercise f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 594): "8. The scheme of sub-sections (1), (2) and (3) of section 195 and section 197 leaves no doubt that the expression ' any other sum chargeable under the provisions of this Act' would mean ' sum' on which income-tax is leviable. In other words, the said sum is chargeable to tax and could be assessed to tax under the Act. The consideration would be-whether payment of sum to non-resident is chargeable to tax under the provisions of the Act or not ? That sum may be income or income hidden or otherwise embedded therein. If so, tax is required to be deducted on the said sum, what would be the income is to be computed on the basis of various provisions of the Act including provisions for computation of the business income, if the payment is trade receipt. However, what is to be deducted is incometax payable thereon at the rates in force. Under the Act, total income for the previous year would become chargeable to tax under section 4. Sub-section (2) of section 4, inter alia, provides that in respect of income chargeable under sub-section (1), income-tax shall be deducted at source where it is so deductible under any provision of the Act. If the sum that is to be paid to the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be deducted at source. If no such application is filed income-tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such 'sum' to deduct tax thereon before making payment. He has to discharge the obligation of tax deduction at source. 9. The High Court of Calcutta considered and interpreted a similar provision of section 18(3B) of the Indian Income-tax Act, 1922, in the case of P. C. Ray and Co. (India) Private Ltd. v. A. C. Mukherjee, ITO [1959] 36 ITR 365 (Cal), and rightly held (page 377): 'if "chargeable under the provisions of this Act" means actually liable to be assessed to tax, in other words, if the sum contemplated is taxable income, a difficulty is undoubtedly created as to complying with the provisions of the section.' The High Court further held that section 18(3B) contemplated not merely amounts, the whole of which was taxable without deduction, but amounts of a mixed composition, a part of which only might turn out to be taxable income, as well; and the disbursements, which were of the nature of gross revenue receipts, were yet sums chargeable under the provisions of the Income-tax Act and came within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in any way detract from the constitutional mandate of article 141 wherein it is emphatically made clear that the law declared by the Supreme Court shall be binding on all courts within the territory of India and the interpretation of the Supreme Court having clarified the legal position of section 195 of the Act, that interpretation is the law declared and binding on all courts in this country and whether the assessees like it or not it has to be necessarily applied to the cases on hand and the judgment rendered in each case, on such application of the law declared by the Supreme Court, to the facts of the particular case. 54. In this background, the picture that emerges is that while under section 195(1) of the Act, there is an obligation on the part of the person responsible for paying to a non-resident does arise if and only if the payment partakes of the character of income payment, in the sense that, if an amount is not in the nature of income payment at all, then section 195(1) of the Act does not operate, we cannot lose sight of the fact that section 195(1) of the Act is not a provision for assessing the tax liability of a non-resident nor as to whether under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procedure envisaged under section 195(2) of the Act and on making an application in this regard and for the said purpose to the Assessing Officer and in the absence of such an application by the resident payer, assuming that an appeal is filed by the resident payer against the consequential order passed by the Assessing Officer under section 201 of the Act, for the very reason, we have indicated earlier that the question cannot be raised even in the appeal filed under section 246 of the Act against the order under section 201 of the Act and the bar as we have indicated earlier in the wake of the requirement of section 195(2) of the Act for such purpose and in the wake of the binding judgment of the Supreme Court in Transmission Corporation of A. P. Ltd.'s case [1999] 239 ITR 587 even the Appellate authority in the appeal of the assessee under section 246 of the Act as against the order of the Assessing Officer passed under section 201 of the Act is precluded from going into such question and if so, it is not open even to the Appellate Tribunal to venture a finding an answer to the very question in the assessee' s further appeal to the Tribunal and the opinion rendered by the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of section 192 shall pay, within the prescribed time, the tax to the credit of the Central Government or as the Board directs. With effect from April 1, 2005, in section 200, after sub-section (2), the following sub-section shall be inserted, namely: (3) Any person deducting any sum on or after the 1st day of April, 2005, in accordance with the foregoing provisions of this Chapter or, as the case may be, any person being an employer referred to in subsection (1A) of section 192 shall after paying the tax deducted to the credit of the Central Government within the prescribed time, prepare quarterly statements for the period ending on the 30th June, the 30th September, the 31st December and the 31st March in each financial year and, deliver or cause to be delivered to the prescribed income-tax authority or the person authorised by such authority such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed. 201. Consequences of failure to deduct or pay.-(1) If any such person referred to in section 200 and in the cases referred to in section 194, the principal officer and the company of which he is the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all within the meaning of this expression and does not get into the total income or for the reason that even when it is income under the provisions of the Act, it becomes not taxable in India in view of the provisions of the Double Taxation Avoidance Agreement having provided that such income of the nonresident assessee as they are all virtually exercises to be embarked only at the time of determination of the actual tax liability of the non-resident assessee and in the absence of a return being filed by the non-resident assessee, examination of such questions does not arise while the Assessing Officer is in the exercise of taking consequential action on an assessee who has failed to fulfil his obligation under section 195(1) of the Act and, therefore, goes against the assessees and are answered accordingly. 59. While examining the scope and the extent of applicability of the provisions of section 195 of the Act, we cannot lose sight of the fact that this section in the first instance is not a charging section nor a section providing for determination of the tax liability of the non-resident who is in receipt of payments from a resident. 60. The section itself occurs in Chap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere the scope for such reduction through the application at the instance of a resident payer is only to the extent of demonstrating as to what percentage of the payment bears the character of income and seek for permission to deduct only such proportionate sum from out of the actual payment which is chargeable to tax as income of the non-resident recipient. 63. Even here, one should bear in mind that it is not actually either an exercise for the assessment of the income of the non-resident nor the actual tax determination of the non-resident. 64. As we are of the opinion that section 195 of the Act is not at all a provision wherein the Assessing Officer is required to indulge in an exercise of determination of the income of a non-resident and that can be done only on the basis of a return of income filed by the non-resident who can definitely put forth the various contentions as have been urged in the present appeal by the learned senior counsel appearing on behalf of the respondents, i.e., the resident payers and even much more on the authority of the law declared by the Supreme Court in Transmission Corporation of A. P. Ltd.'s case [1999] 239 ITR 587, the only scope and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and admittedly in all these appeals the respondents-resident assessees having not made any such application under sub-section (2) of section 195 of the Act, no further question arises for examination in so far as the liability of the resident payer in terms of section 195(1) of the Act is concerned and all such contentions urged on behalf of the respondent-assessees on the merits of the question of actual taxability or otherwise of the income in the hands of the non-resident recipient are all to be ignored as irrelevant, as such contentions are not productive for the purpose of the persons who are required to effect deduction and remit it to the account of the Revenue as a mandatory obligation in terms of section 195(1) of the Act and the provision being a part of the scheme for advance remittance of tax and the Legislature having found ways and means of recovering the tax in advance even before the actual crystallization of the tax liability of an assessee in terms of the provisions contained in Chapter XVII of the Act and section 195 of the Act being one such provision and an exercise of this nature and even before the determination of the actual tax liability of the non-resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the provisions of section 195 of the Act in the light of the law declared by the Supreme Court in Transmission Corporation of A. P. Ltd.' s case [1999] 239 ITR 587. 70. The assessing authority and the first appellate authority are correct to the extent of holding that there was an obligation on the part of the resident payers in effecting a deduction from out of the payments made by them in favour of the non-resident recipients even as consideration for acquiring what is known as "shrink-wrapped software" or what is sought to be described as "ready to sell" , off the shelf packaged software product and even assuming it had partaken of the character of goods for the purpose of determination of the tax liability under the provisions of the Andhra Pradesh General Sales Tax Act, 1957, as held by the Supreme Court in Tata Consultancy Services v. State of Andhra Pradesh [2004] 271 ITR 401, all such questions recede to the background while examining the question of the obligation of a resident payer in terms of section 195(1) of the Act and as arguments not relevant for the purpose of answering this question. 71. The Tribunal has clearly committed an error in law in embarking u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epending upon the country in which the nonresident recipient is assessed and having regard to the terms of the Double Taxation Avoidance Agreement with that country and even such determination has to be declared to be incorrect, not permitted in law and, therefore, illegal, we have to accept the determination by the assessing authority and affirmed by the first appellate authority and we do so only for the reason that on this aspect of the matter, the Revenue has not joined issue at all and while the Revenue from the very beginning had taken this stand of the payment in the hands of the non-resident recipient being in the nature of a royalty payment and was also affirmed by the appellate authority, that was not made an issue or question for determination before the Tribunal by the Revenue and, therefore, we do not propose to disturb this factual emergence of facts, particularly, in ascertaining the extent of deduction that was required to be made by the resident payer and, therefore, we are not disturbing the orders of the assessing authority as affirmed by the first appellate authority and second appellate authority on this aspect of the matter. 73. One another reason for our ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the return of income filed by the non-resident that no part of the receipt is taxable under the provisions of the Act (for whatever reason) and if so based on this settled/undisputed factual/legal position, the resident payer by quoting the assessment order passed by the Assessing Officer on the return of income filed by the non-resident for any earlier year seek for granting the commensurate relief from the obligation for deduction of the percentage of payment to the non-resident. Also an erroneous order and demand being raised by the Assessing Officer under section 201 of the Act, such as an incorrect description of the resident payer or incorrect computation of the amount to be deducted from out of the payment made by the resident payer either by employing a wrong percentage for deduction, at variance with the rate as indicated in the Finance Act or such arithmetical or factual errors committed by the Assessing Officer, without involving the question of actual determination of the tax liability of the non-resident, etc., alone can constitute the subject-matter for appeal under section 246A of the Act (clause (ha) of sub-section (1) of section 246A of the Act). 75. An appeal u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95(2) of the Act but as though the exercise was one of determining the tax liability of the non-resident recipient which, in our opinion, is clearly in the teeth of the law declared by the Supreme Court in Transmission Corporation of A. P. Ltd.'s case [1999] 239 ITR 587 and, therefore, all the orders passed by the Tribunal are not sustainable. 78. The orders passed by the assessing authorities and affirmed by the first appellate authorities to sustain the demands raised in terms of section 201 of the Act are not orders suffering from any illegality or irregularity and are valid orders though not necessarily for the reasons assigned and discussions made by the authorities in their orders but by the proper application of the law to the fact situation and following and applying the law declared by the Supreme Court in Transmission Corporation of A. P. Ltd.' s case [1999] 239 ITR 587. 79. For the reasons stated above, while we refrain from answering the questions raised in these appeals relating to the actual determination of the tax liability of the non-resident assessees in respect of the payments that they had received from the resident payers figuring as respondents in all thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 195(2) of the Act, seeking for determination of the proportionate amount in the payment to the nonresident constituting the taxable part of the payment or to put in other words income part of the payment. 83. The first appellate authority having dismissed such appeals filed under section 248/249 of the Act as not tenable, the assessee had preferred further appeals to the Income-tax Appellate Tribunal in appeals as indicated above. 84.The Income-tax Appellate Tribunal, Bangalore Bench "A" passed the common order dated July 18, 2007, allowing all the appeals and remanding the matter to the Commissioner of Income-tax (Appeals) for fresh disposal of the appeals on its merits opining that the Commissioner of Income-tax (Appeals) was wrong in dismissing the first appeals at the threshold as being not maintainable. 85. It is against such common remand order dated July 18, 2007 passed by the Income-tax Appellate Tribunal in these appeals, i.e., I. T. A. Nos. 931941/Bang/2006 and I. T. A. Nos. 672-702/Bang/2007, the Revenue has come up with an appeal each, i.e., I. T. A. Nos. 919 of 2007 and 921 of 2007 respectively. 86. We notice that though the registry has assigned one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of law that we have placed on the provisions of section 195 of the Act, as above necessarily governs the examination of the appeal under section 248 of the Act, when the Commissioner of Income-tax (Appeals), takes up the appeals for disposal on the merits of the matter. For statistical purposes, these appeals are dismissed. 91. To sum up, the substantial questions raised in all these appeals are answered as under: Sl. No. Substantial questions raised Answer (1) (2) (3) 1 "Whether the Tribunal was correct in holding that an appeal was maintainable under section 248 of the Act, even though there was no adjudication by the authorities under the Act in accordance with section 195(3), (4) and (5) read with section 200 of the Act? As answered in I. T. A. Nos. 919 of 2007, 921 of 2007 2 Whether the Tribunal was correct in holding that the payments made by the assessee-company for purchase of software from Aaymetrix Asia Pacific, Singapore; Peritus Software Service Inc., USA and Astral Comput ers Pvt. Ltd., Singapore for the amounts of Rs. 3,43,095, Rs. 47,89,419 and Rs. 8,89,611 was not liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufficient reasons failed to deduct and pay tax", which has not been shown in the facts of the present case and non-taxability cannot be taken as a sufficient reason, when section 195(2), (3), (4) of the Act certificate is not obtained. In the negative, against the assessee and in favour of the Revenue. 7. Whether the Tribunal was correct in holding that the assessee is not liable to deduct TDS in respect of pay ments made for purchase of software as the same cannot be treated as income liable to tax in India as royalty or scientific work under section 9 of the Act read with the Double Taxation Avoidance Agree ments and treaties. In the negative, against the assessee and in favour of the Revenue. 8. Whether the Tribunal was correct in holding that since the assessee had purchased only a right to use the copyright, i.e., the software and not the entire copyright itself, the payment cannot be treated as royalty as per the Double Taxation Avoidance Agree ments and Treaties which is beneficial to the assessee and consequently section 9 of the Act should not take into consideration. In the negative, against the assessee and in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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