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TMI Blog2014 (5) TMI 744X X X X Extracts X X X X X X X X Extracts X X X X ..... no permanent establishment in India - no income is deemed to accrue or arise in India – thus, the provision of section195 is not applicable to the payment - the assessee has filed an application for admitting the additional evidences – the entire issues require a fresh adjudication at the level of CIT(A) – thus, the order of the CIT(A) is set aside and the matter is remitted back to the CIT(A) for fresh adjudication – Decided in favour of Assessee. - I.T.A. No.735/Ahd/2013 - - - Dated:- 13-5-2014 - Shri Kul Bharat And Shri T. R. Meena,JJ. For the Appellant : Shri Sanjay R. Shah For the Respondent : Shri P. L. Kureel, Sr. D. R. ORDER Per Shri Kul Bharat, Judicial Member : This appeal by the Assessee is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-Gandhinagar( CIT(A) for short) dated 31/12/2012 pertaining to Assessment Year (AY) 2008-09. The Assessee has raised the following grounds of appeal:- The appellant being dissatisfied with the order passed by the Commissioner of Income Tax (Appeals) - Gandhinagar, (Learned Commissioner), prefers a appeal against the same on the following amongst other grounds, which are without p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering that even after the amendment, the definition of Royalty under the relevant DTAA is narrower in scope compared to the same under the Act and the DTAA definition does not cover payment made by the Appellant within its ambit. Learned Commissioner has failed to appreciate that the Hon ble Karnataka HC decision in case of Samsung Electronics, solely relied upon by him, does not deal with the said issue. 4.2. Learned Commissioner has failed to deal with Appellant s contention that I certain DTAAs signed by India (Malaysia, Morroco, Nambia, Russia, Trinadad, etc.), the definition of royalty categorically includes consideration paid for use of computer software . In absence thereof in the DTAAs in the facts of Appellant s case, the payments towards purchase of computer software cannot be classified as royalty even under DTAAs. 5. Learned Commissioner has erred in holding that the payments made towards software maintenance, trouble shooting on software problems, comprehensive technical support, upgradation, fixing of bugs, etc. are payments towards royalty . 5.1.Without prejudice to any other ground, even if the payments made in this regard are construed to be Fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling aggrieved by the order, preferred an appeal before the ld.CIT(A), who partly allowed the appeal. While passing the order, the ld.CIT(A) followed the decision of Hon ble Karnataka High Court rendered in the case of CIT vs. Samsung Electronics Co.Ltd. (203 Taxman 477) and held that the payments for getting licence of software are therefore held to be in the nature of royalty both under section 9(1)(vi) of the Act as well as under the provisions of DTAAs. Further, ld.CIT(A) held that the payments, i.e. acquiring software upgrades, customer support and debugging are part and parcel of the licence. They cannot be taken to be separate from the acquisition of licence itself and, therefore, the entire payments are held to be covered and taxable as royalties under the provisions of section 9(1)(v) as well as respective DTAAs in India and the AO is directed to treat these payments as above instead of fees for technical services . The ld.CIT(A) also dismissed the ground of the assessee that section 195A is not applicable in the case as the tax is not borne by the appellant under the agreement entered into by it with the concerned payee and, therefore, in view thereof grossing up is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vi) of the Act for the reason that assessee is covered by the DTAA the provisions of which are more beneficial. The treaty which was examined in that decision and applicable to present assessee are pari materia and hence these observation are also applicable to present assessee. Copies of treaties are attached at page os.124 to 200 of paperbook- II. The ld.counsel for the assessee submitted that the fact that payees do not have permanent establishment in India is already brought to the notice of AO and CIT(A). (Refer para 16.14 on page 30 of the paper-book-I and page 63, para C 1.5 of paper book-I). The appellant also relies on submissions made before learned AO and CIT(A) which are attached at page Nos.44 to 99 and 1 to 31 and 256 to 257 of paperbook No.1, respectively. The ld.counsel for the assessee submitted that there is one more legal angle to this controversy that when there are two decisions from different Courts against each other and none of them is jurisdictional High Court, the decision in favour of the assessee has to be accepted as held by Hon ble Supreme Court in case of CIT vs. Vegetable Products Ltd. (88 ITR 192). Following this also the appeal of the assessee shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to interest u/s.201(1A). 5. Apropos to Ground Nos.3 3.1, the ld.counsel for the assessee submitted that the appellant in this regard relies on its contentions mentioned against ground No.1 and 1.1 above. Over and above, these contentions, the appellant also relies on the decision of Hon ble Supreme Court in the case of Tata Consultancy Services vs. State of Andhra Pradesh, 271 ITR 401, where purchase of computer software is considered as that of goods or articles. The appellant also relies on the followings: (i) Difference between Copyright and Copyrighted article as supported by followings. (a) OECD Commentary on Model Convention - para 6.1 to 6.4 para 7.3 to 7.7 of CIT(A) submission (relevant pages 10 -11 13-16 of paper-book-I) (b) Mumbai ITAT s decision in case of ADIT vs. TII Team Telecom International Pvt.Ltd. (2011) 12 Taxmann.com 502) (Relevant pages 1-14 of paper book-II at page No.11, para-16). (c) Delhi High Court decision in case of Ericsson A.B., New Delhi (2011) 16 Taxman.com 371 (relevant page 15-41 of paper-book II at page No.15. At page No.19 of the said decision is also discussed retrospective amendment made by Finance Act 2007 and Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. as a part fo purchase of software licence and not as fees for technical services. Going by these reasoning of CIT(A) against which department is not in appeal, the appellant would like to rely on its submissions in earlier four grounds wherein the contentions raised for considering software purchase as not liable to TDS will also ipso facto apply to the payment for the above services on the ground that they are considered as part of software licence purchase and therefore if the appellant succeeds on earlier four grounds on the ground that the payment made for software purchase is not liable to TDS, it should also succeed for these payments on the same reasoning. The ld.counsel for the assessee submitted that without prejudice to above, however, if the Hon ble bench takes a view that software purchase is liable to TDS on the ground that it is a payments towards Royalty, the appellant would like to submit in support of its ground No.5.1 that the maintenance fees, technical support, debugging of the software, etc. are not Royalties but fees for technical services, but since they are not made available by the overseas supplier in terms of DTAA between India and Countries of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the need for additional evidences with a request to admit them for doing substantial justice in the matter. 9. On the contrary, ld.Sr.DR supported the orders of the authorities below and also opposed the admission of the additional evidences. 10. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that ground No.1.1 of the assessee is that the order passed by the ld.Commissioner is not a speaking order as none of the contentions of the appellant have been dealt with while rejecting them and adjudication has been made solely based on a case law in which facts were different as also appellant s contentions were not dealt with. The ld.counsel for the assessee submitted that a different view has been taken by the Hon ble High Court of Delhi in the case of Director of Income tax vs. Infrasoft Ltd. reported at (2013) 39 Taxmann.com 88 (Delhi). He submitted that the decision is based solely on the judgement of Hon ble Karnataka High Court in the case of Samsung Electronics Co.Ltd. He also drew our attention to the decision of ITAT Delhi A Special Bench rendered in the case of Motorola Inc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process was necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said provision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection against loss, destruction or damage has been held by the Delhi High Court in DIT vs. M/s.Nokia Networks OY (supra) as not amounting to acquiring a copyright in the software. 99. In view of the above we accordingly hold that what has been transferred is not copyright or the right to use copyright but a limited right to use the copyrighted material and does not give rise to any royalty income. 11. After considering the totality of the facts and circumstances of the case and coupled with the facts that the assessee has filed an application for admitting the additional evidences, we are of the considered view that the entire issues require a fresh adjudication at the level of ld.CIT(A). Therefore, the impugned order of the ld.CIT(A) is hereby set aside and the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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