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TMI Blog2017 (10) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the considered view that no infirmity does emerges from the order passed by the CIT(A) Addition in respect of guarantee commission - Held that:- We are of the considered view that as the issue pertaining to the taxability of guarantee commission is covered in favour of the assessee by the earlier orders of the coordinate benches of the Tribunal in the assesses own case for AY’s 2002-03, 2005-06 and 2008-09, therefore, having no reason to take a different view, we respectfully follow the same. Expenses allocated by the Head Office (H.O) and other Branches of the assessee to its Indian Branch - Held that:- We have deliberated on the issue under consideration and find that the Tribunal in assessee's own case had held that the payments made by the assessee to its H.O, viz. Societe Generale, Singapore were neither Royalty or Fees for technical services, but were pure reimbursements for services, viz. data communication charges, Annual Miscrosoft Enterprise Software product billing and true up charges incurred etc., rendered for its Indian branch. We being of the considered view that the issue involved in the present appeal before us is squarely covered by the aforesaid ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , respectively. That as certain common issues are involved in the present appeals of the revenue, therefore, the same are being taken up and disposed of together by way of the present consolidate order. We shall first take up the appeal of the revenue for AY: 2009-10, wherein the revenue assailing the order of the CIT(A) had raised the following grounds of appeal:- 1. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that payments made by the assessee for purchase of a copyrighted article being software product, cannot be treated as royalty in view of explanation-4 of section 9(1) of the Act and therefore disallowable u/s. 40(a)(i) of the Act as no tax was deducted there from? 2. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the entire guarantee commission is not taxable in the year in which guarantee is given though assessee has spread over the income by treating it as advance guarantee commission received? 3. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the payments made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,276/-, and that of the Head office of the assessee chargeable to tax in India at ₹ 1,80,63,878/-. 3. The assessee being aggrieved with the modifications made to its returned income, therein carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the various contentions raised by the assessee before him, allowed the appeal. 4. The revenue being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. The revenue by way of ground of appeal no.1 had assailed the order of the CIT(A) holding that as the payments made by the assessee for purchase of a copyrighted article being software product, cannot be treated as royalty in view of Explanation 4 of Section 9(1) of the Act , therefore, no disallowance u/s 40(a)(i) was called for in the hands of the assessee. The facts pertaining to the issue under consideration are that the assessee had purchased AML license software for a consideration of ₹ 16,83,036/- from IMTF, Switzerland. The assessee on being called upon by the A.O to explain as to why no tax was deducted at source while making the payment to IMTF, Switzerland, submitted that as the remittance was made o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or use or right to use a computer software( including granting of a licence) irrespective of the medium through which such right is transferred. 4. I t is true that this explanat ion inserted in the Income - tax Act through the aforesaid amendment would clearly make the purchase of sof tware as coming within the def inition of royal ty for the period presently under consideration. However, as per the provisions of section 90(2), the assessee being the Permanent Establishment of a non resident based in France, it would be entitled to claim the benefits available to it under the relevant DTAA. Article 13(3) of the Indo-France tax treaty defines the term royalties as payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary artistic or scientific work. Software would fall in the category of a literary work. The A.O in the assessment order passed has at length discussed various decisions holding that payment made for the purchases of software would be in the nature of royalty such as the Karnataka High Court decision in the case of CIT Vs. Samsung Electronics Company Limited (320 ITR 209), the Delhi Tribunal decision in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of royalty in Article 13(3) of the DTAA was found by the Cour t to be narrower than the one provided in the Income Tax Act. The DTAA refers to payments for use or right to use a copyright of a literary work whereas in a transaction of sale of software the subject matter of transfer is not the copyright itself but that of a copyrighted article. The definition of royalty in the DTAA does not cover such a transaction. The Hon‟ble Delhi High Court in this decision has also noted that the amendment made to the definition of royalty u/s. 9(1)(vi) of the Act by Finance Act, 2012 could not be read into the provisions of the DTAA and concluded that the payments made were for the supply of goods and were not in the nature of royalty as far as the provisions of the DTAA were concerned. 8. The jurisdictional Mumbai Tribunal in the cases of DDIT Vs. Solidworks Corporation (51 SOT 34) and ACIT Vs. Sonata Information Technology Ltd. (55 SOT 455) after considering both the decisions of the Delhi High Court in the Nokia Networks case (supra) and the Karnataka High Court decision in the Samsung Electronics case (supra) preferred to follow the Delhi High Court decision in the Nokia Netwo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y l imited to the right to use the copyrighted material, therefore, the same cannot be held as payment of royalty by the assessee. We have given a thoughtful consideration to the issue before us and find that the coordinate bench of the ITAT, Mumbai in the case of DDIT Vs. Solidworks Corporation (2013) 152 TTJ 0570 (Mum) concurred with the view arrived at by the High Court of Delhi in the case of Director of Income Tax Vs. Ericsson A.B., New Delhi ITA No.504/2007 dated 23.12.2007 , wherein it was held that when software is incorporated in a CD it becomes a tangible property and the payment made for acquiring the same is not a payment by way of royalty. We further find that a similar view had also been arrived at by the coordinate bench of the ITAT, Mumbai in the case of ACIT Vs. Sonata Information Technology Ltd. (2013) 152 TTJ 590 (Mum). We thus being of the considered view that no infirmity does emerges from the order passed by the CIT(A) on the issue under consideration by relying on the aforesaid judgment of the High Court of Delhi in the case of Infrasoft ltd. (supra) , and finding ourselves to be in agreement with the view taken by the coordinate benches of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised in grounds of appeal no. 3 and 4 relates to the expenses to the tune of ₹ 42,54,528/- allocated by the Head Office (H.O) and other Branches of the assessee to its Indian Branch. The assessee during the course of the assessment proceedings submitted that the expenses were allocated by the H.O and Singapore Branches of the assessee to its Indian Branch were pure reimbursements for services, viz. data communication charges, Annual Miscrosoft Enterprise Software product billing and true up charges incurred etc., rendered for its Indian branch and did not contain any mark-up. The A.O however did not find favour with the contentions of the assessee and concluded that the services rendered by the H.O of the assessee bank to the Indian branch were squarely covered by the definition of royalty/fees for technical services. The A.O in the backdrop of his aforesaid observations concluded that as the royalty was deemed to accrue and arise in India u/s 9(1)(vi)(c) and s. 9(1)(vii)(c), since the services/facilities had been utilized by the Indian branch for the purpose of the business in India and also for the purposes of making or earning income in India, thereafter, they were deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entries appearing in it. Besides, Protocol 7 to the DTAA also supports the stand taken by the assessee. We would like to reproduce the relevant portion of the judgment of Steria (supra) and same is as under: The Protocol to the Double Taxation Avoidance Agreement between India and France (see [1994] 209 ITR (St.) 130, 157) provides that if under any Convention, Agreement or Protocol signed after September 1, 1989, between India and a third State which is a member of the OECD, India limits its taxation at source, inter alia, on fees for technical services to a rate lower or a scope more restricted than the rate of scope provided for in this Convention, the same rate or scope as provided for in that Convention Agreement or Protocol shall also apply under this Convention. There is no warrant for the restrictive interpretation placed oil 7 of the Protocol to the Double Taxation Avoidance Agreement between India and France in such a manner that that if a reference is made to one Convention signed after September 1, 1989 between India and another OECD member State for the purposes of ascertaining if it had a more restrictive scope or a lower rate of tax, then that Convention alone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he opinion payment made by the assessee was neither royalty nor FFTS. It was case of pure and simple reimbursement. Secondly, the assessee had not made any payment to Singapore Telecommunication. Therefore, following judgment of Steria (supra) we decide Ground no. 1 in favour of the assessee . We have deliberated on the issue under consideration and find that the Tribunal in its aforesaid order had held that the payments made by the assessee to its H.O, viz. Societe Generale, Singapore were neither Royalty or Fees for technical services, but were pure reimbursements for services, viz. data communication charges, Annual Miscrosoft Enterprise Software product billing and true up charges incurred etc., rendered for its Indian branch. We being of the considered view that the issue involved in the present appeal before us is squarely covered by the aforesaid order of the Tribunal, therefore, respectfully follow the same. The Ground of appeal no. 3 and 4 raised by the revenue before us are dismissed. 15. The ground of appeal no. 5 relates to the taxability of the interest of ₹ 1,38,09,350/- paid by the assessee to its H.O and other overseas branches on borrowings. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etation of the relevant provisions of the domestic law as well as that of the treaty as discussed above, we are of the view that although interest paid to the head office of the assessee bank by its Indian branch which constitutes its permanent establishment in India is not deductible an expenditure under the domestic low being payment to self, the same is deductible while determining the prof it attributable to the permanent establishment which is taxable in India as per the provisions of article 7(2) and (3) of the Indo-Japanese treaty read with paragraph 8 of the protocol which are more beneficial to the assessee.-The said interest, however, cannot be taxed in India in the hands of the assessee-bank, a foreign enterprise being payment to self which cannot give rise to income that is taxable in India as per the domestic law. Even otherwise, there is no express provision contained in the relevant tax treaty which is contrary to the domestic law in India on this issue. This position applicable in the case of interest paid by Indian branch of a foreign bank to its head office equally holds good for the payment of interest made by the Indian branch of a foreign bank to its branch off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t DRP ) had carried the matter in appeal before us, therein raising the following grounds of appeal:- 1. Whether on the facts and in the circumstances of the case and in law the DRP was justif ied in holding that since the assessee was consistently following offering of guarantee commission by spreading it over the period of guarantee given and ultimately there is no revenue impact without appreciating the fact that on each assessment year the assessee is supposed to of fer al l the income that has accrued to the assessee and by not offering all the guarantee commission income received/ accrued during the year the assessee has postponed its tax liability? 2. Whether on the facts and in the circumstances of the case, the DRP was justif ied in holding that interest payable by the Indian Permanent Establ ishment of the foreign bank to its H.O. and other overseas branches, is deductible in computing the total income? 3. Whether on the facts and in the circumstances of the case, the DRP was justif ied in holding that interest income payable by the India Permanent Establishment of a foreign bank to its H.O. and branch of f ices abroad cannot be taken into account for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re our decision on the said issue in the aforesaid appeal shall apply mutatis mutandis for adjudicating the Ground of appeal no. 1 raised by the revenue in its present appeal before us. The Ground of Appeal No. 1 raised by the revenue is thus dismissed in terms of our aforesaid observations. 23. The grounds of appeal no.2 and 3 relates to the taxability of the interest of ₹ 15,86,609/- paid by the assessee to its H.O and other overseas branches on borrowings. We find that the facts and issue involved in the grounds of appeal no. 2 and 3 are identical to the facts and the issue involved in the Ground of appeal no. 5 raised by the revenue in its appeal for A.Y. 2009-10, viz. ACIT (International Taxation)-4(2)(2), Mumbai Vs. M/s. Societe Generale, Mumbai (ITA No. 4542/Mum/2015), therefore, our decision on the said issue in the aforesaid appeal shall apply mutatis mutandis for adjudicating the Grounds of appeal no. 2 and 3 raised by the revenue in its present appeal before us. The Grounds of Appeal No. 2 and 3 raised by the revenue are thus dismissed in terms of our aforesaid observations. 24. The ground of appeal no. 4 relates to disallowance under Sec. 14A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue afresh keeping in view the principle laid down by the coordinate bench of the Tribunal while disposing of the appeal of the revenue in the assesses own case for A.Y.2001-02, viz. Dy. Director of Incometax Vs. M/s Societe Generale (ITA No. 954/Mum/2005; dated. 09.01.2013 , as well as the order passed by the Tribunal in the case of Oman International Bank SAOG Vs. Jt.DIT (International Taxation) (2013) 35 CCH 0207 (Mum). The A.O shall during the course of the set aside proceedings adjudicate the issue afresh in the backdrop of the facts involved therein, though keeping in view our aforesaid observations. Needless to say, the A.O shall during the set aside proceedings afford an opportunity of being heard to the assessee. The Ground of appeal no. 4 is allowed for statistical purposes. 26. The Ground of appeal no. 5 and 6 are general in nature and nothing had been averred by the ld. D.R in respect of the same during the course of the hearing of the appeal, therefore, the same are dismissed as not pressed. 27. The appeal of the revenue is partly allowed. 28. The appeal of the revenue for AY: 2009-10, marked as ITA No. 4542/Mum/2017 is dismissed, while for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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