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TMI Blog2016 (11) TMI 1467X X X X Extracts X X X X X X X X Extracts X X X X ..... be royalty, even it was supplied separately. All these points support the case of the assessee that the Tribunal has misread the decision rendered by Hon’ble Delhi High Court in the case of Ericsson (supra). We also notice that the Tribunal has committed an error in not appreciating the facts prevailing in the instant cases. Hence we find merit in the contentions of the assessee that the impugned order of the Tribunal suffers from mistake apparent from record. - Miscellaneous Application 143/M/2014, 144/M/2014, 166/M/2014, 167/M/2014, 168/M/2014, 188/M/2014, 189/M/2014, 190/M/2014, 211/M/2014, 212/M/2014, 213/M/2014, 234/M/2014, 235/M/2014, 236/M/2014, 419/M/2013 139/M/2014, 1771M/2014, 222/M/2014 - - - Dated:- 18-11-2016 - SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND 461/M/2013 145/M/2014, 169/M/2014, 170lMl2014, 180/M/2014, 193/M/2014, 237/M/2014, 233/M/2014, 217/M/2014, 247/M/2014, 159/M/2014, 198/M/2014, 152/M/2014, 192/M/2014, 194/M/2014, 215/M/2014, 161/M/2014, 184/M/2014, 228/M/2014, 230/M/2014, 156/M/2014, 252/M/2014, 254/M/2014, 255/Ml2014, 253/Ml2014, 256/M/2014, 257/M/2014, 258/Ml2014, 259/Ml2014, 260/M/2014, 261/M/2014 Arisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware. Being aggrieved of the orders passed under section 195 of the Act, assessee companies preferred appeal before the learned Commissioner (Appeals) under section 248 of the Act. Learned Commissioner (Appeals) allowed the appeals holding that the payments made by the assessee being not in the nature of royalty, there is no requirement of deduction of tax at source. Being aggrieved of the said order of the first appellate authority, the Revenue came in appeal before the Tribunal. The Tribunal, vide a common order dated 6th September 2013, disposed of all the appeals preferred by the Revenue upholding the orders passed under section 195 by the Assessing Officer, thereby holding that assessee companies are liable to deduct tax at source on payments made to the non resident companies towards purchase of software, as according to the Tribunal, such payments are in the nature of Royalty in terms of provisions contained under section 9 of the Act r/w relevant DTAAs. In the said common order, the Tribunal also disposed of appeals preferred by Lucent Technologies GRL LLC, USA, (for short Lucent ), a non resident company, which also received payment from the assessee towards supply of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal recorded the Applicant's reliance on Solid Works (supra) at the bottom of Pg. 28 of the order. The Tribunal ought to have followed the decision of Solid Works (supra) cited by the Applicant during the course of hearing and in not doing so, there is a mistake apparent from record in the Tribunal's order in accordance with the decision of the Hon'ble Supreme Court in the case of Honda Siel Power Products Ltd. v. CIT (295 ITR 466) wherein it has been held as under: Rule of precedent' is an important aspect of legal certainty in rule of law. That principle is not obliterated by section 254(2). When prejudice results from an order attributable to the Tribunal's mistake, error or omission, then it is the duty of the Tribunal to set it right. Atonement to the wronged party by the Court or Tribunal for the wrong committed by it has nothing to do with the concept of inherent power to review. In the instant case, the Tribunal was justified in exercising its powers under section 254(2) when it was pointed out to the Tribunal that the judgment of the coordinate Bench was placed before the Tribunal when the original order came to be passed but it had committed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew that the decision of the Ld. JM to substitute the earlier observations by a different set of observations was the correct view and approach to be taken and inasmuch as the earlier directions of the Division Bench were not in conformity with the legal position there was a mistake apparent from the record and which was rectifiable under section 254(2). I, therefore, agree with the view expressed by the Id. JM and the first point of reference is therefore treated as disposed of. 9. After considering the rival submissions, Jam of the view of the order passed by the id. JM is the correct one both on facts and in law. As rightly argued by the Ld. counsel the non-consideration of a judgment cited before the Tribunal constitutes a mistake apparent from the record within the meaning of section 254(2) and on being pointed out by any of the parties, the Tribunal is obliged to take into account the judgment so cited irrespective of the results that would follow. In the present case, the ld. JM has very aptly compared the facts of the assessee case with those prevailing in the case of Food Specialities Ltd. (supra) and thereafter directed requisite relief Similar view has also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he High Court had approved of such findings. This, however, does not mean that a subsequent Bench of the Tribunal should come to a conclusion totally contradictory to the conclusion reached by the earlier Bench of the Tribunal in the same case for an earlier year on a similar set of facts. Such a thing may not be in the larger public interest as it is likely to shake the confidence of the public in the system. It is, therefore, desirable that in case a subsequent Bench of the Tribunal is of the view that the finding given by the Tribunal in an earlier year requires reappraisal either because the appreciation in its view was not quite correct or inequitable or some new facts have come to light justifying reappraisal or reappreciation of the evidence on record, it should have the matter placed before the President of the Tribunal so that the case can be referred to a larger Bench of the Tribunal for adjudication and for which there is a provision in the Act. (Underlined for emphasis) Similar view has also been taken by the Hon'ble Madras High Court in the case of CIT v. L. G. Ramamurthi (110 ITR 453) wherein it has been held as under: It may be that the members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of law: Whether on the facts and in the circumstances of the case and in law, was the Tribunal justified in referring to its coordinate Bench decision in I K Investors (Bombay) Ltd. being relied upon by the appellant and yet not dealing with the same in the impugned order? 5.....In support of its aforesaid contention, the appellant placed reliance upon the decision of an coordinate Bench of the Tribunal in J.K. Investors (Bombay) Ltd. V/s. Assistant Commissioner of Income Tax (ITA No. 7858/MUM/2011) decided on 13th March, 2013. 6 In fact the impugned order of the Tribunal in paragraph 6 thereof does record the appellant's reliance upon the decision of the Court of its coordinate Bench in J. K Investors (supra). However, thereafter the impugned order does not deal with the appellant's reliance upon the decision of the Tribunal in .JK Investors (supra) while dismissing the appellant assessee's appeal before it. In fact the impugned order of the Tribunal ought to have dealt with its decision in J. K Investors (supra) and considered its applicability to the present facts. 7. In view of the fact that the impugned order of the Tribunal does not de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectification u/s. 254 of the Act. d. The Applicant, during the course of hearing has relied on a decision of the Hon'ble Mumbai Tribunal in the case of DDIT v. Reliance Infocomm Ltd. and vice versa (ITA Nos. 5374 6093/Mum/2008). These were two appeals where the Applicant had filed Miscellaneous. Applications and were recalled by the Tribunal vide order dated April 16, 2014. The payee in the said two appeals was MIs. New Skies Satellites N.Y. ( New Skies ) and it was held by the Tribunal at Page 13 of the recalled order dated September 7, 2015 as follows: It has been now brought on record by the Ld. Senior Counsel that in the case of payee itself, that is, M/s New Skies Satellites NV, it has been decided categorically by the Tribunal that such a payment made by the assessee to MIs New Skies Satellites NV does not amount to Royalty as per the detail finding incorporated in the foregoing paras. Such an order of the Tribunal dated 11.03.2011 has now been approved and affirmed by the Hon'ble Delhi High Court vide order dated 30.092011. Not only that, in subsequent years also in the case of the payee, it has been consistently held that such a payment does not con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o purchase of hardware. Thus, software is not an integral part of the hardware thereby falling under the definition of royalty. Assuming that the argument of the Ld. DR is correct, there are several payees in these appeals where there is a common agreement for purchase of both, software and hardware. For example: S.no. M.A. no. ITA no. Name of Payee Relevant Pg. no. of P.B. filed by the Department 1. 139/M/2014 5080/M/2008 Ericsson AB Sweden 176 to 213 2. 177/M/2014 4909/M/2007 3. 222/M/2014 4901/M/2007 4. 461/M/2013 4672/M/2007 5. 192/M/22014 4285/M/2008 Ericsson Wireless Comm. Inc., USA 1155 1207 6. 194/M/2014 4251/M/2008 7. 215/M/2014 4286/M/2008 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embedded theory was not argued, the decision does not lay down what embedded means except to say that it is an 'integral part' of supply of equipment. The Tribunal, at Para 28 Pg. 63 of its order, explains the meaning of embedded that it is an integral part of the hardware. However, after explaining these facts, the Tribunal has lost sight of, in its operative portion, the Applicant's arguments. f. If 'integral part' means 'specific to hardware' and 'necessary to run the hardware', then, as clarified in the charts submitted by the Applicant during the course of original hearings, all the software purchased by the Applicants are specific to telecom hardware. 6. Misreading of decision of the Hon'ble Delhi High Court in the case of Ericsson (supra): a. The Tribunal, in its order, has completely misread the decision of the Hon'ble Delhi High Court in the case of Ericsson (supra) (submitted at Pgs. 94 to 117 of the LPB submitted by the Applicant during the course of the original hearing). b. Paras 59 and 60 of Ericsson's decision clearly shows that the decision has been rendered on the footing that there is a disti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mistake, which was apparent on record. 12. We do not find any difference in the circumstances where the Tribunal ignores the judgment of the jurisdictional Court, or wrongly relies upon the principle of law laid down by the jurisdictional Court. In case of misreading or relying upon a principle, which was never laid down in such judgment, the reasoning would be the same as if the Tribunal had not noticed the judgment? g. Even the Jurisdictional Tribunal in the case of Plaza Investments (P.) Ltd. v. ITO (108 lTD 239) has held as under: Thus, the question left for consideration in the instant case was as to whether misreading of the Supreme Court's judgment in Western States Trading Co. (P.) Ltd.'s case (supra) on the facts of the instant case would constitute a mistake apparent from records. In the Tribunal's order, which had been called into question by way of instant application, it was observed that in the light of the Supreme Court's judgment in the case of Western States Trading Co. (P.) Ltd. (supra) when shares are held as part of the trading assets, dividend on those shares would form part of 'income from business', and, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly opposed to the clear pro visions of law, was so fundamental that it went to the root of the matter and might directly affect the conclusions arrived at by the Tribunal. The only ground of appeal in the Tribunal's order, related to that issue and, therefore, the appeal had to be recalled in entirety. [Para 10] (Underlined for emphasis) In view of the above, it is submitted that misreading of the decision of the Hon'ble Delhi High Court is a mistake apparent from records. 7. No proper opportunity granted to the Applicant: a. The ground in Lucent's appeal regarding grant of credit for tax deducted at source has been decided without hearing the Applicant. This is inspite of the fact that the Applicant is affected by the said grant of credit and even though an oral request was made by the Applicant's Counsel to be provided with an opportunity in case any ground in Lucent's appeal is decided that would affect the Applicant. b. Thus, the order suffers from an obvious mistake of law, namely, want of natural justice. 5. The Ld Sr. Counsel appearing for the revenue, however, strongly opposed the applications filed by the assessees. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must not lightly regard the decision of another bench of same bench and that it is but natural and efficacious that the case is referred to a larger bench. He submitted that the Hon ble Supreme Court nowhere states that the Tribunal is prohibited from deciding the issue on its own if it disagrees with the decision of the co-ordinate bench. Further the provisions of sec. 254(1) empower the Hon ble Tribunal to pass such orders as it thinks fit. The Statute does not require the Tribunal to necessarily refer the matter to a larger bench. 6. The Ld D.R submitted that the Tribunal has considered and followed the decision rendered by the Hon ble High Court of Karnataka and hence non-consideration of the co-ordinate bench decision in the case of Solid Works (supra) will not render the same as a mistake apparent from record. Accordingly he submitted that the decision rendered by Hon ble Supreme Court in the case of Honda Siel Power Products Ltd Vs. CIT (supra) is distinguishable. With regard to the claim of the assessee that the payees have been held to be not taxable by the Tribunal and hence the Tribunal could not have taken a different view from the point of deduction of tax at sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the paragraph 47 of the Tribunal s order should be read as a whole and the same refers to many agreements, where there was only licensing of software and it is not a comment related to Lucent. 8. The Ld A.R, in his rejoinder, submitted that the Tribunal did not afford opportunity to the assesses on the arguments advanced by M/s Lucent, even though the same was specifically sought for by the assessees. The inference that could be drawn in this matter is that the Tribunal might be under the inference that the arguments of M/s Lucent would not go against the assessees. He further submitted that the Tribunal ought to have heard the assessees because, once the credit is granted to Lucent, the purpose of appeal u/s 248 of the Act gets defeated and the assessees will never be able to claim any refund of taxes deducted even if the issue is decided in favour by the higher appellate authorities. With regard to the submission of the revenue that the comment made by the Tribunal in paragraph 47 is not a comment that is related to Lucent, the Ld A.R submitted that the revenue is agreeing that Lucent s transaction is indeed that of embedded software, which supports the contention of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts Ltd (88 ITR 192). 11. In the instant appeals, the Tribunal admittedly did not consider the decision rendered by co-ordinate bench in the case of Solid Works Corporation (supra), even though it was relied upon by the assessees herein. The assessees have contended that the non-consideration of the decision of co-ordinate bench, when it was specifically relied upon by the assessee would result in a mistake apparent from record and would warrant recall of the order. In support of this contention, the assessees have placed their reliance on the decision rendered by Hon ble Supreme Court in the case of Honda Siel Power Products Ltd (supra), wherein the Hon ble Apex Court has held that the Tribunal was justified in exercising its power u/s 254(2) when it was pointed out to the Tribunal that the judgement of co-ordinate bench was placed before the Tribunal when the original order came to be passed but it had committed a mistake in not considering the material which was already on record. 12. The Hon ble jurisdictional Bombay High Court had an occasion, in the case of Hatkesh Co. op Hsg Society Ltd Vs. ACIT (ITA No.328 of 2014 dated 22-08-2016), to consider the question as to whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Coordinate Bench. No doubt this discipline is subject to the well settled exceptions of the earlier order being passed per incurim or sub silentio or in the meantime, there has been any change in law, either statutory or by virtue of judicial pronouncement. If the earlier order does not fall within the exception which affects its binding character before a coordinate bench of the Tribunal, then it has to follow it. However, if the Tribunal has a view different then the view taken by its Coordinate Bench on an identical issue, then the order taking such a different view must record its reasons as to why it does not follow the earlier order of the Tribunal on an identical issue, which could only be on one of the well settled exceptions which affect the binding nature of the earlier order. It could also depart from the earlier view of the Tribunal if there is difference in facts from the earlier order of Coordinate Bench but the same must be recorded in the order. The impugned order is blissfully silent about the reason why it chooses to ignore the earlier decision of the Tribunal rendered after consideration of Sind Co. Op. Hsg. Society (supra), and take a view contrary to that taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion rendered by the co-ordinate bench on identical issue would result in a mistake apparent from record. Accordingly we find merit in the contentions of the assessees that the impugned order of the Tribunal suffers from mistake apparent from record. 15. The next main contention of the assessee is that the Tribunal has misread the decision rendered by Hon ble Delhi High Court in the case of Ericsson (supra). We notice that the Tribunal has proceeded to distinguish the decision rendered by Hon ble Delhi High Court, wherein it has by upheld the decision rendered by the Special bench in the case of Motorola (supra) and Ericssion, as under:- 28. There is no dispute with reference to the principles established by the Hon ble Special Bench as approved by the Hon ble Delhi High Court in the cases cited above. However, what is to be noted in the above judgements is that the software was supplied along with hardware as part of equipment and there is no separate sale of software. Software was integral part of supply of equipment for Tele-communications in those cases. It is generally called embedded software. 29. The facts in the present case of supply of software to Reliance are t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant cases are similar to the facts available in the cases decided by Hon ble Karnataka High Court. 17. In any case, the Tribunal has followed the decision rendered by the Hon ble Karnataka High Court in the case of Samsung Co. (supra), which was rendered in the case of Shrink wrapped software. However, the Honble Delhi High Court has held in the case of DIT Vs. Infrasoft Ltd that the findings given by it in the case of Ericsson (supra) would hold good even in case of Shrink wrapped software. Accordingly it was contended that the Tribunal should have followed the decision rendered by Hon ble Delhi High Court as it was favourable to the assessee. In any case, the decision rendered by Hon ble Delhi High Court would be applicable to the instant cases, since the Hon ble Delhi High Court has held that the software would not be royalty, even if it was supplied separately. The Ld A.R also submitted that Ericsson was one of the suppliers of the software to the assessees and hence the Tribunal should have given preference to the decision rendered by Hon ble Delhi High Court over the decision rendered by Hon ble Karnataka High Court on this count and also on the principle that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in such judgment, the reasoning would be the same as if the Tribunal had not noticed the judgment? It was also submitted that the co-ordinate bench of Tribunal has also considered an identical issue in the case of Plaza Investments (P) Ltd (108 ITD 239), wherein it has held as under: Thus, the question left for consideration in the instant case was as to whether misreading of the Supreme Court‟s judgment in Western States Trading Co. (P.) Ltd.‟s case (supra ) on the facts of the instant case would constitute a mistake apparent from records . In the Tribunal‟s order, which had been called into question by way of instant application, it was observed that in the light of the Supreme Court‟s judgment in the case of Western States Trading Co. (P.) Ltd. (supra) when shares are held as part of the trading assets, dividend on those shares would form part of income from business‟, and, therefore, in the instant case the dividend income was to be assessed as income from business‟ .. The next issue for consideration is as to whether a considered view of the Tribunal can be subjected to rectification of mistake. Undoubtedly, all mistake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at issue and, therefore, the appeal had to be recalled in entirety. [Para 10] The above cited decisions support the contentions of the assessee that misreading of decision of Hon ble High Court would result in a mistake apparent from record warranting recall of the order. We have noticed that the assessees have submitted that the software purchased by them is specific to run the hardware and hence it was not a case of shrink wrapped software. Further the Hon ble Delhi High Court has held in the case of Ericsson (supra) that the software would not be royalty, even it was supplied separately. All these points support the case of the assessee that the Tribunal has misread the decision rendered by Hon ble Delhi High Court in the case of Ericsson (supra). We also notice that the Tribunal has committed an error in not appreciating the facts prevailing in the instant cases. Hence we find merit in the contentions of the assessees that the impugned order of the Tribunal suffers from mistake apparent from record. 20. In view of the foregoing reasons alone, we are of the view that the impugned orders passed in Reliance Group cases deserve to be recalled. 21. The Applicant, during ..... X X X X Extracts X X X X X X X X Extracts X X X X
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