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TMI Blog2020 (4) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... to consider grounds of appeal for assessment year 2014 - 15 which is followed by Ld. CIT(A) in other years under consideration. In addition to common issues arised in years under consideration, Ld. AR submitted that for assessment year 2012 - 13 there is additional issue in respect of restricting depreciation on batteries and UPS at 15% as against 60% claimed by assessee. 2.1. Ld. CIT DR do not have any objection in considering assessment year 2014 - 15 as requested by Ld. AR. For sake of convenience, we reproduce herewith, grounds raised by assessee for A.Y: 2014 - 15. 1. Disallowance of expenses incurred towards toll free telephone charges u/s. 40(a)(ia) of the Income-tax Act,1961 ('the Act') 1.1. The learned Assistant Commissioner of Income-tax Circle 7(1)(2), Bangalore['ACIT' or 'AO']erred in disallowing expenditure of Rs. 58,80,650 incurred towards toll-free telephone charges under section 40(a)(ia) of the Act for non-deduction of taxes under section 194J of the Act on the basis that the payments would qualify as 'royalty' under the Act. The leaned Commissioner of Income-tax (Appeals)-7 Bangalore ['CIT(A)"] erred in upholding the finding of the learned AO. 1.2.Without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 5,59,91,513 has been offered to income-tax by the Appellant in its income-tax returns. 3. Non-grant of credit for tax deducted at source ('TDS') credit 3.1. The learned AO erred in denying TDS credit of Rs. 1,00,93,973 available to the Appellant for Ay 2014-15 on the basis that the underlying income pertains to other assessment years. 3.2. Without prejudice to the above, the learned AO, after having reached a finding that TDS credit of Rs. 1,00,93,973 pertained to previous assessment years, erred in not allowing TDS Credit in such assessment years where the underlying income was offered to tax by the Appellant. The learned CIT(A) erred in not directing the learned AO to allow TDS credit in earlier assessment years in which the underlying income was offered to tax by the Appellant. 3.3. The learned CIT(A) erred in not directing the learned AO to grant TDS credit for AY 2014-15 as per the latest Form No. 26AS, thereby resulting in non-grant of TDS credit of Rs. 12,04,317 (being TDS credit as per latest From 26AS of Rs. 591,64,877 less TDS credit of Rs. 57,960,560 claimed in the return of income). 4. Relief 4.1. The Appellant prays that directions be given to grant al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order. Ld. AO on verification of reconciliation statement observed that, assessee could not furnish any explanation in respect of certain amounts recorded less in assessee's books for relevant period, as compared to gross receipts appearing in 26 AS statements. 3.3. Ld. AO was of the opinion that, such sum appearing as shortfall in the books of assessee, amounts to be undisclosed income and added it to the returned income of assessee. He thus disallowed a sum of Rs. 5,59,91,513/-, as a consequence to which, TDS credit was also disallowed, as it pertained to earlier assessment years. Aggrieved by additions made by Ld. AO, assessee preferred appeal before Ld.CIT (A), who upheld observations of Ld.AO. 3.4. As regards application section 9 (1) (vi) of the Act to toll-free charges paid by assessee being royalty, Ld. CIT(A) observed as under: "4.5 On cogent reading of definition of "royalty" with these explanations would reveal that the payment made by the assessee for data/voice transmission through leased line/temp telecommunication charges would fall within the definition of "royalty" under section 9 (1) (vi) of the act. Since the year under consideration is a Y 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years and that TDS cannot be differed by the payer once payment is made or credited to the assessee. Aggrieved by order of Ld. CIT(A), assessee is in appeal before us. 4. Ground no. 1 Ld.AR argued that, Ld. AO wrongly held payments for toll-free telephone charges as royalty in view of insertion of definition of the term 'process' by Finance Act 2012, with retrospective effect from 01/06/1976. It has further been submitted that section 194J deals with deduction of taxes towards payment of 'royalty', as defined under Explanation 2 to section 9 (1) (vi) of the Act. He submitted that, amendment to the meaning of the term 'royalty' by way of insertion of Explanation 6 to section 9 (1) (vi) of the Act, by defining the term 'process', is not relevant to determine requirement to deduct TDS under section 194J. Ld. AR thus submitted that the term 'royalty' would be restricted to the definition as provided under Explanation 2 to section 9(1)(vi), and would therefore not include software payments as provided in Explanation 4 to section 9 (1) (vi) of the Act. He thus submitted that there is no requirement to deduct TDS on payments to resident under section 194J of the Act. 4.2. Referring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f charge. It is for this exclusive telephone line that payment is made by assessee. Revenue is of the opinion that payment made by assessee for such services amounts to Royalty u/s.9(1) (vi) of the Act, and that assessee is liable to deduct TDS u/s194 J of the Act. There are various judgements relied on by both sides in support of their contentions. 5.1. Section 194J of the Act, enjoins upon any person not being an individual or a HUF to deduct tax at source on certain payments, one of them being royalty, to a resident. Explanation (ba) to section 194J(1) defines 'royalty', by referring to the meaning given in Explanation 2 to section 9(1)(vi) of the Act. For sake of convenience, Explanation 2 of section 9(1) (vi) is extracted hereunder : 'Explanation 2. - For the purposes of this clause, 'royalty' means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head 'Capital gains') for- (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ; (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified that the expression "process" includes and shall be deemed to have always included transmission by satellites (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret;" As we analyse above Explanation 6, it is a deeming definition for the term 'process' to have included various services mentioned therein. As Explanation 2 does not define the term, 'process', Explanation 6 will have to be considered while analyzing, a particular service to be 'process' for purposes of section 9 (vi) of the Act. As the term 'process' always existed in Explanation 2, legislature introduced Explanation 6 with retrospective effect. We therefore reject argument advanced by Ld.AR that Explanation 6 cannot be applied to definition of 'Royalty' Facts in decision relied upon by Ld.AR rendered by Hon'ble Bombay High Court in case of CIT vs M/s. NGC Networks India Pvt. Ltd., (supra) is different from facts in present case and therefore will be of any help to assessee. On the basis of above discussions, we are of the opinion that, payments made by assessee is royalty, in terms of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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