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TMI Blog2020 (10) TMI 931X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Srinivasan, P.V., A.R. For the Respondent : Shri Pradeep Kumar, D.R. ORDER PER B.R. BASKARAN, ACCOUNTANT MEMBER: The assessee has filed this appeal challenging the order dated 03-05-2017 passed by Ld CIT(A)-12, Bengaluru and it relates to the assessment year 2010-11. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the demand raised u/s 201(1) and 201(1A) of the Income-tax Act,1961 ['the Act' for short] by the AO treating the assessee as an assessee in default. 2. The facts relating to the issue are discussed in brief. During the previous year relevant to the assessment year under consideration, the assessee has paid a sum of ₹ 6,39,09,422/- towards subscription charges to M/s Gartner group. It is noticed that M/s Gartner group is engaged in the business of generating research products, which include qualitative research and analysis. The said products are useful for the information technology companies in their business. M/s Gartner group issues licenses for using its data base. The assessee has subscribed the license and accordingly, it has made the above said payment to M/s Gartner group. 3. The AO took the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tner Group. He submitted that the Hon'ble High Court has followed the decision rendered in the case of CIT vs. M/s Samsung Electronics Co. Ltd (ITA No.2808 of 2005) (2012) (345 ITR 494) (Kar) and held that the payments made to M/s Gartner group towards subscription charges is in the nature of royalty. The Hon'ble High Court also made a reference to ITA No.2988 of 2005, which is a case pertaining to M/s Infosys Technologies Ltd and the said case was also disposed of along with M/s Samsung Electronics Co. Ltd (supra). 6. The Ld A.R submitted that the assessee was under bonafide belief that it is not liable to deduct tax at source from the payments made to M/s Gartner group towards subscription charges on the basis of decision rendered by co-ordinate bench in the assessee s own case. However, the law was clarified by the Hon'ble High Court by its order passed on 15-10-2011. Accordingly, he submitted that the assessee should not be treated as an assessee in default atleast upto 15-10-2011, when the law was clarified by Hon'ble jurisdictional High Court, in view of the bonafide belief entertained by the assessee on the basis of decision rendered by the co-ordinate ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should not be fastened with the TDS liability for the payments made prior to 15.10.2011. Accordingly he prayed that the demand raised u/s 201(1) and 201(1A) for the payments made prior to 15.10.2011 be deleted. 5. We heard Ld D.R and perused the record. We notice that the co-ordinate bench has examined the issue of making disallowance u/s 40(a)(i) of the Act for non-deduction of tax at source on the basis of subsequent amendment/decision of High Court in the case of Infineon Technologies India P Ltd (supra). For the sake of convenience, we extract below the relevant observations made by the co-ordinate bench in the above cited case:- 25. We have carefully considered the rival submissions. The payment in question was made to the non-resident in the previous year relevant to AY. 10-11. Therefore the law as on 31.3.2010 the last date of the previous year was that payment for purchase of off shelf software was not in the nature of royalty. In Sonata Information Technology Ltd. v. ACIT (103 ITD 324) decision rendered on 31.1.2006, it was held that payments for software licenses do not constitute royalty under the provisions of the Act and hence disallowance under section40(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law after the date on which payments are made. 27. we are of the view that in the light of law as laid down by this Tribunal in the case of Ingersoll Rand (I) Ltd. (supra), there cannot be a retrospective obligation to deduct tax at source and therefore as on the date when the assessee made payments to the non-resident for acquiring off-the-shelf software cannot be regarded as in the nature of royalty and therefore there was no obligation on the part of assessee to deduct tax at source. The payment would be in the nature of business profits in the hands of non-resident and since admittedly the non-resident does not have a Permanent Establishment in India, the sum in question is not chargeable to tax in the hands of non-resident. Consequently, the disallowance made IT(TP)A Nos.405 474/Bang/2015 u/s. 40(a)(ia) of the Act has to be deleted. We direct accordingly. Ground No.14 by the assessee is accordingly allowed. 6. In the case of M/s Teekays Interior Solutions Pvt Ltd (supra), the co-ordinate has considered the issue of making disallowance u/s 40(a)(ia) of the Act on the basis of subsequent decision rendered by Hon ble Karnataka High Court in the case of Samsung Electr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the liability to deduct tax at source, in the facts of the present case, cannot be fastened upon the assessee retrospectively. 11. We heard the learned DR and perused the record. We noticed that an identical issue was considered by the co-ordinate bench in the case of Allegis Services India Pvt. Ltd. (supra) and identical disallowance made was deleted by the co-ordinate bench on the reasoning that the TDS liability cannot be fastened upon the assessee retrospectively. For the sake of convenience, we extract below the operating portion of the order passed by the co-ordinate bench:- 4. Ground Nos.2 to 5 are regarding disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 (in short 'the Act') of payment towards software licenses treated by the Assessing Officer as royalty for want of TDS. The assessee has also raised additional grounds which are as under : Corporate tax matters 21. Without prejudice to the grounds 2 to 4, the Learned CIT(A) has failed to appreciate that during the Financial Year 2008-09 relevant to the Assessment Year 2009-10, the Appellant was not liable to withhold tax on the payments made as there was no provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of CIT Vs. Samsung Electronics Co. Ltd. (supra) though was subsequent to the transaction in question however, the said decision has not brought into statute any new law but it is only a declaration and interpretation of existing law. He has relied upon the orders of the authorities below. 7. We have considered the rival submissions as well as the relevant material on record. There is no dispute that the transaction in question regarding payment of purchase of software was completed in the F.Y.2008-09 whereas the decision of Hon'ble jurisdictional High Court in the case of CIT Vs. Samsung Electronics Co. Ltd. (supra) was passed on 15.10.2011 much later than the time of transaction carried out by the assessee. It is also not in dispute that this issue of considering the payment for purchase of software as royalty is a highly debatable issue and various High Courts have taken divergent views on this issue. The co-ordinate Bench of this Tribunal in the case of ACIT Vs. Aurigene Discovery Technologies (P) Ltd. (supra) has considered an identical issue in paras 3 to 5 as under : 03. We heard the rival submissions and gone through the relevant orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a), it has been submitted that the company had determined the rate of tax to be deducted and following the judgments that were prevalent at the time of tax deduction, Supreme Court in the case of Tata Consultancy Services and jurisdictional Tribunal in the case of Samsung Electronics Co. Ltd, the appellant submitted that the said judgment shall not be applicable since it was pronounced on 15/10/2011 and Velankani Mauritius Ltd., whereas the liability to deduct tax for the appellant was the F.Y. 2010-11. The appellant has relied on the judgment of Cochin Tribunal in the case of Kerala Vision Ltd and Agra Tribunal in the case of Virola International, wherein it was held that The law amended was undoubtedly retrospective in nature but so far as tax withholding liability is concerned, it depends on the law as it existed at the point of time when payments, from which taxes ought to have been withheld, were made. The tax-deductor cannot be expected to have clairvoyance of knowing how the law will change in future. Further, software payment was included in definition of royalty only vide Explanation to section 9(1)(vi)inserted retrospectively vide Finance Act, 2012 and when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the assessee did not have the benefit of the clarification brought brought about by the retrospective amendment that the payments tantamount to payment for royalty and consequently tax was to be deducted u/s 194J. The law as extant on the date when the payment for obtaining the software was made, has not categorically laid down that tax is required to be deducted. It is impossible to fasten liability for deducting tax at source retrospectively. 5.4 In view of the above decisions, it is correct to say that it is not possible to fasten liablity for deducting tax at source retrospectively as tax is to be deducted at source at the time when the payment is credited or made. When purchase of software was made the assessee did not have the benefit of the clarification brought about by the retrospective amendment. the contention of the appellant is correct that the software payment disallowed by the AO did not warrant withholding of the tax u/s 40(a) (ia) and 40(a)(ia) (by an order of corrigendum dt 20.11.2015) of the Ac t. Therefore disallowance made by the AO on account of software payment want of withholding of tax is hereby deleted. 05. The CIT(A) followed the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1(1A) for assessment years 2009-10 to 2011-12 could not be sustained and the demands raised in respect of payments made prior to 15.10.2011 in assessment year 2012-13 could also not be sustained. 8. Accordingly, we set aside the orders passed by Ld CIT(A) for assessment years 2009-10 to 2011-12 and direct the AO to delete the demands raised u/s 201(1) and 201(1A) of the Act. We also modify the order passed by Ld CIT(A) for assessment year 2012-13 and direct the AO to delete the demands raised in respect of payments made prior to 15.10.2011 in that year. 9. In the result, the appeals filed by the assessee for assessment years 2009-10 to 2011-12 are allowed and the appeals filed for AY 2012-13 are partly allowed. 9. In the instant case also, the impugned payments have been made prior to 15.10.2011, being the date of the order of the High Court referred above. Since the facts are identical, following the above said decision, we set aside the order passed by Ld CIT(A) and direct the AO to delete the demand raised u/s 201(1) and 201(1A) of the Act. 10. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 15th Oct, 2020 - - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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