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TMI Blog2021 (8) TMI 635X X X X Extracts X X X X X X X X Extracts X X X X ..... lore ['CIT(A)'], is bad in law and liable to be set aside. 2. That in the facts and circumstances in the case and in law, the learned CIT(A) erred in upholding the action of the learned AO, in bringing to tax the receipts from the sale of software of INR 2,94,75,658 as royalty income. 3. That in the facts and circumstances in the case and in law, the learned CIT(A) erred in upholding the action of the learned AO, in bringing to tax foreign exchange difference of INR 9,41,63o arising on account of reconciliation of total receipts of the Company with the receipts appearing in Form 26AS. 4. That in the facts and circumstances in the case and in law, the learned CIT(A) erred in upholding the action of the learned AO, in not appreciating that the Appellant is a foreign company and receives income in foreign currency and therefore the foreign exchange difference is notional in nature. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein below or produce further documents before or at the time of hearing of this Appeal." 3. Further, the assessee has filed application for admission of additional grounds. The additional grounds are as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before the Tribunal. 8. The ld. AR submitted this issue is squarely covered by the judgment of Hon'ble Supreme Court in the case of ENGINEERING ANALYSIS CENTRE FOR EXCELLENCE PRIVATE LIMITED VS COMMISSIONER OF INCOME TAX & ANOTHER - AIR 2021 SC 124 / 432 ITR 471 (SC). The Apex Court in the aforesaid case has held in paragraphs 27, 47, 52, 168 & 169 as under: "27. The machinery provision contained in Section 195 of the Income Tax Act is inextricably linked with the charging provision contained in Section 9 read with Section 4 of the Income Tax Act, as a result of which, a person resident in India, responsible for paying a sum of money, "chargeable under the provisions of [the] Act", to a non-resident, shall at the time of credit of such amount to the account of the payee in any mode, deduct tax at source at the rate in force which, under Section 2(37A)(iii) of the Income Tax Act, is the rate in force prescribed by the DTAA. Importantly, such deduction is only to be made if the non-resident is liable to pay tax under the charging provision contained in Section 9 read with Section 4 of the Income Tax Act, read with the DTAA. Thus, it is only when the non-resident is liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copyright in the book has been transferred by way of licence or otherwise, and what the Indian publisher will pay for, is the right to reproduce the book, which can then be characterized as royalty for the exclusive right to reproduce the book in the territory mentioned by the licence. 52. There can be no doubt as to the real nature of the transactions in the appeals before us. What is "licensed" by the foreign, non-resident supplier to the distributor and resold to the resident end-user, or directly supplied to the resident end-user, is in fact the sale of a physical object which contains an embedded computer programme, and is therefore, a sale of goods, which, as has been correctly pointed out by the learned counsel for the assessees, is the law declared by this Court in the context of a sales tax statute in Tata Consultancy Services v. State of A.P., 2005(1) SCC 308 (see paragraph 27). 168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in S.195 of the Income Tax Act to deduct tax at source, as the distribution agreements/ EULAs in the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer for fresh consideration and decision in accordance with law. 11. The next issue in ground Nos.3 & 4 is with regard to bringing to tax foreign exchange difference of Rs. 9,41,630 arising on account of reconciliation of total receipts of the Company with the receipts appearing in Form 26AS. 12. On verification of Form 26AS, it was found that the assessee had received income from following Indian companies, from which tax was also deducted:- Customer Amount Received Wipro Limited 30542660 ConcentrixDaksh Business process Services Pvt Ltd 17682243 HCL Technologies Ltd. 1622118 Accenture Services Pvt. Ltd. 8837958 Total 58684979 13. In the return of income the receipts shown were only Rs. 23103335 on which tax was paid @ 10% u/s. 115 of the Act. The assessee filed the following reconciliation :- Particulars Amount Total receipts as per 26AS 58684979 Less: Income from software licenses not offered to tax, as they are not taxable as per Indo-US DTAA 29475658 Less: Income offered to tax in next accounting year on receipt basis 5164356 Less: Foreign exchange adjustments 941630 Income as per return 23103335 14. The AO proposed to bring Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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