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TMI Blog2022 (2) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-12-2020 and the rectification Order dated 11-01-2021, passed by the Deputy Commissioner Income Tax, Circle Int. Tax. 2(2)(2), (herein after referred to as "Ld. DCIT") respectively u/s. 143(3) r.w.s. 144C (13) and 154 of the Income Tax Act (for short "the Act") for the A.Y. 2017-18. 2. In this case, the Ld. DCIT has passed the Assessment order dated 28-12-2020 and assessed the income of the Appellant to the tune of ₹ 55,72,38,772/- and also ordered for penalty proceedings u/s. 270A of the Act. Thereafter the Appellant filed an Application u/s. 154 of the Act for rectification of the said Assessment Order to the extent to allow the tax rate at 10% without Surcharge and Cess as per India-Switzerland tax treaty. By considering the submissions of the Appellant, though the said rectification sought by the Appellant was allowed by the ld. DCIT by passing Rectification Order dated 11.01.2021 and assessing the income of ₹ 55,72,38,772/- u/s. 154 r.w.s. 143(3) of the Act., however the Ld. DCIT restricted the credit of TDS at ₹ 5,57,23,879 instead of ₹ 5,66,27,192/- previously allowed to the Appellant vide assessment order dated 28 December 2020 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 5,66,27,192 as claimed by the Appellant in the Rol and previously allowed to the Appellant by the Ld. AO vide the assessment order dated 28 December 2020 passed u/s. 143(3) r.w.s. 144C(13) of the Act. 6. That the Ld. AO has erred in initiating penalty proceedings u/s. 270A of the Act. The Appellant submits that each of the above grounds are independent and without prejudice to one other. That the Appellant reserves its right to add, alter, amend, substitute or withdraw any ground of appeal either before or at the time of hearing of this appeal. The Appellant prays that appropriate relief be granted on the said grounds of appeal and the facts and circumstances of the Appellant's case." 4. Heard the parties and perused the material available on record. The Ground No. 1 and 2 raised before us are general in nature, hence do not require specific adjudication. 4.1. In support of grounds No. 3 and 4, the Appellant has submitted that the consideration earned by the Appellant from supply of CAS and Middleware products to the Indian customers do not falls within the ambit of 'royalties' as defined u/s. 9(1)(vi) of the Act and Article 12(3) of the India-Swiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Treaty. 4. Further, the assessee has raised Ground of appeal Nos. 5 & 6 against the orders of the Assessing Officer in alleging that the consideration earned by the assessee from supply of CAS and Middleware products to the Indian customers falls within the ambit of 'Royalties' as defined under section 9(1)(vi) of the Act and Article 12(3) of the India-Swiss Tax Treaty. The case of the assessee is that the revenue earned by the assessee from supply of CAS and Middleware products represents business income, which is not taxable in India in the absence of any PE of the assessee in India, in accordance with the provisions of the Act as well as Article 5 r.w. Article 7 of the India-Swiss Tax Treaty. 11. The issue raised vide Ground of appeal No. 3 to 6 is interlinked and hence, the same are being decided together. 30. In view of the above said propositions, we hold that what has been transferred is limited right to use copyrighted material, then the receipts on sale of licensing of software is not Royalty in view of the beneficial provisions of the DTAA between India and Sweden. We further hold that amended definition of 'Royalty' under the domestic law cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturers and then reselling the same to resident Indian end-users. iii) The third category concerns cases wherein the distributor happens to be a foreign, non-resident vendor, who, after purchasing software from a foreign, nonresident seller, resells the same to resident Indian distributors or end-users. iv) The fourth category includes cases wherein computer software is affixed onto hardware and is sold as an integrated unit/equipment by foreign, non-resident suppliers to resident Indian distributors or end-users. 27. The machinery provision contained in Section 195 of the Income Tax Act is in extricably 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 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... English publisher were to sell the same book to an Indian publisher, this time with the right to reproduce and make copies of the aforesaid book with the permission of the author it can be said that 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. 53. 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 assesses, 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). 56. What is made clear by the judgment in GE Technology (supra) is the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any in come taxable in India, as a result of which the persons referred to in Section 195 of the Income Tax Act were not liable to deduct any TD Sunder Section 195 of the Income Tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph-4 of this judgment. 174. The appeals from the impugned judgments of the High Court of Karnataka are allowed, and the aforesaid judgments are set aside. The ruling of the AAR in Citrix Systems (AAR) (supra) is set aside. The appeals from the impugned judgments of the High Court of Delhi are dismissed." 4.7. Since the issues involved in grounds No. 3 and 4 of the present Appeal are squarely covered in favour of the Appellant by the order of Hon'ble Co-ordinate Bench in Appellant's Own case for the AY 2016-17 and aforesaid Judgment of Hon'ble Supreme Court as referred above, consequently the grounds No. 3 and 4 are allowed in favour of the Appellant. 4.8. With regard to ground No. 5, considering the peculiar facts and circumstances of the case, we deem it appropriate to remit the issue in dispute to the file of AO with a direction to grant an opportunity to the Appellant to reconci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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