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TMI Blog2019 (9) TMI 1662X X X X Extracts X X X X X X X X Extracts X X X X ..... :- "On the facts and circumstances of the case and in law the learned CIT(A); 1. erred in making disallowance of Rs 70,309,000 under Section 40(a)(i) of the Act; 2. erred in treating purchase cost of the Appellant towards licence and upgrades and services as royalty payments; 3. erred in holding the impugned payments as 'royalty' on account of the retrospective amendment made in Explanation 2 to Section 9(1)(vi) of the Act vide Finance Act 2012 without appreciating that the Appellant is eligible to claim beneficial provisions of Indian Finland Tax Treaty, which has not undergone any change; 4. erred in not appreciating that the newly inserted explanation to Section 9(1)(vi)of the Act is not applicable while applying Section 40(a)(i) of the Act; 5. erred in holding that as the Appellant has not obtained a certificate for deduction of tax at nil/ lower rate under Section 195(2)/195(3)/197 of the Act, the Appellant had to deduct taxes without appreciating that the impugned payments were not taxable as per the beneficial provision of India-Finland Tax Treaty; 6. erred in disallowing an amount of Rs 6,936,000 towards foreign exchange loss on account of restatement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent for Resale of software dated 01.02.2008, Tekla Finland appointed the assessee for distribution and marketing of the software in India. In terms of the arrangement, Tekla Finland entered into an agreement with the assessee to distribute and sub- licence shrink-wrap software products developed by it. The stand of the assessee is that once a transaction is initiated with the customer who intends to purchase the software product, assessee enters into an agreement with the customer. Thereafter, Assessee, in turn, prepares a repurchase order on Tekla Finland and on acceptance of the order by Tekla Finland, the software product alongwith a temporary password is sent to the assessee. It was explained at the time of hearing that at this stage an invoice is raised on the assessee and assessee thereafter delivers the software alongwith the temporary password to the customer for which purpose, assessee raises a sales invoice. At the time of hearing, the aforesaid has also been sought to be explained by means of a diagram alongwith sample copies of customer order and software licence agreement, repurchase order, purchase invoice from Tekla Finland as also the sales invoice raised on the the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of intellectual property and not for purchase of goods and, therefore, it being in the nature of 'Royalty', tax was required to be deducted at source. The CIT(A) has also more or less concurred with the reasoning taken by the Assessing Officer based on the meaning of expression "Royalty" ascribed in Explanation-2 to Sec. 9(1)(vi) of the Act. Further, the CIT(A) also referred to Explanation-4 to Sec. 9(1)(vi) of the Act, inserted by the Finance Act, 2012 w.r.e.f. 01.06.1976, to say that the payments were for right to use of software, which would amount to 'Royalty'. 9. In the above context, the learned representative, in particular, with respect to the reliance placed by the Assessing Officer on clause 4.13 of the agreement, pointed out that the 'Additional features' referred therein were never developed by the assessee during the period under consideration and that the impugned payments were merely towards the purchase of software for ultimate sale to the customers in India. The learned representative emphasised that though the agreement refers to obtaining software product by getting a licence, but in effect, it was a case where assessee had purchased th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l statements for the year under consideration have been referred to, in order to demonstrate the manner in which the transactions have been entered in the books of account. 11. Another aspect raised in support of the plea that no additional features in the software have been developed by the assessee is based on the department-wise bifurcation of employees and their salary costs. These details have been referred, to say that employees of the assessee are predominantly engaged in the activities of sales, marketing and distribution of software products and assessee does not have any employee competent to undertake software development activities. The aforesaid material have been referred by the assessee before us to show that it is a case where assessee has bought the software and in the process of facilitating its distribution and sale in India, rendered sales and marketing services and it is not a case where assessee has indulged in an activity which would render the payments as 'Royalty' in nature. 12. On the other hand, the ld. DR supported the stand of the lower authorities, which we have already noted in the earlier paras and is not being repeated for the sake of brev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the assessee but was not produced before the lower authorities. 13.1 In our considered opinion, Additional evidence now sought to be produced by the assessee does not enable the assessee to make out a new case but only would enable the assessee to support its assertions made before the authorities in an appropriate manner. Not only that, the Additional evidence will also enable Income tax authorities to determine the correct nature of the payments in accordance with the extant position of law. The assessee has consistently been asserting that the Re-seller agreement is merely a back to back arrangement whereby assessee distributes the software products developed by its holding company. In fact the emphasis by the Assessing Officer on Para 4.1.3 of the Re-seller agreement would be suspect to treat payments in the nature of royalty, if factually assessee is able to demonstrate that it has not undertaken any separate development in the software products on its own in the course of selling the product to the customer. Be that as it may, in our considered opinion, the aforesaid Additional evidence is germane and in the interest of justice it deserves to be considered while determini ..... X X X X Extracts X X X X X X X X Extracts X X X X
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