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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 ..... angement whereby assessee distributes the software products developed by its holding company. In fact the emphasis by the AO 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 determining the tax liability of the assessee, qua the impugned payments. Of course, the said evidence was not before the lower authorities and, therefore, we deem it fit and proper to remit the matter back to the Assessing Officer, who shall revisit the controversy after considering the submissions put forth by the assessee and as per law. Thus, on this aspect assessee succeeds for statistical purposes. Disallowance towards foreign exchange loss on account of restatement of trade receivables/ payables on the end of the year - HELD THAT:- AO as well as the CIT(A) disallowed the claim on the ground that it was a contingent liability. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 of trade receivables/ payables on the balance sheet date; 7. erred in holding that the judgment of the Honorable Supreme Court in case of CIT vs. Woodward Governor India Private Limited (312 ITR 254) decided on loss in fluctuation of foreign exchange on capital account and not on revenue transactions; 8. erred in treating foreign exchange loss as contingent loss and hence not an allowable expenditure as per Section 30 to 37 of the Act;" 4. The first substantive dispute is with regard to the addition of Rs.7,03,09,000/- made to the returned income by disallowing expenditure representing remittance to a foreign concern by invoking Sec. 40(a)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 customer by the assessee. 6. At the time of hearing, it has also been emphasised that assessee is neither granted the source code of the software product and is nor permitted to modify, translate, recompile or alter the software in any manner. It has been explained on the basis of the terms of the agreement, that assessee is merely granted non-exclusive right to market, re-sell and sub-licence the software product developed by Tekla Finland. It was also pointed out that all the trademarks and trade names involved in connection with the products distributed by the assessee remain the exclusive property of Tekla Finland. It is sought to be pointe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned 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 the software and resold it to the customers in India. For this purpose, the purchase invoice raised by Tekla Finland on assessee and thereafter the sales invoice raised by the assessee on the customers in India have been referred to on a sample basis to say that it is a case of a purchase of product for onward sale. Reference has also been made to the financial statements showing that the transactions have been depicted as Purchase and Sale of software products. The learned representative pointed out that the aforesaid detailed position was not specifically raised before the lower authorities, but referred to an Affida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertake 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 brevity. 13. Having considered the rival stands, it is abundantly clear that the dispute hinges around the mechanics of Re-seller agreement of the assessee with Tekla Finland in terms of which assessee is appointed to distribute and market the software of Tekla Finland in the Indian territory. The case sought to be made out by the assessee is that it has merely purchased and sold a copyrighted article while, on the contrary, what the Assessing Officer has concluded is that assessee acquired a right in the copyright of the article and it is not a case where assessee has merely dealt with a copyrighted article. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 determining the tax liability of the assessee, qua the impugned payments. Of course, the said evidence was not before the lower authorities and, therefore, we deem it fit and proper to remit the matter back to the Assessing Officer, who shall revisit the controversy after considering the submissions put forth by the assessee and as per law. Thus, on this aspect assessee succeeds for statistical purposes. 14. The last Ground in this appeal is with regard to the disallowance of Rs.6,936,000/- towards foreign exchange loss on account of restatement of trade receivables/ payables on the end of the year. In this context ..... X X X X Extracts X X X X X X X X Extracts X X X X
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