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TMI Blog2024 (6) TMI 1122X X X X Extracts X X X X X X X X Extracts X X X X ..... e amendment made to Sec.40(a)(ia) by the finance act, 2008, with retrospective effect from 1.4.2005. We have also perused the case laws relied upon by the AR GE India Technology Centre Private Ltd.( 2010 (9) TMI 7 - SUPREME COURT ) and Industrial Development Bank of India [ 2006 (7) TMI 248 - ITAT BOMBAY-H] . Principles discussed in the said judgement is also support our view that provisions of tax deducted at source were not applicable in case consideration Ground number is decided in favour of the assessee. Claim of deduction u/s 10AA in respect of interest income - HELD THAT:- As decided the case of the assessee for assessment year 2014-15 [ 2023 (9) TMI 1114 - ITAT MUMBAI] wherein as held a similar view is expressed in the case of Symantee Software India P Ltd [ 2015 (1) TMI 110 - BOMBAY HIGH COURT] while considering the deduction under section 10A of the Act. It is relevant to mention here that the manner of computing deduction under section 10A as per the provisions of subsection (4) of the said section is similar to subsection (7) of section 10AA and therefore the ratio of the above decisions rendered in the context of deduction under section 10A would equally be applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such as Indo Denmark, Indo Hungary, Indo Norway, Indo Oman, Indo US, Indo Saudi Arabia, Indo Taiwan also have similar provision providing for benefit of foreign tax credit even in respect of income not subjected to tax in India. However, Indo Canada and Indo Finland treaties do not provide for such benefit unless the income is subjected to tax in both the countries. Therefore, the foreign tax credit would be available to the assessee in all cases except the foreign tax paid in Finland and Canada. The Assessing Officer is directed to grant credit accordingly. Thus we direct the assessing officer to allow foreign tax credit subject to the terms and conditions as directed in the above referred order of the ITAT therefore, this ground of appeal of the assessee is allowed for statistical purposes. MAT computation on Addition of Provision for Diminution in value of Investment - Counsel contended that diminution in the value of investment charged to profit and loss account was in the nature of write off loss due to diminution in the value of investment and not the amount retained/provision set aside for diminution in value of investment - HELD THAT:- We have perused the decision of ITAT M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overseas which are not eligible for relief either under section 90 or 91 of the Act, would not come within the purview of section 40(a)(ii) of the Act. It is the specific plea of the assessee that the State tax is not covered either under Indo US or Indo Canada tax treaty, hence, not eligible for any relief under section 90 of the Act. Pertinently, unlike section 91 read with Explanation (iv), section 90 does not provide for inclusion of tax levied by any State/ local authority of that country within the expression income tax . In view of the aforesaid, we direct the Assessing Officer to verify whether the State taxes paid by the assessee overseas are eligible for any relief under section 90 of the Act and if it is not found to be so, assessee s claim of deduction should be allowed. In view of our decision above, no separate adjudication of grounds no.1.2 is required. TDS u/s 195 - Disallowance of expenditure on imported software on account of non-deduction of TDS - HELD THAT:- We have perused the decision of ITAT for assessment year 2012-13 [ 2022 (4) TMI 1558 - ITAT MUMBAI] ground of appeal of the revenue stand dismissed. Disallowance u/s 14A r.w.Rule 8D(ii) - mandation of recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40(a)(i) on account of non-deduction of TDS - HELD THAT:- We have perused the decision of ITAT for assessment year 2009-10 in the case of the assessee [ 2019 (11) TMI 408 - ITAT MUMBAI] facts on record clearly reveal that commission has been paid to non resident agents located in their respective countries towards services rendered by them in those countries in relation to obtaining export contracts for the assessee. No material has been brought on record by the Assessing Officer to demonstrate that the non resident agents either have any business connection in India or have PE in India so as to bring the commission payment within the tax net. The factual finding recorded by learned Commissioner (Appeals) that the non resident agents have rendered the services in their respective countries and do not have either any business connection in India or any PE in India has not been controverted by the Revenue. Further, the nature of payment viz. commission has also not been disputed by the Revenue. That being the case, since the commission paid to the non resident agents is not chargeable to tax in India at their hands, there is no necessity for the assessee to withhold tax under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been deducted or after deduction has not been paid, no deduction can be allowed for such expenses while computing the income chargeable under the head profit and gains of business or provision. Since, the assessee has not deducted tax on the provisions of expenses and therefore the AO held that the case of the assessee is squarely covered by the provisions of Sec. 40(1)(ia) of the Act. Therefore, the amount of Rs. 141,55,62,737/- was disallowed u/s 40(1)(ia) of the Act. 4. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has upheld the disallowance made by the assessing officer u/s 40(1)(ia) of the Act. 5. During the course of appellate proceedings before us at the outset the ld. Counsel submitted that identical issue on similar fact has been adjudicated by the ITAT, Mumbai in the case of the assessee for assessment year 2013-14 and 2014-15 vide ITA No. 1769/Mum/2018 and ITA No. 5904/Mum/2019 Mumbai ITAT. 6. Heard both the sides and perused the material on record. With the assistance ld. Representatives we have perused the decision of ITAT for assessment year 2013-14 as referred by the ld. Counsel wherein the identical issue on similar fact has been adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ple and reversed next year. This is a consistent method of accounting followed by the assessee. Here a provision created by book entry is disallowed by invoking section 40(a)(ia). If at all Assessing Officer had to make a disallowance under section 40(a)(ia) the entry(ies) must be split up by identifying (a) to whom payable (b) whether the sum credited is one where tax is deductible at source (c) under which section tax is deductible at source and (d) whether same exceeds threshold limits specified In section. Identification of violation in respect of specific entry or a set of entries in tax deduction at source was a fundamental exercise keeping in view provisions of XVll-B was the first step before invoking section 40(a)(ia). This exercise is not carried out. As no default in deduction of tax at source is recorded, the question of disallowance does not arise. Hence on this count assessee succeeds on part I of the ground. 18. Part II is the disallowance of whole of the sum created as provisions. The Assessing Officer disallowed the same after recording reasons that ,... Even then assessee cannot be a/lowed the deduction of provisions u/s 37 as in such situation provision is nothin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble accounting standard and as per the generally accepted accounting principles on accrual basis. Since the concerned vendor account is not credited by the assessee they are not identifiable for want of bills, the assessee has credited provision for expenses and had not deducted tax at source for the same, as according to the assessee, only when the party name is identifiable, the provisions of 40(a)(ia) of the Act would come into operation. Accordingly, it pleaded that no liability of TDS could be fastened on the assessee when the payee is not identifiable. We further find that the very same issue has been the subject matter of adjudication of this Tribunal in the case of Mahindra and Mahindra Ltd., vs DCIT in ITA No.8597/Mum/2010 for A.Y.2006-07 dated 2006-07 dated 06/06/2012 wherein this ground has been adjudicated as under:- 19. Next ground of appeal is about addition made under section 40a(ia) in respect of year-end provision of Rs. 4,25,52,623/-.AO on pages 104 (para-23) has discussed the issue as under- It has been stated by auditors in note for clause 17(f) and auntie 7 (b) of form 3 CD audit report, that company is not detecting the TDS on year end provision as they are of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate Ltd.(327 ITR 456) and Industrial Development Bank of India(107 ITD45) in this regard. DR submitted that work was already carried out for the assessee, that appellant should have deducted tax source. He further submitted that once the amount was debited to profit and loss account provisions of section 40(a)(ia) were applicable. 19.3. We find that the AO has not examined the issue about year-end payments. There is a difference between the payments that are made during the year and the payments made at the fag-end of the year. In our humble opinion in 2nd category of payments tax has been detected in the subsequent year when Bills are booked. In this regard we have also considered the amendment made to Sec.40(a)(ia) by the finance act, 2008, with retrospective effect from 1.4.2005. We have also perused the case laws relied upon by the AR. Principles discussed in the said judgement is also support our view that provisions of tax deducted at source were not applicable in case consideration Ground number 19 is decided in favour of the assessee. 18.3. Respectfully following the same, we find no infirmity in the order of the ld. CIT(A) granting relief to the assessee. Accordingly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profits of the business and has only revised the amount of deduction before the lower authorities by including the interest income. Therefore, we see merit in the contention of the Ld.AR that this is not a fresh claim, but a re-computation of the deduction already claimed while filing the return of income. Be that as may, the powers of the Tribunal are not impinged in entertaining claim not made in return of income or revised return of income. 20. Before proceeding on merits, we will look at the relevant provisions of section 10AA, which reads as below:- 10AA. **** (7) For the purposes of sub-section (1), the profits derived from the export of articles or things or services (including computer software) shall be the amount which bears to the profits of the business of the undertaking, being the Unit, the same proportion as the export turnover in respect of such articles or things or services bears to the total turnover of the business carried on by the undertaking: Provided that the provisions of this sub-section as amended by section 6 of the Finance (No. 2) Act, 2009 (33 of 2009) shall have effect for the assessment year beginning on the 1st day of April, 2006 and subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived by an Undertaking in Section 10-A or 10-B are different from derived from employed in Section 80-HH etc. Therefore all Profits and Gains of the Undertaking including the incidental income by way of interest on Bank Deposits or Staff loans would be entitled to 100% exemption or deduction under Section 10-A and 10-B of the Act. Such interest income arises in the ordinary course of export business of the Undertaking even though not as a direct result of export but from the Bank Deposits etc., and is therefore eligible for 100% deduction. 36. We have to take a purposive interpretation of the Scheme of the Act for the exemption under Section 10-A/ 10-B of the Act and for the object of granting such incentive to the special class of assessees selected by the Parliament, the play-in-the-joints is allowed to the Legislature and the liberal interpretation of the exemption provisions to make a purposive interpretation, was also propounded by Hon ble Supreme Court in the following cases:- I] In Bajaj Tempo Ltd., Bombay Vs. Commissioner of Income Tax, Bombay, [(1992) 3 SCC 78], the Hon ble Supreme Court held that:- 5. ..Since a provision intended for promoting economic growth has to be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erts, and the number of times the judges have been overruled by events self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability. The Court must always remember that legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry ; that exact wisdom and nice adaption of remedy are not always possible and that judgment is largely a prophecy based on meager and uninterpreted experience . Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. 37. On the above legal position discussed by us, we are of the opinion that the Respondent assessee was entitled to 100% exemption or deduction under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on payment of subscription fees u/s 40(ai) Rs. 974,46,988/-: 11. During the course of assessment the AO has noticed that during the year under consideration the assessee has made payment towards subscription services amounting to Rs. 974,46,988/- to various non-resident without deducting withholding taxes. The payment towards subscription were mainly made for the following purposes: (i) Online access to database/periodical/research subscription journal (ii) Subscription towards software license (iii) Webinar access In support of its claim of non-deduction of withholding tax on the subscription services the assessee explained that these were publication and was not an information or advice given individually. The information was available on subscription to anyone willing to pay. It was a copyright information and cannot be passed to anyone else. The information was accessable by any subscriber on payment of requisite price with regular internet access. It was also explained that it was for use of copyright article and not for transfer of right in the copyright in the article. The assessee has not received any knowledge as to how database were maintained etc. However, the AO has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial fact that subscription was made for use of a copyrighted article and not for transfer of right in the copyright in the article and assessee had not received any licence for commercial exploitation of the copyright. In view of the facts and findings as discussed we consider the ld. CIT(A) is not justified in sustaining such disallowance, therefore, this ground of appeal of the assessee is allowed. Ground No.4: Disallowance of foreign tax credit in respect of income pertaining to Sec. 10A/10AA eligible units in India: 16. During the year under consideration the assessee claimed tax credit of Rs. 527,99,93,028/- u/s 90 of the Act on the ground that even the income in respect of which deduction u/s 10AA was claimed was eligible for relief u/s 90 of the Act. However, the AO has not allowed the claim of tax credit u/s 90 in respect of income eligible for deduction u/s 10A of the Act. 17. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has partly allowed the appeal of the assessee directing the AO to allow foreign tax credit only with respect to DTAA country, where the income was taxed both in India and abroad. It was also directed that assessee would be entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra), the foreign tax credit benefit under section 90(1)(a)(ii) of the Act would only be applicable under Indo US DTAA and would not be applicable to other DTAA countries and non DTAA countries. On a careful reading of the decision of the Hon ble Karnataka High Court in Wipro Ltd. (supra), it is noted, while dealing with identical issue the Hon ble Court held that in the cases covered under section 90(1)(a)(ii) of the Act, it is not the case of income being subjected to tax or the assessee has paid tax on the income. The provision applies to a case where the income of the assessee is eligible to tax under the Act as well as in the corresponding law in force in the other country. The Court observed, though, income tax is chargeable under the Act, it is open to the Parliament to grant exemption under the Act from payment of tax for any specified period, normally, to incentivize the assessee the to carry on manufacturing activities or providing services. The Court thereafter referring to the treaty provisions with USA held that it is not the requirement of law that the assessee before he claims credit under the Indo US convention or under the provision of the Act must pay tax in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution in the value of investment was in the nature of write off loss due to diminution in the value of investment and not the amount retained/ provision set aside for diminution in the value of investment. However, the assessing officer hat not agreed with the submission of the assessee and stated that as per clause (i) of explanation 1 of Sec. 115JB only the amount set aside as provisions for diminution in value of any asset is required to be added to book profit. Therefore, AO has added the amount of Rs. 2,50,00,000/- as diminution in value of investment to the book profit of the assessee for the purpose of computation u/s 115JB of the Act. 21. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has upheld the action of the assessing officer. 22. During the course of appellate proceedings before us the ld. Counsel contended that diminution in the value of investment charged to profit and loss account was in the nature of write off loss due to diminution in the value of investment and not the amount retained/provision set aside for diminution in value of investment. The ld. Counsel also placed reliance on the following judicial pronouncements: i. ACIT Vs. Reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent investment, the appellant following mandatory Accounting standard 13, charged Rs. 46,94,62,365/- to Profit Loss Account and prepared its accounts in accordance with Schedule VII provided in Section 211 of the Companies Act 1956. The assessee had credited the difference between the sale price and fair value as on 31.03.2008 to Profit Loss Account and not the difference between sale price and its cost. Such accounting treatment is impossible where the provision is made instead of write off. 8. We find that considering the above facts a debit of Rs. 46,94,62,365/- appearing in Profit Loss Account is not a provisions set aside for diminution in value of investment but a actual charge to the Profit Loss account which has been written off against the value of the current asset. Therefore, we are of the considered view that debit of Rs. 46,94,62,365/- appearing in Profit Loss Account is not a provision of set aside for diminution in value of investment but the actual charged for the loss in the diminution in value of investment. Therefore, we are of the view that for the book profit purpose of section 115JB is not required to be increased by Rs. 46,94,62,365/- as the same is not in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly, the additional ground raised by the assessee in respect of claim of deduction u/s.10A of commercial profits is allowed for statistical purposes . 33. Respectfully following the decision of the co-ordinate bench, we remand the issue to the file of the Assessing Officer for de novo consideration of the issue keeping in mind the decision of the Hon ble Supreme Court in the case of Vijay Industries Ltd (supra). This ground is allowed for statistical purpose. Following the decision of ITAT as referred supra this issue is remanded to the file of the assessing officer for deciding de novo as directed by the ITAT in the referred decision. Therefore, this ground of appeal of the assessee is allowed for statistical purposes. 27. The appeal of the assessee is partly allowed. ITA No. 2477/Mum/2021 (Revenue s Appeal) Ground No. 1: Disallowance of taxes paid in overseas countries Rs. 947,89,832/-: 28. During the year under consideration the assessee has paid the state taxes amounting to Rs. 947,89,832/- in the USA on its USA sourced income. The same was claimed as a deductible expenses in the return of income. However, the assessing officer held that such claim was not allowable as deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessment year 2005 06, the Tribunal in the order referred to above following its own decision in DCIT v/s Tata Sons Ltd., [2011] 43 SOT 27 (Mum.), has held that the State taxes paid overseas cannot be allowed as deduction in view of the provisions of section 40(a)(ii) of the Act. However, the aforesaid legal position has substantially changed after the decision of the Hon'ble Jurisdictional High Court in Reliance Infrastructure Ltd. (supra). While interpreting the provisions of section 2(43) of the Act, vis a vis section 40(a)(ii) of the Act, the Hon ble Court held that the tax which has been paid abroad would not be covered within the meaning of section 40(a)(ii) of the Act, since, the meaning of the word tax as defined under section 2(43) of the Act would mean only the tax chargeable under the Act. Thus, as per the aforesaid decision of the Hon'ble Jurisdictional High Court, taxes levied overseas which are not eligible for relief either under section 90 or 91 of the Act, would not come within the purview of section 40(a)(ii) of the Act. It is the specific plea of the assessee that the State tax is not covered either under Indo US or Indo Canada tax treaty, hence, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used the materials available on record. We find that the very same issue was subject matter of adjudication by this Tribunal in assessee s own case for A.Y.2009-10 in ITA No.5713/Mum/2016 dated 30/10/2019. The facts recorded in the order passed by this Tribunal for A.Y.2009-10 and the adjudication of the same by the lower authorities is reproduced below as the same facts are prevailing in this year also except with variance in figures and yet another exception is that agreement copies were duly filed by the assessee during the year under consideration before the lower authorities. 8. Brief facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee has claimed expenditure incurred in respect of purchase of software called upon the assessee to furnish the necessary details. On verifying the details furnished by the assessee, he found that the assessee had purchased software for its internal use amounting to ₹ 47,36,54,498, and for trading purpose amounting to ₹ 31,03,03,823. After perusing the details, the Assessing Officer was of the view that the amount paid towards acquiring software brought along with support service is in the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product and assessee was not entitled to make any alterations to the software in order to make copies thereon. Finally, the ld. AR also submitted on without prejudice basis that in any case, provisions of Section 40(a)(i) of the Act would not be made applicable to allowance of depreciation on imported software if the same is treated as capital in nature. 7.4. Per contra, the ld. DR vehemently relied on the orders of the lower authorities. 7.5. We find ultimately that this issue has been restored to the file of the ld. AO by this Tribunal in A.Y.2009-10 by making certain observations. We find that while rendering this decision and also for the decision of A.Y.2010-11 in ITA No. 974/Mum/2018 dated 18/08/2020, the decision of the Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd., vs. CIT reported in 432 ITR 471 was not rendered. Now, we find that the issue in dispute before us has been fully settled by the aforesaid decision of the Hon ble Apex Court in favour of the assessee by holding as under:- By virtue of section 90 of the Income-tax Act, 1961, once a Double Taxation Avoidance Agreement applies, the provisions of the Act can only apply to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which the copyrighted work may happen to be embodied. Importantly, by virtue of section 16 of the 1957 Act no copyright exists in India outside the provisions of the 1957 Act or any other special law for the time being in force. The making of copies or adaptation of a computer programme in order to utilise the programme for the purpose for which it was supplied, or to make backup copies as a temporary protection against kiss, destruction or damage so as to be able to utilise the computer programme for the purpose for which it was supplied, does not constitute an act of infringement copyright under section 52(1)(aa) of the 1957 Act. Section 52(l)(ad) is independent of section 52(1)(aa) of the 1957 Act, and states that the making of copies of a computer programme from a personally legally obtained copy of non-commercial personal use would not amount to an infringement of copyright. Section 52(1)(ad) of the 1957 Act cannot be read to negate the effect of section 52(1)(aa), since it deals with a subject matter that is separate and distinct from that contained in section 52(1)(aa) of the 1957 Act. There is an important difference between the right to reproduce and the right to use com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eans the transfer of all or any rights, including the g-ranting of a licence, in respect of any copyright in a literary work. Under article 3(2) of the Double Taxation Avoidance Agreement between India and Singapore, the definition of the term royalties , shall have the meaning assigned to it by the DTAA, meaning thereby that the expression royalty, when occurring in section 9 of the Act, has to be construed with reference to article 12 of the DTAA. This position is also clarified by CBDT Circular No. 333 dated April 2, 19822 . Thus, by virtue of article 12(3) of the DTAA, royalties are payments of any kind received as consideration for the use of; or the right to use, any copyright of a literary work, which includes a computer programme or software. When article 12 of the DTAA defines the term royalties in paragraph (3) thereof, it does so stating that such definition is exhaustive : it uses the expression means . Secondly, the term royalties refer to payments of any kind that are received as a considerate ion for the use of or the right to use any copyright in a literary work. The definition contained in Explanation 2 to section 90(1)(vi) of the Act, is wider in at least three re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vi) of the Act, would necessarily mean a licence in which transfer is made of an interest in rights in respect of' copyright, namely, that there is a parting with an interest in any of the rights mentioned in section 14(b) read with section 14(a) of the 1957 Act. To this extent, there will be no difference between the position, under the DTAA and Explanation 2 to section 9(i)(vi)of the Act. Explanation 4 to section 9(1)(vi) of the Act was inserted retrospectively to expand the scope of Explanation 2(v). In any case, Explanation 2(v) contains the expression, the transfer of all or any rights which is an expression that would subsume any right, property or information and is wider than the expression any right, property or information . CBDT Circular No. 152 dated November 27, 19741 cannot apply to explain a position that existed even before section 9(1)(vi) was actually inserted in the Act by the Finance Act, 1976. In so far as section 9(1)(vi) of the Act relates to computer software Explanation 3 thereto refers to computer software for the first time with effect from April 1, 1991, when it was introduced, which was then amended by the Finance Act, 2000. Quite clearly, Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 312 (SC) explained and distinguished. The person spoken Of in section 195(1) of the Art is liable to make the necessary deductions only if the non-resident is liable to pay tax as an asses-see under the Act, and not otherwise. The tax deductor must take into consideration the effect of the DTAA provisions. Thus the charging and machinery provisions contained in sections 9 and 195 of the Act are interlinked. The person liable to deduct tax is only liable to deduct tax first and foremost if the nonresident person is liable to pay tax, and second, if he is so liable, he is liable to deduct tax depending on the rate mentioned in the DTAA. GE INDIA TECHNOLOGY CENTRE (R) LTD. v. CIT [20101 327 ITR 456 (SC) and VODAFONE INTERNATIONAL HOLDINGS B. V. V. UNION OF LNDJA [20121 341 ITR 1 (SC) relied on. The argument based on article 30 of the Double Taxation Avoidance Agreement between India and the United States of America that the DTAA's provisions in these cases would not apply at all, inasmuch as the provisions relatable to deduction of tax at source under section 195 of the Act do not refer to tax at all, but are deductions that are to be made before assessments to tax are made, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or commercial rental, The object of section 14(b)(ii) in. the context of a computer programme, is to interdict reproduction of the computer programme and consequent transfer of the reproduced computer programme to subsequent acquirers or end-users. Thus, any sale by the author of a computer software to a distributor for onward sale to an end-user, cannot possibly be hit by the provision. Further, the distributor cannot use the computer software at all and has to pass on the software, as shrink-wrapped by the owner, to the end-user for a consideration., the distributor's profit margin being that of an intermediary, who merely resells the same product to the end-user. WARNER BROS. ENTERTAINMENT INC. V. SANTOSH V. G. [20091 SCC OnLine Del 835 approved. Double Taxation Avoidance Agreements entered into by India with other contracting States have to be interpreted liberally with a view to implement the true intention of the parties. The Agreements have, as their starting point, either the OECD Model Tax Convention on Income and Capital or the United Nations Model Double Taxation Convention between Developed and Developing Countries in so far as the taxation of royalty for parting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith copyright, or income derived from licence agreements which is then taxed as business profits depending on the existence of a permanent establishment in the contracting State. The HPC Report 2003 and the E-Commerce Report 2016 submitted to the Government of India are recommendatory reports expressing the views of the committee members, which the Government of India may accept or reject. When it comes to DTAA provisions, even if the position put forth in these reports were to be accepted, a DTAA would have to be bilaterally amended before any such recommendation can become law in force for the purposes of the Act. On appeals arising in four categories of cases (a) cases in which computer software was purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer; (b) cases where resident Indian companies were distributors or resellers, purchasing computer software from foreign, non-resident suppliers or manufacturers and then reselling it to resident Indian end- users (c) cases where the distributor was a foreign, non-resident vendor, who, after purchasing software from a foreign, non-resident seller, resold it to resident Indian distr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14(b)(i0 of the 1957 Act, thus necessitating the deduction of tax at source under section 195 of the Income-tax Act, 1961. TATA CONSULTANCY SERVICES V. STATE OF ANDHRA PRADESH [2004] 271 ITR 401 (SC); [2004] 137 SIC 620 (SC) relied on. (ii) That given the definition of royalties' contained in article 12 of the DTAAs there was no obligation on the persons mentioned in section 195 of the Act to deduct tax at source, as the distribution agreements and end-user licence agreements did not create any interest or right in such distributors or end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Act which deal with royalty, not being more beneficial to the assessees, had no application in the facts of these cases. The amounts paid by resident Indian end-users or distributors to non-resident computer software manufacturers or suppliers, as consideration for the resale or use of the computer software through end-user licence agreements or distribution agreements, was not royalty for the use of copyright in the computer software, and did not give rise to any income taxable in India, as a result of which the persons referred to in sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer cannot invoke the provisions of disallowance under section 14A read with rule 8D without recording any cogent reasons as to why he is not satisfied with the correctness of the claim of the assessee. Mere recording that the amounts being meager compared to the exempt income earned, cannot be construed as recording of satisfaction. Therefore, respectfully following the ratio laid down by the coordinate bench in assessee s own case, we hold that the CIT(A) has correctly deleted the addition made by the Assessing Officer for want of recording of objective satisfaction with cogent reasons. This ground of the revenue is dismissed. Following the decision of ITAT, Mumbai on similar issue and facts in the case of the assessee as referred above we don t find any infirmity in the decision of ld. CIT(A), therefore, this ground of appeal of the revenue stand dismissed. Ground No.4: disallowance of advertisement expenses (Brand building expenses) of Rs. 148,06,18,804/-: 38. During the course of assessment the AO noticed that assessee claimed expenses to the amount of Rs. 149,43,14,207/- towards advertisement. Out of aforesaid total expenses, the assessing officer treated expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure is for brand building. As observed earlier, the expenditure relates to advertisement in newspaper, magazine, events, seminars, conferences, exhibitions, etc. Thus, the nature of expenditure incurred by the assessee clearly indicates that it was for promoting its own business. Further, considering the turnover of the assessee, the expenditure incurred on advertisement does not appear to be unusually high. That being the case, the expenditure incurred on advertisement cannot be treated to be in the nature of capital expenditure and amortized over a period of five years. To that extent, we agree with the decision of learned Commissioner (Appeals) on the issue. However, as regards experience certainty expenditure amounting to Rs. 5.28 crore, it appears that learned Commissioner (Appeals) has held it to be of capital nature on the basis that the assessee itself admitted so. However, before us, leaned Sr. Counsel for the assessee has vehemently argued that no such admission was made by the assessee before learned Commissioner (Appeals) and under a misconception, learned Commissioner (Appeals) has come to such conclusion. The leaned Sr. Counsel submitted, the experience certainty camp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of ITAT for AY. 2011-12. The relevant operating part of the decision is reproduced as under: 39. We have considered the rival submissions and perused the material available on record. As per the Tata Brand Equity and Business Promotion Agreement , the assessee was under contractual obligation to make annual payment towards the subscription fees. According to assessee, in consideration of this subscription fees, Tata Sons Limited was, inter-alia, responsible for organising corporate identity and brand promotional activities and campaigns, engage professional consultants, make available a pool of sharable resources of the Tata Group to the assessee and provide assistance in accessing the network of domestic and international business contacts and also permit the assessee to use the business name. All the activities were predominantly the activities carried out or to be carried out by Tata Sons Limited to enhance the value of TATA Brand, which is owned by Tata Sons Limited and for same expenses were incurred by Tata Sons Limited and accounted in its books of account. 40. In the case of sister concern of assessee, the Co-ordinate Bench of Tribunal in ACIT v/s M/s Rallis India L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ld. CIT(A) has allowed the ground of appeal of the assessee after following the decision of ITAT on the similar issue and identical fact for assessment year 2008-09 2010-11. 48. During the course of appellate proceedings before us the ld. Counsel submitted that similar issue on identical facts has been deciding in favour of the assessee by the ITAT for assessment year 2008-09 to 2014-15. 49. Heard both the sides and perused the material on record. We have perused the decision of ITAT for assessment year 2009-10 in the case of the assessee itself vide ITA No.5823/Mum/2016. The relevant part of the decision is reproduced as under: 5. We have considered rival submissions and perused the material on record. The facts on record clearly reveal that commission has been paid to non resident agents located in their respective countries towards services rendered by them in those countries in relation to obtaining export contracts for the assessee. No material has been brought on record by the Assessing Officer to demonstrate that the non resident agents either have any business connection in India or have PE in India so as to bring the commission payment within the tax net. The factual ..... X X X X Extracts X X X X X X X X Extracts X X X X
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