9911796707
TMI Blog2024 (6) TMI 1122X X X X Extracts X X X X X X X X Extracts X X X X ..... red 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 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 appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tries 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such tax 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks in accordance with accounting principle 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made provision for expenses in its books as per the applicable 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, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statutory audit. He relied upon the decisions of GE India Technology Centre Private 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income has claimed the deduction under section 10AA without including the interest income to 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into picture. Therefore analogy of Chapter VI Deductions cannot be telescoped or imported in Section 10-A or 10- B of the Act. The words "derived 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events ³ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as referred supra we allow this ground of appeal of the assessee on the reason mentioned in the above order of the ITAT, therefore, this ground of appeal of the assessee is allowed. Ground No. 3: Disallowance of expenses incurred 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e services pertaining to publication and same were not an information or advice given individually. The subscription services were not of the nature of transfer of right in the copyright in the article etc. The AO has not contrary disproved the material 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals) has come to such conclusion by following the decision of the Hon'ble Karnataka High Court in Wipro Ltd. (supra). The reasoning of the learned Commissioner (Appeals) on the issue is, as per the decision of Hon'ble Karnataka High Court in Wipro Ltd. (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 activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the mandatory accounting standard. The assessee had also reduced the said amount from the investment in the assets side of the balance sheet. However, the assessee has not added the same while computing book profit u/s 115JB of the Act on the ground that diminution 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be made in accounts. As per amended provisions of Section 115JB requires provision for diminution in value of investment to be added back to determine Minimum Alternate Tax. Fair value of units of mutual funds was lower than its cost by Rs. 46,94,62,365/- and the same being current 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustice and fair play, we deem it fit and appropriate to remand this issue raised in the additional ground to the file of the ld. AO for denovo adjudication in the light of the decision of the Hon'ble Apex Court in Vijay Industries Ltd., referred to supra and decide the controversy in accordance with law. Accordingly, 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 count ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efers to tax paid under the provisions of the Act. It is also worth mentioning, the State taxes paid by the assessee in DTAA countries are not eligible for relief under section 90 of the Act. Therefore, the issue which arises is, whether it can be allowed as deduction under section 37 of the Act. No doubt, in assessee's own case 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 Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee by the various decision of ITAT for assessment year 2012-13 to 2014-15. 33. Heard both the sides and perused the material on record. We have perused the decision of ITAT for assessment year 2012-13 vide ITA No. 797/Mum/2018. The relevant operating part of the decision is reproduced as under: "7.1. We have heard rival submissions and perused 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re-selling of such software. Accordingly, he submitted that the same cannot be treated as "royalty" and no disallowance u/s.40(a)(i) of the Act could be made on the same. He also drew attention of the Bench to certain clauses in the resetting agreement entered into between assessee and Microsoft Regional Sales Corporation and submitted that assessee is only a re-seller of the software 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 Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven on hire on earlier occasions". This is a statutory recognition of the doctrine of first sale or principle of exhaustion. Copyright is an exclusive right, which is negative in nature, being a right to restrict others from doing certain acts. Copyright is an intangible, incorporeal right, in the nature of a privilege, which is quite independent of any material substance. Ownership of copyright in a work is different from the ownership of the physical material in 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 state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DTA A or section 9(i)(vi) of the Act. DASSAULT SYSTEMS K. K., In re [70101 32 ITR 175 (AAR), GEOQUEST SSTEMS B. V., In re 120101 327 ITR 1 (AAR), DIT v. ERICSSON A. B. 120121 343 ITR 470 (Delhi), DIT v. Nokia NETWORKS OY [2013] 358 ITR 259 (Delhi), D1T V. INFRASOFT LTD. [2014] 3 ITR-OL 333 (Delhi) and CIT v. Z'I'E CORPORATION [2017] 392 ITR 80 (Delhi) approved. STATE BANK OF INDIA V. COLLECTOR OF CUSTOMS (2000) 1 SCC 727 relied on. Royalty, under section 90)(vi) of the Act, means 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a transfer of any of the rights contained in section 14(a) or (b) of the 1957 Act, for Explanation 2(v) to apply. To this extent, there will be no difference in the position between the definition of royalties" in the DTAAs and the definition of "royalty in Explanation 2(v) to section 90(vi) of the Act. Even if the ambit of " royalty " were considered only under the Act, the definition of royalty in Explanation 2(v) to section 9 (1)(vi) of the Act would make it clear that there has to be a transfer of "all or any rights" which includes the grant of a licence in respect of any copyright in a literary work. The expression 'including the granting of' a licence" in clause (v) of Explanation 2(v) to section 9(i)(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)(v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the resident-payee is deemed an "assessee in default", and thus, is made liable to pay tax, interest and penalty thereon. Section 194E of the Act belongs to a set of various provisions which deal with tax deduction at source, without any reference to chargeability to tax under the Act of the non-resident assessee. This section is similar to sections 193 and 194 of the Act by which deductions have to be made without any reference to the chargeability of a sum received by a non-resident assessee under the Act. On the other hand, at the heart of section 195 of the Act is the fact that deductions can only be made if the non-resident assessee is liable to pay tax under the provisions of the Act in the first place. GE INDIA TECHNOLOGY CENTRE (P.) LTD. V. CIT 120101 327 ITR 456 (SC) explained. PILOM v. CIT 120201425 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciple of exhaustion is dependent, in the first place, upon legislation which either recognises or refuses to recognise the doctrine (thereby continuing to vest distribution rights in the copyright owner, even beyond the first sale of the copyrighted work). The language of section 14(b) of the 1957 Act makes it clear that it is the exclusive right of the owner to sell or to give on commercial rental or offer for sale or for commercial rental any copy of the computer programme". Thus, a distributor who purchases computer software in material form and resells it to an end-user cannot be said to be within the scope of the provision. The safe or commercial rental spoken of in section 14(b)(ii) of the 1957 Act is of "any copy of a computer programme", making it clear that the section would only apply to the making of copies of the computer programme and then selling them, i.e., reproduction thereof for sale 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he OECD Model Tax Convention incorporated in the DTAM will continue to have persuasive value as to the interpretation of the term "royalties" contained therein, DIT v. NEW SKIES SATELLITE BV 120161382 ITR 114 (Delhi) approved. Persons who deduct tax at source and assessees in the nations governed by a DTAA have a right to know exactly where they stand in respect of the provisions that govern them. Such persons and assessees can place reliance upon the OECD Commentary for provisions of the OECD Model Tax Convention, which are used without any substantial change by bilateral DTAAs, in the absence of judgments of municipal courts clarifyiing them, or in the event of conflicting municipal decisions. From this point of view also, the OECD Commentary is significant, as the contracting States to which the persons deducting tax and the assessees belong, can conclude business transactions on the basis that they are to be taxed either on income by way of royalties for parting with 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly interdicted, and it was also expressly stated that no vestige of copyright was at all transferred, either to the distributor or to the end-user. What was "licensed" by the foreign, non-resident supplier to the distributor and resold to the resident end-user, or directly supplied to the resident enduser, was in fact the sale of a physical object which contained an embedded computer programme, and was therefore, a sale of goods The distributors resold shrink-wrapped copies of the computer programmes already put in circulation &y foreign, non-resident suppliers and manufacturers, since they had been sold and imported into India via distribution agreements and they were thus not hit by section 14(a)(ii) of the 1957 Act, The end-user licence agreements conveyed title to the material object embedded with a copy of the computer software to the distributors or end-users. The distribution of copyrighted computer software, on the facts, would not constitute the grant of an interest in cop, right under section 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 PR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. CIT(A) has deleted the addition holding that AO has mechanically applied Rule 8D and made disallowance without giving any reason. 36. During the course of appellate proceeding before us the ld. Counsel submitted on similar issue and identical fact from assessment year 2010-11 to 2014-15 the ITAT has adjudicated in favour of the assessee. 37. Heard both the sides and perused the material on record. We have perused the decision of ITAT in the case of the assessee itself for assessment year 2014-15 vide ITA No. 5904/Mum/2019. The relevant part of the decision is reproduced as under: 50. For the year under consideration, we notice that the assessee has made a very detailed submission before the Assessing Officer with regard to the suo motu disallowance (refer para 6.2 on pages 41 to 44 of assessment order). The Assessing Officer, in his finding, has simply stated that he is not satisfied with the correctness of the claim of expenditure since the amount disallowed by the assessee is very meager. It is the settled position that the Assessing Officer cannot invoke the provisions of disallowance under section 14A read with rule 8D without recording any cogent reasons as to why h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We find that on identical issue, the Co-ordinate Bench of the Tribunal vide order dated 30.10.2019, passed in assessee's own case in Tata Consultancy Services Ltd. v/s ACIT, ITA no.5713/Mum/2016, for the assessment year 2009-10, vide Para-23 at Page-22, observed as under:- 23. We have considered rival submissions and perused the material on record. We have also carefully examined the case laws cited before us. On a detailed analysis of facts on record, we have noted that the reasoning of the Assessing Officer that the expenditure was incurred for brand building is without any basis. It is to be noted, before the Departmental Authorities the assessee had demonstrated that in no way it is connected with development of Tata brand. The details of expenditure incurred clearly demonstrate that they were basically for the purpose of advertising assessee's products in print media or through seminar, conferences, etc. As rightly observed by learned Commissioner (Appeals), the Assessing Officer has brought no material on record to establish that the expenditure is for brand building. As observed earlier, the expenditure relates to advertisement in newspaper, magazine, events, seminars, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or statistical purpose." Respectfully following the decision of the coordinate bench of the ITAT Mumbai in the case of the assessee itself on similar issue and identical facts as referred above we don't find any merit in the appeal of the revenue, therefore, the same stand dismissed. Ground No.5: Disallowance of payment towards Tata Brand Equity subscription of Rs. 75 crores: 42. During the course of assessment the assessing officer noticed that assessee has paid Rs. 75 lacs to Tata Sons towards subscription fees and claimed the same as revenue expenditure. The AO treated these expenditure as capital in nature and allowed depreciation on the same. 43. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. 44. During the course of appellate proceedings before us the ld. Counsel submitted that identical issue on similar fact has been adjudicated by the ITAT in the case of the assessee for assessment year 2011-12 to 2014-15. 45. Heard both the sides and perused the material on record. We have perused the decision of ITAT for AY. 2011-12. The relevant operating part of the decision is reproduced as under: "39. We have conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed." Respectfully following the decision of ITAT on similar issue and identical facts in the case of the assessee itself as referred supra we don't find any merit in the ground of appeal of the Revenue therefore, this ground of appeal of the revenue is dismissed. Ground No.6: Disallowance of expenditure of commission to non-resident is allowable as deduction (disallowance u/s 40(a)(i) on account of non-deduction of TDS) Rs. 397,41,017/-) 46. During the year under consideration the assessee has paid commission of Rs. 3,97,41.017/- to foreign agents during the relevant assessment year in respect of overseas business. The assessing officer disallowed the claim of deduction on the ground that commission payment were made to foreign agents without deducting tax u/s 195 of the Act, therefore, the claim of deduction was disallowed u/s 40(a)(i) of the Act. 47. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) held that the non-resident agent, were operating outside India and no part of their income arisen in India, therefore, same was not subject to withholding tax u/s 195 of the Act. The ld. CIT(A) has allowed the ground of appeal of the assessee after following the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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