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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO, HON’BLE & SHRI MANJUNATHA. G, HON’BLE
आदेश /O R D E R
PER MANJUNATHA. G, ACCOUNTANT MEMBER:
This appeal filed by the revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-16, Chennai, dated 07.10.2022 and pertains to assessment year 2016-17.
The revenue has raised the following grounds of appeal: “1. The order of the Ld. CIT(A) is contrary to the law and facts of the case.
:-2-: ITA. No: 1088/Chny/2022 2. The Ld. CIT(A) erred in deleting the disallowance of deduction u/s 40(a)(i) of the Act by relying on the decision of the Hon'ble Madras Court in TCA Nos.549,554,555 &558/2021 vide order <ltd. 20.12.2021 for A.Y. 2010- 11 to 2013-14 &% 2015-16 in the assessee's own case, which were disposed of by the Hon'ble High Court on account of low tax effect not on merits. 3 The Ld. CIT(A) ought to have considered the decision of the ITAT in dated 23/12/2019,allowing the issue in favour of the revenue in assessee's own case. 4 The Ld. CIT(A) ought to have considered the decision of the Jurisdiction High Court in the case of the M/s Zylog Systems Ltd Vs ITO in TCA No. 2184 and 2185 of 2006 dated 23.04.2019, squarely applicable to the issue under consideration.
5. The Ld. CIT(A) ought to have appreciated that payments towards software was for the purpose of obtaining licence and would therefore constitute royalty.
6. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld.CIT(A) be set aside and that of the Assessing Officer be restored.”
3. The brief facts of the case are that, the assessee M/s. Saipem India Private Ltd, filed its return of income for the assessment year 2016-17 on 29.11.2016, declaring a total income of Rs. 60,35,01,705/-. The assessment has been completed u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) on 31.12.2019 and determined total income of Rs. 90,11,91,040/-, by making additions towards disallowance of software support charges u/s.40(a)(i) of the Act, for non-deduction of TDS u/s. 195 of :-3-: ITA. No: 1088/Chny/2022 the Act for Rs. 29,76,89,335/-. The assessee carried the matter in appeal before the first appellate authority. The ld. CIT(A), for the reasons stated in their appellate order dated 07.10.2022, and by following the decision of ITAT, Chennai Benches in assessee’s own case for assessment year 2009-10 to 2015-16 in to 1868/Mds/2017 dated 23.10.2017, deleted additions made by the Assessing Officer towards disallowance of software support charges u/s. 40(a)(i) of the Act, for non-deduction of tax at source u/s. 195 of the Act. Being aggrieved by the CIT(A) order, the revenue is in appeal before us.
4. At the time of hearing, the Ld. CIT-DR submits that the ld. CIT(A) erred in deleting additions made by the Assessing Officer towards disallowance of software support charges u/s. 40(a)(i) of the Act, for non-deduction of TDS u/s.195 of the Act, without appreciating fact that the Tribunal for the assessment year 2014-15, by following the decision of Hon’ble High Court of Madras in the case of M/s. Zylog Systems Ltd vs ITO in TCA No. 2184 & 2185/2006, dated 23.04.2019 decided the issue in favour of the assessee. The ld. DR, further submits that, although the issue in now covered in favour of :-4-: ITA. No: 1088/Chny/2022 the assessee by the decision of Hon’ble Supreme Court in the case of M/s. Engineering Analysis Centre of Excellence Pvt Ltd vs CIT [2021] SCC Online SC 159, but the Department has filed review petition before the Hon’ble Supreme Court and thus, it cannot be said that the issue involved in present appeal is covered by the decision of Hon’ble Supreme Court.
5. The Ld. Counsel for the assessee, on the other hand supporting the order of the CIT(A) submits that now the issue stands covered in favour of the assessee by the decision of Hon’ble High Court of Madras in assessee’s own case for assessment year 2010-11 to 2015-16 in TCA No. 549, 554, 555 & 558/2021 dated 20.12.2021, where the Hon’ble High Court by following the decision of Hon’ble Supreme Court in the case of M/s. Engineering Analysis Centre of Excellence Pvt Ltd vs CIT (supra), held that the assessee is not liable to TDS on payments made to non-resident towards software support charges and consequently expenses cannot be disallowed u/s. 40(a)(i) of the Act.
We have heard both the parties, perused materials available on record and gone through orders of the authorities :-5-: ITA. No: 1088/Chny/2022 below. We find that the issue is now stands covered in favour of the assessee by the decision of Hon’ble High Court of Madras in assessee’s own case for earlier assessment years in TCA No. 549, 554, 555 & 558 of 2021, where the Hon’ble High Court of Madras by following the decision of Hon’ble Supreme Court in the case of M/s. Engineering Analysis Centre of Excellence Pvt Ltd vs CIT (supra), upheld the order of the Tribunal in allowing relief to the assessee towards payment made to non-residents for software support charges without deduction of tax at source u/s. 195 of the Act. The relevant findings of the Hon’ble High Court of Madras are as under: “2. When these appeals are taken up for hearing today, the learned counsel appearing for both sides jointly submitted that the substantial questions of law raised herein have been decided in favour of the assessee, in the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited v. Commissioner of Income Tax and another reported in (2021) SCC Online SC 159 which was followed by a Co-ordinate Bench of this Court in T.C.A. No. 150 of 2015 dated 03.09.2021, the relevant passage of which is profitably, extracted below: 2.The appeal has been admitted on 06. 07.2015 on the following substantial questions of law : "1. Whether on the facts and circumstances of this case, the Tribunal was right in deleting the disallowance made by the A0 holding that the amendment to Section 9(1) (vi) introduced by Finance Act, 2012 with retrospective effect from 01.06. 1976 is not applicable and therefore no TDS needs to be deducted? 2. Is not the finding of the Tribunal bad, especially when a non resident companies, ACI of Singapore and IRPL of Australia have permanent establishment in India through the medium of assessee company and as such liable to deduct tax at source on the payment received?
:-6-: ITA. No: 1088/Chny/2022 3. Whether the Tribunal was right in holding that the amounts paid by the assessee company to the non resident company for use of the assessee customer in India of operating net work payments, ATMs is not Royalty as per the provisions of Section 9(1) (vi) of the Income Tax Act? 4. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that payments made to two companies no TDS is required to be deducted under Section 195 of the Income Tax Act? "
We have heard Mr.Karthik Ranganathan, the Standing Counsel for learned Senior appellant/Revenue and Mr.N. V. Balaji, learned counsel for the respondent/assessee.
It is not disputed before us that the substantial which have been raised in this appeal, have been answered in favour of the assessee in the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited v. Commissioner of Income Tax and another reported in (2021) SCC Online SC 159.
In the said decision, there were four categories of cases as mentioned below : "4. The appeals before us may be grouped into four categories: i. The first category deals with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non resident supplier or manufacturer. ii. The second category of cases deals with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, non resident suppliers or manufacturers and then reselling the same to resident Indian end-users. iii. The third category concerns cases wherein the distributor happens to be a foreign, non-resident vendor, who, after purchasing software from a foreign, nonresident seller, resells the same to resident Indian distributors or end-users. iv. The fourth category includes cases wherein computer software is affixed onto hardware and is sold as an integrated unit/equipment by foreign, non-resident suppliers to resident Indian distributors or end-users. "
6. After elaborately considering the entire issues, the Hon'ble Supreme Court held as follows : "172. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in :-7-: ITA. No: 1088/Chny/2022 paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end Users, which would amount to the use of or right to use any copyright. The provisions contained in the Income Tax Act (section 9 (1) (vi), along with explanations 2 and 4 there of), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases.
Our answer to the question posed before us, is that the amounts paid by resident Indian end users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 of the Income Tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgmnent.
The appeals from the impugned judgments of the High Court of Karnataka are allowed, and the aforesaid judgments are set aside. The ruling of the AAR in Citrix Systems (AAR) (supra) is set aside. The appeals from the impugned judgments of the High Court of Delhi are dismissed."
Following the above decision, this Tax Case Appeal filed by the Revenue is dismissed and the substantial questions of law are answered against the Revenue. No costs.
3. In the light of the above, the substantial questions of law raised in these appeals, are answered against the Revenue. Accordingly, all the Tax Case Appeals are dismissed. No costs. Consequently, connected miscellaneous petitions are closed.”
:-8-: ITA. No: 1088/Chny/2022 7. In this view of the matter and by respectfully following the decision of Hon’ble High Court of Madras in assessee’s own case in TCA No. 549, 554, 555 & 558 of 2021, we are of the considered view that there is no error in the reasons given by the CIT(A) to delete additions made by the Assessing Officer towards disallowance of software support charges u/s. 40(a)(i) of the Act, for non-deduction of tax at source u/s. 195 of the Act and thus, we are inclined to uphold the order of the CIT(A) and dismiss appeal filed by the revenue.