THE COMMISSIONER OF INCOME TAX vs. M/S IBM INDIA LTD

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ITA/538/2008HC KarnatakaKAHC01031191200830 August 2012Bench: B.MANOHAR,K.SREEDHAR RAO2 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the purchase of software amounts to a license to use the software for the agreed consideration, and the amount paid towards this consideration constitutes royalty. The Court relied on its previous decision in Commissioner of Income Tax & Another Vs. Samsung Electronics Co. Ltd., and others reported in (2011) 245 CTR (KAR) 481, which dealt with a similar question of fact and law. Consequently, the question was answered in favour of the Revenue. The appeal was allowed, implying the ITAT's order was set aside and the lower authorities' orders were confirmed.

What were the facts?

The appeal is filed by the Revenue (Commissioner of Income Tax and Income-Tax Officer) against the order dated November 29, 2007, passed by the Income Tax Appellate Tribunal (ITAT), Bangalore in ITA No. 1002/BNG/2007. The assessment year in question is 2002-2003. The dispute concerns the taxability of payments made by M/s. IBM India Ltd. (the assessee) for software. The Revenue seeks to set aside the ITAT's order and confirm the orders of the lower authorities, including the Income Tax Officer (International Taxation).

What were the issues?

1. Whether the payment made by the assessee for the purchase of software constitutes royalty, thereby being taxable in India? (Question of law and fact, concerning Section 9(1)(vi) of the Income Tax Act, 1961). The Revenue's contention is that the purchase of software amounts to a license to use the software for consideration, and such payment is to be treated as royalty. The assessee's arguments are not recorded in the judgment. The Tribunal had to decide whether the payment for software purchase is royalty income taxable in India.

Which sections of the Income-tax Act were involved?

Section 9(1)(vi),Section 260-A

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 30TH DAY OF AUGUST 2012 PRESENT THE HON’BLE MR. JUSTICE K. SREEDHAR RAO AND THE HON'BLE MR. JUSTICE B. MANOHAR ITA NO.538/2008 BETWEEN: 1. The Commissioner of Income Tax, C.R. Building, Queens Road, Bangalore. 2. The Income-Tax Officer (Intl., Taxn.) Ward-19(1), C.R. Building, Queens Road, Bangalore. … APPELLANTS (By Sri K.V. Aravind, Adv.) AND: M/s.IBM India Ltd., Subramanya Arcade, No.12, Bannerghatta Main Road, Bangalore-560 029. … RESPONDENT (By Smt. Vani. H., Adv.) THIS ITA IS FILED UNDER SECTION.260-A OF IT ACT, 1961 ARISING OUT OF ORDER DATED 29.11.2007 PASSED IN ITA NO.1002/BNG/2007 FOR THE ASSESSMENT YEAR 2002-2003, PRAYING TO: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (2) ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO.1002/BNG/2007 DATED. 29.11.2007 CONFIRM THE ORDERS OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER

2 PASSED BY THE INCOME TAX OFFICER, (INTL. TAXN.) WARD 19(1), BANGALORE IN THE INTEREST OF JUSTICE AND EQUITY. THIS ITA COMING ON FOR HEARING THIS DAY, SRI K. SREEDHAR RAO, J. DELIVERED THE FOLLOWING: J U D G M E N T This court in Commissioner of Income Tax & Another Vs. Samsung Electronics Co. Ltd., and others reported in (2011) 245 CTR (KAR) 481, has held that purchase of software amounts to licence to use software for the agreed consideration and the amount so paid towards consideration, amounts to royalty. 2. In the present appeal, similar question of fact and law is involved. Therefore, the question is answered in favour of the Revenue. Accordingly, the appeal is allowed. Sd/- JUDGE Sd/- JUDGE PL

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