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

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ITA/539/2008HC KarnatakaKAHC01031195200830 August 2012Bench: B.MANOHAR,K.SREEDHAR RAO2 pages
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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 such consideration constitutes royalty. The Court applied its previous decision in Commissioner of Income Tax & Another Vs. Samsung Electronics Co. Ltd., reported in (2011) 245 CTR (KAR) 481, to the present appeal. The question of law was answered in favour of the Revenue. Consequently, the appeal filed by the Revenue was allowed, and the order of the ITAT was set aside, confirming the orders of the lower authorities. No issue was expressly left undecided.

What were the facts?

The appeal was filed by the Commissioner of Income Tax and the Income-Tax Officer (International Taxation) against an order dated November 29, 2007, passed by the Income Tax Appellate Tribunal (ITAT), Bangalore. The ITAT's order was in relation to ITA No. 1001/BNG/2007 for the Assessment Year 2001-2002. The Revenue sought to set aside the ITAT's order and confirm the orders of the Appellate Commissioner and the Income Tax Officer. The core issue involved the taxability of payments made by M/s. IBM India Ltd. for software. The High Court of Karnataka was considering the appeal under Section 260-A of the Income Tax Act, 1961.

What were the issues?

1. Whether the purchase of software amounts to a license to use the software for an agreed consideration, and if so, whether the amount paid constitutes royalty taxable in India? (Question of law turning on the interpretation of royalty provisions and the nature of software transactions). Assessee's Contention: The judgment does not record any specific arguments made by the assessee (M/s. IBM India Ltd.). Revenue's Contention: The Revenue contended that the purchase of software constitutes a license to use the software for consideration, and the amount paid is royalty. The Revenue relied on the High Court's decision in Commissioner of Income Tax & Another Vs. Samsung Electronics Co. Ltd., reported in (2011) 245 CTR (KAR) 481.

Which sections of the Income-tax Act were involved?

Section 260-A

AI-generated summary — verify with the full judgment below

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.539/2008 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.1001/BNG/2007 FOR THE ASSESSMENT YEAR 2001-2002, 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.1001/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

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