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

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ITA/989/2008HC KarnatakaKAHC01048044200830 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 such consideration constitutes royalty. This finding is based on the precedent set by the High Court in the case of Commissioner of Income Tax & Another Vs. Samsung Electronics Co. Ltd., and others reported in (2011) 245 CTR (KAR) 481. The Court found that a similar question of fact and law was involved in the present appeal. Consequently, the question was answered in favour of the Revenue. The appeal 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 Commissioner of Income Tax and the Income-Tax Officer (International Taxation) are the appellants, and M/s. IBM India Ltd. is the respondent. The appeal is filed under Section 260-A of the Income Tax Act, 1961, challenging an order dated May 9, 2008, passed by the Income Tax Appellate Tribunal (ITAT), Bangalore, in ITA No. 1004/BNG/2007 for the Assessment Year 2000-2001. The appellants seek to set aside the ITAT's order and confirm the orders of the Appellate Commissioner and the Income Tax Officer. The core issue revolves around the taxability of payments made for software.

What were the issues?

1. Whether the payment made for the purchase of software constitutes royalty, thereby being taxable in India? (Question of law turning on the interpretation of royalty provisions under the Income Tax Act and the Double Taxation Avoidance Agreement, if applicable). Assessee's Contentions: The judgment does not record any specific contentions made by the assessee (M/s. IBM India Ltd.). Revenue's Contentions: The revenue contends that the purchase of software amounts to a license to use the software for an agreed consideration, and the amount paid is royalty. The revenue relies on the High Court's decision in Commissioner of Income Tax & Another Vs. Samsung Electronics Co. Ltd., and others 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

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 I.T.A. NO.989/2008 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 9.5.2008 PASSED IN ITA NO.1004/BNG/2007 FOR THE ASSESSMENT YEAR 2000-2001, 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.1004/BNG/2007 DATED. 9.5.2008 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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