PRINCIPAL COMMISSIONER OF IN vs. M/S. SAIPEM INDIA PROJECTS P

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TCA/551/2021HC Madras20 December 2021Bench: Hon`ble Mr Justice R. MAHADEVAN6 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court noted that both the learned counsel for the appellant (Revenue) and the respondent (Assessee) jointly submitted that the substantial questions of law raised in these appeals had already been decided in favour of the assessee by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited v. Commissioner of Income Tax and another. This decision was also followed by a coordinate bench of the High Court in T.C.A. No. 150 of 2015. Furthermore, the learned counsel for the Revenue submitted that the tax effect in these appeals was less than the threshold limit stipulated in CBDT Circular No. 17/2019, which mandates that appeals shall not be filed or pursued by the Department before the High Court if the tax effect does not exceed Rs. 1,00,00,000/-. In light of these submissions, the High Court dismissed the appeals as withdrawn, stating that the tax effect was below the monetary limit. No costs were awarded, and connected miscellaneous petitions were closed. The Tribunal's decision in favour of the assessee on the royalty issue was implicitly upheld by the Revenue's decision to withdraw the appeals based on the Supreme Court's ruling and the tax effect threshold.

What were the facts?

These three Tax Case Appeals (TCA Nos. 551, 556, and 557 of 2021) were filed by the Principal Commissioner of Income-Tax, Chennai, against M/s. Saipem India Projects Private Limited. The appeals challenge a common order dated 23.10.2017 passed by the Income Tax Appellate Tribunal, Madras 'A' Bench. The assessment years involved are 2009-10, 2011-12, and 2014-15. The appeals were filed under Section 260-A of the Income Tax Act, 1961. The core of the dispute revolves around whether payments made by the assessee to a foreign company for the use of copyright of computer software constitute 'royalty' taxable in India, and consequently, whether the assessee was liable for Tax Deducted at Source (TDS).

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the amounts paid by the assessee to a foreign company for the use of copyright of 'computer software' were 'royalty' and taxable in India, thus requiring the assessee to deduct tax at source, under Section 9(1)(vi) of the Income Tax Act, 1961. 2. Whether the transfer of the right to use copyright software amounted to royalty, considering retrospective additions to Explanations 4 to 6 of Section 9(1)(vi) of the Income Tax Act, 1961, and the absence of similar additions in the Double Taxation Avoidance Agreement (DTAA), which clearly mentions the use of a copyright as royalty. 3. Whether the Tribunal was correct in relying on the decision of the Delhi High Court in DIT vs. Infrasoft Ltd. when the issues were distinguishable. 4. Whether the transfer of the right to use a copyrighted article constituted royalty under the DTAA, even if it was a mere transfer of the right to use the copyrighted article, as such permission involves the use of or the right to use the embedded copyright. Assessee's Contentions: The assessee argued that the payments were not royalty and did not give rise to taxable income in India, thus no TDS was required. The assessee relied on the Supreme Court decision in Engineering Analysis Centre of Excellence Private Limited v. Commissioner of Income Tax and another, and a coordinate bench's decision in T.C.A. No. 150 of 2015. Revenue's Contentions: The Revenue contended that the Tribunal erred in its findings, particularly regarding the definition of royalty and the applicability of the DTAA provisions. The Revenue also submitted that the tax effect in these appeals was below the threshold limit of Rs. 1,00,00,000/- as per CBDT Circular No. 17/2019, and therefore, sought to withdraw the appeals.

Which sections of the Income-tax Act were involved?

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

AI-generated summary — verify with the full judgment below

TCA. Nos. 551, 556 and 557 of 2021 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 20.12.2021 CORAM : THE HONOURABLE MR. JUSTICE R. MAHADEVAN AND THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ T.C.A. Nos. 551, 556 and 557 of 2021 and C.M.P. Nos. 19971 and 19985 of 2021 T.C.A. No. 551 of 2021 :- Principal Commissioner of Income-Tax

Company Circle-VI(I) Chennai.

... Appellant Versus M/s. Saipem India Projects Private Limited Yarlagadda Towers, 4, Fourth Lane Off. Nungambakkam High Road Chennai – 600 034. PAN : AAA CI 7915 F .. Respondent Tax Case Appeal filed under Section 260-A of the Income Tax Act, 1961 against the order dated 23.10.2017 passed by the Income Tax Appellate Tribunal, Madras 'A' Bench, in I.T.A. No. 1867/Mds/2017 for the assessment year 2014-15. T.C.A. No. 556 of 2021 :- Principal Commissioner of Income-Tax

Company Circle-VI(I) Chennai.

.. Appellant Versus 1/6 https://www.mhc.tn.gov.in/judis TCA. Nos. 551, 556 and 557 of 2021 M/s. Saipem India Projects Private Limited Yarlagadda Towers, 4, Fourth Lane Off. Nungambakkam High Road Chennai – 600 034. PAN : AAA CI 7915 F .. Respondent Tax Case Appeal filed under Section 260-A of the Income Tax Act, 1961 against the order dated 23.10.2017 passed by the Income Tax Appellate Tribunal, Madras 'A' Bench, in I.T.A. No. 1864/Mds/2017 for the assessment year 2011-12. T.C.A. No. 557 of 2021 :- Principal Commissioner of Income-Tax

Company Circle-VI(I) Chennai.

.. Appellant Versus M/s. Saipem India Projects Private Limited Yarlagadda Towers, 4, Fourth Lane Off. Nungambakkam High Road Chennai – 600 034. PAN : AAA CI 7915 F .. Respondent Tax Case Appeal filed under Section 260-A of the Income Tax Act, 1961 against the order dated 23.10.2017 passed by the Income Tax Appellate Tribunal, Madras 'A' Bench, in I.T.A. No. 1862/Mds/2017 for the assessment year 2009-10. For Appellant : Mr. Karthik Ranganathan

in all the appeals For Respondent : Mr. P.Chidambaram

in all the appeals 2/6 https://www.mhc.tn.gov.in/judis TCA. Nos. 551, 556 and 557 of 2021

C O M M O N J U D G M E N T (Judgment of the Court was delivered by R. MAHADEVAN, J.) These tax case appeals have been filed by the appellant/Revenue, calling in question the correctness of the common order dated 23.10.2017 passed by the Income Tax Appellate Tribunal, 'A' Bench, Chennai, relating to the assessment years 2009-10, 2011-12 and 2014-15, by raising the following substantial questions of law:- “1. Whether on the facts and circumstances of the case and in law, the Tribunal was correct in holding that the amounts paid by the assessee to the foreign company for the use of copyright of 'computer software' was not 'royalty' and that the same did not give rise to any 'income' taxable in India and, therefore, the assessee was not liable to deduct any tax at sources? 2. Whether on the facts and circumstances of the case and in law, the Tribunal was right in holding that mere transfer of right to use copyright software did not amount to royalty particularly when there has been retrospective additions to Explanations 4 to 6 to Sec. 9(1)(vi) of the Income Tax Act, 1961 even though there are no similar explanatory addition in the DTAA and the DTAA provision clearly mention that the use of a copyright amount to royalty?

3.

Whether on the facts and circumstances of the case and in law, the Tribunal was right in holding in favour of the assessee by placing reliance inter alia on the decision of Hon'ble High Court in the case of DIT vs. Infrasoft Ltd. (2013) 39 Taxmann.com 88 / 2014 220 Taxmann 273 (Delhi) when the issues involved are clearly distinguishable to the present case on 3/6 https://www.mhc.tn.gov.in/judis TCA. Nos. 551, 556 and 557 of 2021 hand?

4.

Whether on the facts and circumstances of the case and in law, the Tribunal was right in holding that its mere a transfer of right to use copyrighted article, without appreciating the fact that when a copyrighted article is permitted or licenses to be used for a fee, the permission involves the use of or the right to use the copyright embedded therein and hence, such 'right to use' amount to 'royalty' even in the provisions of DTAA concerned?” 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. 3. It is also submitted by the learned counsel for the appellant / Revenue that the tax effect in these appeals is less than the threshold limit and hence, the same may be permitted to be withdrawn, in the light of the Circular No.17/2019 dated 08.08.2019 issued by the Central Board Direct Taxes, wherein, it is stipulated that appeal shall not be filed/pursued by the Department before the High Court in cases, where the tax effect does not 4/6 https://www.mhc.tn.gov.in/judis TCA. Nos. 551, 556 and 557 of 2021 exceed Rs.1,00,00,000/- (Rupees One Crore). 4. In view of the above submissions made by the learned counsel for the appellant / Revenue, the present appeals, wherein, the tax effect is said to be less than the monetary limit imposed, are dismissed as withdrawn. No costs. Consequently, connected miscellaneous petitions are closed. [R.M.D,J.] [M.S.Q, J.] 20.12.2021

Internet : Yes / No

Index : Yes / No Maya/rsh To 1. The Commissioner of Income Tax Circle-I Madurai-625 002. 2. The Income Tax Appellate Tribunal, Chennai 'A' Bench. 5/6 https://www.mhc.tn.gov.in/judis TCA. Nos. 551, 556 and 557 of 2021 R. MAHADEVAN, J and MOHAMMED SHAFFIQ, J Maya/rsh TCA Nos. 551, 556 and 557 of 2021 20.12.2021 (½) 6/6 https://www.mhc.tn.gov.in/judis

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