THE COMMISSIONER OF INCOME TAX (A) vs. M/S URBAN LADDER HOME DECOR SOLUTIONS PVT LTD

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ITA/17/2022HC KarnatakaKAHC01000713202223 September 2024Bench: S.G.PANDIT,C.M. POONACHA4 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court disposed of the appeal based on the submissions made by both parties. The assessee contended that the tax effect was below the threshold specified in CBDT Circular No. 09/2024, making the appeal not maintainable at the instance of the Revenue. The Revenue, in response, sought liberty to revive the appeal if the case fell under the exceptions mentioned in the relevant circulars. The Court, in view of these submissions, disposed of the appeal with the liberty granted to the Revenue as prayed. The substantial questions of law were kept open to be adjudicated in an appropriate proceeding. No specific findings were made on the merits of the questions of law raised by the Revenue, nor was any relief granted or denied to either party on the substantive issues.

What were the facts?

The Revenue, comprising the Commissioner of Income Tax (A) and the Assistant Commissioner of Income Tax, International Taxation, filed an appeal under Section 260-A of the Income Tax Act, 1961, before the High Court of Karnataka. The appeal challenges an order dated August 17, 2021, passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru. The ITAT's order was for the assessment year 2017-18 and concerned the assessee, M/s Urban Ladder Home Decor Solutions Pvt Ltd. The core of the dispute revolves around the assessee's liability to deduct Tax Deducted at Source (TDS) on payments made to non-resident companies. The Revenue sought to set aside the ITAT's order and confirm the orders of the lower appellate and assessing authorities.

What were the issues?

The High Court was asked to decide the following substantial questions of law: 1. Whether the ITAT's order was perverse in holding that the assessee was not liable to deduct TDS on payments to non-residents, by relying on the Supreme Court's decision in *Engineering Analysis Centre of Excellence Pvt Ltd. v. CIT*, when the facts of the present case were entirely different and the law laid down in that case was not applicable. 2. Whether the ITAT was correct in law in allowing the assessee's appeal by holding that there was no obligation to deduct TDS on payments made to Facebook Ireland, Rocket Science Group LLC, and Amazon Web Services Inc., on the grounds that the payments did not constitute 'Royalty', ignoring that the nature of usage of technology, model, process, and equipment falls under Explanation 2(iii) to Section 9(1)(vi) of the Act, thus requiring TDS deduction. 3. Whether the ITAT was correct in law in allowing the assessee's appeal without analyzing the facts and materials of the case in light of the provisions of the respective Double Taxation Avoidance Agreements (DTAAs). Assessee's Contentions: The assessee argued that the tax effect in the appeal was less than Rs. 2 Crores, and therefore, the appeal should not be entertained by the Revenue in view of CBDT Circular No. 09/2024 dated September 17, 2024, which binds the Revenue. Revenue's Contentions: The Revenue sought liberty to revive the appeal if the matter fell within the exceptions provided under Circular No. 09/2024 and Circular No. 5/2024 dated March 15, 2024.

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

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NC: 2024:KHC:39389-DB ITA No. 17 of 2022

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23RD DAY OF SEPTEMBER, 2024 PRESENT THE HON'BLE MR JUSTICE S.G.PANDIT AND THE HON'BLE MR JUSTICE C.M. POONACHA INCOME TAX APPEAL NO. 17 OF 2022 BETWEEN:

1.

THE COMMISSIONER OF INCOME TAX (A) INTERNATIONAL TAXATION 4TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORAMANGALA BENGALURU 560095

2.

THE ASSISTANT COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION CIRLCE 2(2) 4TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORAMANGALA BENGALURU 560095 …APPELLANTS (BY SRI. RAVI RAJ Y V.,ADVOCATE A/W SRI. DILIP M, ADVOCATE)

AND:

M/S URBAN LADDER HOME DECOR SOLUTIONS PVT LTD 1ST, 2ND AND 3RD FLOOR NO. 259 AND 276 AMARJYOTHI HBCS LAYOUT DOMLUR BENGALURU 560071 PAN AABCU4143N …RESPONDENT (BY SRI. SANDEEP HUILGOL.,ADVOCATE)

Digitally signed by BHARATHI S Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:39389-DB ITA No. 17 of 2022

THIS ITA/ INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE, ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(IT)A NO.620/BANG/2020 DATED 17/08/2021 FOR ASSESSMENT YEAR 2017-2018 ANNEXURE-C AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-2(2), BENGALURU AND ETC.

THIS APPEAL, COMING ON FOR ADMISSION, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:

CORAM: HON'BLE MR JUSTICE S.G.PANDIT and HON'BLE MR JUSTICE C.M. POONACHA

ORAL JUDGMENT (PER: HON'BLE MR JUSTICE S.G.PANDIT)

Heard the learned counsel Sri Raviraj Y.V, along with learned counsel Sri Dilip M, for appellants/Revenue and learned counsel Sri Sandeep Huilgol, for the respondent/assessee.

2.

The Revenue is in appeal under Section 260-A of the Income Tax Act, 1961 (for short, ‘the Act’) questioning the correctness and legality of order dated 17.08.2021 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(IT)A.No.620/Bang/2020 for the assessment year 2017-18, raising the following substantial questions of law:

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NC: 2024:KHC:39389-DB ITA No. 17 of 2022

“1. Whether on the facts and in the circumstances of the case, the Tribunal order can be said as perverse in nature holding that assessee is not liable to deduct TDS on payments made to non-residents by relying on the decision of Hon’ble Apex Court in case of Engineering Analysis Centre of Excellence Pvt Ltd., v/s CIT when facts of the present case are entirely different and law laid down in said case cannot be applied to present case?

2.

Whether on the facts and in the circumstances of the case, the Tribunal is right in law allowing appeal of the assessee by holding that there was no obligation on part of assessee to deduct TDS on payments made to Facebook Ireland, Ireland, Rocket Science Group, LLC, US and Amazon Web Services, Inc non-resident companies on the ground that the payments cannot be regarded as ‘Royalty’ ignoring that nature of usage of technology, model or process and equipment’s are covered by Explanation 2(iii) to Section 9(1)(vi) of the Act and therefore assessee ought to have deducted TDS on such payments.?

3.

Whether on the facts and in the circumstances of the case, the Tribunal is right in law allowing appeal of the assessee by holding that there was no obligation on part of assessee to deduct TDS on payments made to non-resident companies without analyzing the facts and materials of the present case with provisions of respective DTAA’s? ”

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NC: 2024:KHC:39389-DB ITA No. 17 of 2022

3.

Learned counsel for the assessee submits that the tax effect in this appeal is less than Rs.2 Crores and therefore, the appeal should not be entertained at the instance of the revenue in view of the Circular No.09/2024 dated 17.09.2024 issued by the Central Board of Direct Taxes. It is also submitted that the aforesaid Circular binds the revenue.

4.

On the other hand, learned counsel for the revenue submits that he be granted liberty to revive the appeal in case the matter falls within the exceptions under the aforesaid Circular dated 17.09.2024 and Circular No.5/2024 dated 15.03.2024.

5.

In view of the aforesaid submissions, the appeal is disposed of with liberty as prayed for by the learned counsel for the revenue. However, the questions of law are kept open to be adjudicated in an appropriate proceeding.

Sd/- (S.G.PANDIT) JUDGE

Sd/- (C.M. POONACHA) JUDGE ND List No.: 3 Sl No.: 0

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