M/S. SASKEN COMMUNICATION vs. THE INCOME TAX OFFICER

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ITA/267/2013HC KarnatakaKAHC01023663201302 September 2024Bench: S.G.PANDIT,C.M. POONACHA5 pages
AI SummaryAllowed

What did the High Court hold?

The High Court allowed the appeal, answering the substantial question of law in favour of the assessee and against the revenue. The court relied on the Hon'ble Apex Court's decision in ENGINEERING ANALYSIS CENTRE OF EXCELLENCE (P.) LTD. (supra), which held that payments for licensed software do not constitute 'royalty' under Section 9(1)(vi) of the Act. The reasoning was that the Apex Court's precedent directly addressed and resolved the issue in favour of the assessee. The ratio decidendi is that the purchase of licensed software, as interpreted by the Supreme Court, does not fall within the definition of royalty for the purpose of Section 9(1)(vi). The operative direction was to quash the ITAT's order dated March 22, 2013, to the extent it treated the software payments as royalty. The court also granted liberty to the revenue to file a review petition based on the outcome of their pending review before the Hon'ble Apex Court in the ENGINEERING ANALYSIS CENTRE OF EXCELLENCE (P.) LTD. case.

What were the facts?

The assessee, M/s. Sasken Communication Technologies Ltd., filed an appeal before the High Court of Karnataka against an order dated March 22, 2013, passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru. The appeal challenged the ITAT's decision to uphold the Income Tax Officer's action of treating payments made to foreign companies for licensed software as 'royalty' under Section 9(1)(vi) of the Income Tax Act, 1961. The assessment year(s) are not explicitly stated in the judgment. The procedural history involves the ITAT's order being challenged before the High Court under Section 260-A of the Act.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Honourable ITAT was right in law in upholding the action of the Learned Respondent in treating the payments made to the foreign Companies towards purchase of licensed software as 'royalty' under Section 9(1)(vi) of the Act? Assessee's contention: The assessee argued that the substantial question of law raised at Sl.No.1 has been answered in its favour by the Hon'ble Apex Court in the case of ENGINEERING ANALYSIS CENTRE OF EXCELLENCE (P.) LTD. v. COMMISSIONER OF INCOME-TAX reported in (2021) 432 ITR 471 (SC). Therefore, the appeal should be allowed. Revenue's contention: The Revenue's counsel was not in a position to dispute the assessee's contention. However, the Revenue sought liberty to file a review petition before the Hon'ble Apex Court if their review petition in R.P.Nos.1422-1497/2021, praying to review the order in ENGINEERING ANALYSIS CENTRE OF EXCELLENCE (P.) LTD. (supra), succeeds.

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

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NC: 2024:KHC:35622-DB ITA No. 267 of 2013

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 2ND 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.267 OF 2013

BETWEEN:

M/S. SASKEN COMMUNICATION TECHNOLOGIES LTD., #139/25, DOMLUR RING ROAD BENGALURU-560071. …APPELLANT (BY SRI. S.SHARATH, ADVOCATE) AND:

THE INCOME TAX OFFICER (INTERNATIONAL TAXATION) WARD-2(1), BENGALURU. …RESPONDENT (BY SRI. RAVI RAJ Y.V., ADV. A/W SRI. DILIP.M., ADV.) ITA IS FILED UNDER SEC.260-A OF I.T. ACT, 1961, ARISING OUT OF ORDER DATED 22/03/2013 PASSED IN ITA NO.899/BANG/2012, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE ITAT, BENGALURU, 'B' BENCH IN ITA NO.899/BANG/2012 DATED 22/03/2013 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

Digitally signed by BHARATHI S Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:35622-DB ITA No. 267 of 2013

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

This appeal is by the Assessee challenging the order dated 22.3.2013 in ITA.No.897/B/2012.

2.

Though the appeal is filed raising three questions of law for consideration, it is submitted by the learned counsels that the question of law raised at Sl.No.1 would be sufficient. The said Substantial Question of Law reads as follows: "1. Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in upholding the action of the Learned Respondent in treating the payments made to the foreign Companies towards purchase of licensed software as 'royalty' under Section 9(1)(vi) of the Act?"

3.

Sri. S.Sharath, learned counsel appearing for the appellant would submit that the above stated question of law is answered by the Hon'ble Apex Court in the case of ENGINEERING ANALYSIS CENTRE OF EXCELLENCE

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NC: 2024:KHC:35622-DB ITA No. 267 of 2013

(P.) LTD. v. COMMISSIONER OF INCOME-TAX reported in (2021) 432 ITR 471 (SC) and the said question is answered in favour of the Assessee. In view of the same, learned counsel prays for allowing the appeal.

4.

Learned counsel Sri. Ravi Raj.Y.V., along with learned counsel Sri. Dilip.M., for the respondent-Revenue is not in a position to dispute the contention of learned counsel for the appellant.

5.

Taking note of the above, in terms of the order passed by the Hon'ble Apex Court in the case of ENGINEERING ANALYSIS CENTRE OF EXCELLENCE (P.) LTD. (supra), we answer the above question of law in favour of the Assessee and against the Revenue.

6.

Learned counsel for the Revenue would submit that the Revenue has preferred Review Petition before the Hon'ble Apex Court in R.P.Nos.1422-1497/2021 praying to review the order passed in the case of ENGINEERING ANALYSIS CENTRE OF EXCELLENCE (P.) LTD. (supra)

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NC: 2024:KHC:35622-DB ITA No. 267 of 2013

and prays for liberty to file review in case the Revenue succeeds before the Hon'ble Apex Court. On the other hand, learned counsel appearing for the appellant would place reliance on the decision in the case of COMMISSIONER OF INCOME-TAX v. GRACEMAC CORPORATION reported in (2023) 456 ITR 135 (SC) to contend that the Hon'ble Apex Court has observed that there must be an end to litigation otherwise, the rights of persons would be in an endless confusion and fluidity and justice would suffer.

7.

Learned counsel for the Revenue is seeking liberty to file review petition depending upon the outcome of the review pending before the Hon'ble Apex Court, apparently because of the observation made by the Hon'ble Apex Court at Paragraph Nos.6 and 7 in GRACEMAC CORPORATION case (supra).

8.

We have gone through the above decision and deem it appropriate to grant liberty to the respondent- Revenue to file review petition based on the outcome of

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NC: 2024:KHC:35622-DB ITA No. 267 of 2013

the review pending before the Hon'ble Apex Court and it is for the respondent-Revenue to make out a case for review.

Accordingly, appeal is allowed; question of law is answered in favour of the Assessee and against the Revenue and the order dated 22.3.2013 in ITA.No.897/B/2012 is quashed to the above extent.

Sd/- (S.G.PANDIT) JUDGE

Sd/- (C.M. POONACHA) JUDGE

SMJ List No.: 1 Sl No.: 40

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