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

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ITA/270/2013HC KarnatakaKAHC01022071201302 September 2024Bench: S.G.PANDIT,C.M. POONACHA5 pages
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What did the High Court hold?

The High Court of Karnataka, in terms of the order passed by the Hon'ble Apex Court in the case of ENGINEERING ANALYSIS CENTRE OF EXCELLENCE (P.) LTD. (supra), answered the substantial question of law in favour of the Assessee and against the Revenue. The Court quashed the ITAT's order dated March 22, 2013, to the extent it upheld the revenue's action. The Court also granted liberty to the respondent-Revenue to file a review petition based on the outcome of the review pending before the Hon'ble Apex Court, acknowledging the principle of bringing litigation to an end as observed in COMMISSIONER OF INCOME-TAX v. GRACEMAC CORPORATION (2023) 456 ITR 135 (SC). The ratio decidendi is that payments for licensed software, as per the Apex Court's ruling, do not constitute royalty under Section 9(1)(vi) of the Income Tax Act, 1961, unless specific conditions are met, which were not found to be applicable in this case based on the precedent.

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) in ITA No. 897/Bang/2012. The appeal pertains to the assessment year 2009-2010. The core of the dispute revolves around the tax treatment of payments made by the assessee to foreign companies for the purchase of licensed software. The revenue authorities treated these payments as 'royalty' under Section 9(1)(vi) of the Income Tax Act, 1961. The assessee challenged this classification before the ITAT and subsequently before the High Court.

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 in the appeal has been conclusively answered by the Hon'ble Apex Court in the case of ENGINEERING ANALYSIS CENTRE OF EXCELLENCE (P.) LTD. v. COMMISSIONER OF INCOME-TAX (2021) 432 ITR 471 (SC), in favour of the assessee. Therefore, the appeal should be allowed. Revenue's contention: The learned counsel for the respondent-Revenue 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 pending review petitions in R.P.Nos.1422-1497/2021 in the case of ENGINEERING ANALYSIS CENTRE OF EXCELLENCE (P.) LTD. (supra) were successful.

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:35620-DB ITA No. 270 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.270 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 (INTERNATONAL TAXATION) WARD 2(1), BENGALURU …RESPONDENT (BY SRI. RAVI RAJ Y.V., ADVOCATE)

THE ITA IS FILED UNDER SEC.260-A OF I.T. ACT, 1961, ARISING OUT OF ORDER DATED 22/03/2013 PASSED IN ITA NO.897/BANG/2012, FOR THE ASSESSMENT YEAR 2009-2010 AND PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN 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:35620-DB ITA No. 270 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:35620-DB ITA No. 270 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. 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) and prays for liberty to file review in case the Revenue

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NC: 2024:KHC:35620-DB ITA No. 270 of 2013

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 the review pending before the Hon'ble Apex Court and it is

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NC: 2024:KHC:35620-DB ITA No. 270 of 2013

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

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