JOINT COMMISSIONER OF INCOME-TAX vs. I-GATE COMPUTER SYSTEMS LTD., PUNE

The Revenue has raised the following grounds of appeal:- 1. On the facts and circumstances of this case, the Ld. CIT(A) erred in holding that no penalty u/s 271C is leviable.

The issue raised in the present appeal is against deletion of penalty levied under section 271C of the Act.

Briefly, in the facts of the case, the assessee was engaged in the business of development and export of computer software. During the year under consideration, the assessee made payments for purchase of software license and for availing other related software without deducting tax at source on the said payments. The Assessing Officer held that the assessee was required to deduct tax under section 195 of the Act and the same was taxable as ‘royalty’ under DTAA with respective countries. Accordingly, the Assessing Officer taxed the payments made for acquiring the right to use software and database access charges as ‘royalty’, payment of consultancy charges as ‘Fees for Technical Services’ (FTS). Thus, the Assessing Officer held the assessee in default in not deducting tax at source out of such payments made of ₹ 2,60,81,820/- under section 201(1) of the Act. The CIT(A) also held the assessee in default. Further, the Assessing Officer held the assessee liable for levy of penalty under section 271C of the Act and accordingly levied penalty at ₹ 91,42,619/- for failure to deduct tax at source under section 195 of the Act.

The CIT(A) has deleted the penalty levied by the Assessing Officer.

The Revenue is in appeal against the order of CIT(A).

We have heard the rival contentions and perused the record. The issue which arises in the present appeal is against deletion of penalty levied under section 271C of the Act. The Assessing Officer held the assessee in default in not deducting tax out of payments made, under section 201(1) of the Act, for purchase of software license and for availing other related software.

The Tribunal in Capgemini Technology Services India Ltd. Vs. DDIT in ITA No.2011/PUN/2014 and cross appeal filed by Revenue in ITA No.2182/PUN/2014, relating to assessment year 2007-08, order dated 28.02.2019 held that the payments made by assessee for use of software were not taxable as royalty and hence, the assessee has not defaulted in not deducting tax at source out of such payments. Consequently, there is no merit in raising the demand under section 201(1) of the Act and charging interest under section 201(1A) of the Act. Similar stand was in respect of subscription charges, etc. Once the assessee has been held to be not in default and demand cancelled under section 201(1) of the Act, penalty levied under section 271C of the Act for such default fails. Hence, the assessee is not liable for levy of any penalty under section 271C of the Act. Hence, grounds of appeal raised by the Revenue are dismissed.

In the result, the appeal of Revenue is dismissed.