M/S. SERVIONT GLOBAL SOLUTIONS LTD.,,CHENNAI vs. ACIT, CC-6(1),, CHENNAI

आदेश आदेश /O R D E R आदेश आदेश

PER MAHAVIR SINGH, VP:

This appeal by the Assessee is arising out of the order of

the learned Commissioner of Income Tax (Appeals)-16, Chennai

in ITA No.41/CIT(A)-16/2014-15; dated 28.02.2020 against the

Assessment Order framed by the Deputy Commissioner of

Income Tax, Company Circle – VI(2), Chennai, dated

18.03.2014 for the Assessment Year 2010 – 2011 u/s.143(3) of

the Income-tax Act, 1961 (hereinafter ‘the Act’).

2 I.T.A. No. 756/Chny/2020 2. The appeal of the Assessee is delayed by 128 days in filing

the appeal due to the outbreak of “Covid-19” pandemic. From

the perusal of the impugned order of Ld. CIT(A) dated

28.02.2020, it is evident that the limitation period was under

lock-down because of pandemic which had posed serious

challenges before all in making the required compliances. This

has been taken note of the Miscellaneous Application No. 665 of

2021, 21 of 2022 and 29 of 2022 [in Suo Motto Writ Petition (c)

No.3 of 2020] of the order of the Hon’ble Supreme Court (Civil

Original Jurisdiction), vide order dated 10.01.2022; wherein the

Hon’ble Apex Court has given the direction to condone the delay

and waive the limitations across the Board, i.e. Courts,

Tribunals of India. Accordingly, the delay in filing the present

appeal before the Tribunal is condoned.

relates to disallowance of payments made towards purchase of

software by the Assessee u/s. 40(a)(i) of the Act amounting to

Rs.2,77,70,700/- for non-deduction of tax at source u/s.195 of

the Act.

3 I.T.A. No. 756/Chny/2020 4. Brief facts of the case are that the Assessee is in the

business of development and export of software. Assessee

company filed its return of income for the Assessment Year

2010 – 2011 on 14.10.2010 reporting income as “NIL” and book

profit of Rs.3,46,71,759/- u/s.115JB of the Act. The case was

selected for scrutiny u/s. 143(3) of the Act and statutory notices

were issued. During the course of the assessment proceedings,

the learned Assessing Officer found that the Assessee has

purchased software licenses from M/s. Acqueon Technologies,

USA amounting to Rs.2,77,70,700/- and claimed the same as

expenses in the profit and loss account. The learned Assessing

Officer noted that, according to the provisions of Section

9(1)(vi) of the Act, transfer of license of software has to be

treated as royalty and the consideration paid for such transfer

amounts to income deemed to accrue or arise in India. The

Assessing Officer held that since the Assessee has not deducted

tax as required u/s.195 of the Act, therefore the provisions of

Section 40(a)(i) are attracted to disallow the said payment.

Assessee submitted that the payment under reference is not

subject to TDS, since the purchase of software license is in the

4 I.T.A. No. 756/Chny/2020 nature of goods under the Sales Tax / VAT Act. However, the

submissions of the Assessee were not accepted by the learned

Assessing Officer who held that the payments of the Assessee

towards the use of license for a software is a taxable income in

the hands of the non-resident as it is a royalty income as per

the Section 9(1)(vi) r.w.s. 115A of the Act and since the

deduction of tax at source was not done on the payment made,

provisions of Section 40(a)(i) of the Act becomes applicable.

Accordingly, the learned Assessing Officer disallowed the claim

of deduction for the impugned payment.

learned Commissioner of Income Tax (Appeals) who after

considering the detailed submissions made by the Assessee

passed his decision on the basis of the immediately preceding

year, i.e. Assessment Year 2009 – 2010; wherein his

predecessor had sustained disallowance for a similar payment

towards purchase of software from M/s. Acqueon Technologies,

USA by holding that there is no change in facts. Aggrieved, by

the decision of the learned Commissioner of Income Tax

(Appeals), the Assessee is in appeal before the Tribunal.

5 I.T.A. No. 756/Chny/2020 7. We have heard the rival contentions, perused the records

and submissions made by the Assessee. At the outset, the

learned Counsel for the Assessee, Mr. S.P. Chidambaram,

Advocate, relied upon the order passed by the co-ordinate

bench in the Assessee’s own case for the immediately preceding

Assessment Year i.e. 2009 – 2010 in I.T.A. No.1974/Chny/2016

dated 12.02.2020 and took us through the order; wherein in

paragraph no.5, it has been held that the purchase of

copyrighted articles does not fall within the scope of section

9(1)(vi) of the Act and in the absence of any findings from the

Revenue that M/s. Acqueon Technologies Inc. USA was paid

over and above the purchase price, its treatment that the

impugned transaction falls u/s.9(1)(vi) of the Act is not valid

and the corresponding ground of the Assessee was allowed.

facts is covered by the decision of the co-ordinate bench in the

Assessee’s own case of the immediately preceding Assessment

Year 2009 – 2010, which had dealt with the very basis for

sustaining the disallowance by the learned Commissioner of

Income Tax (Appeals) in the first appeal and had held in favor

of the assessee by allowing its claim for deduction for purchase

6 I.T.A. No. 756/Chny/2020 of software license from M/s. Acqueon Technologies Inc. USA.

IT is noted that in the present appeal before us, the assessee

has purchased the software license from the same vendor i.e.

M/s. Acqueon Technologies Inc. USA.

Engineering Analysis Centre of Excellence (P.) Limited Vs.

Commissioner of Income Tax reported in [2021] 125 taxmann.com 42 (SC), vide order dated 2nd March, 2021 has

held that “the amount paid by the resident Indian end-user /

distributors to non-resident computer software manufacturers /

suppliers, as consideration for resale / use of computer software

through EULAs / distribution agreement, is not a payment of

royalty for use of copyright in computer software, and thus,

same does not give rise to any income taxable in India”, which

squarely covers the issue before us in respect of the payment

made for purchase of software license by the Assessee from the

non-resident M/s. Acqueon Technologies Inc. USA.

Court in the case of Engineering Analysis Centre of Excellence

(P.) Limited Vs. CIT (supra) and also the decision of the Co-

ordinate Bench of the Tribunal in the Assessee’s own case

7 I.T.A. No. 756/Chny/2020 (supra) on the identical set of facts, we set aside the order of

the learned Commissioner of Income Tax (Appeals) and delete

the addition made by the learned Assessing Officer in respect of

disallowance of Rs. 2,77,70,700/- made towards payment of

software license fee u/s.40(a)(i) of the Act.

Assessee is allowed.