M/S. ANSYS SOFTWARE PRIVATE LIMITED,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 1(1)(1), BENGALURU

O R D E R Per Beena Pillai Judicial Member: Present appeals have been filed by assessee against orders dated 19/07/2019 passed by the Ld.CIT(A)-1, Bangalore for assessment years 2007-08 to 2010-11. At the outset the Ld.AR submitted that, the only issue that is challenged before this Tribunal is regarding disallowance made under section 40(a)(i) of the Act, for non-deduction of TDS on payments made by assessee to U.S company towards purchase of software as royalty. Admittedly, all the appeals under consideration has common issues and facts are identical. We are therefore disposing these appeals by way of a common order.

in on the facts, for assessment year 2007-08 as under:

1. The order passed by the learned Commissioner of Income- tax [Appeals] -1, Bengaluru, dated 19/07/2019 for the impugned assessment year 2007 - 08, in so far as it is against the Appellant is against law, equity, facts and circumstances of the case.

2. The Appellant denies itself liable to be assessed on a total income over and above the income returned by the Appellant of Rs. 3,49,99,041/- on the facts and circumstance of the case of the Appellant.

3. The learned Commissioner of Income-tax [Appeals] is not justified in confirming the disallowance made by the learned assessing officer who applied the provisions of section 40[a][i] of the Act and disallowed a sum of Rs. 13,67,53,377/- being the payment made by the appellant to M/s. Ansys Inc. U.S.A. towards the purchase of goods as Royalty for having not done TDS on such payments made by the appellant on the facts and circumstances of the case.

4. The learned authorities below failed to appreciate that the software imported by the Appellant is a shrink-wrapped product and the same not being customized and the same is not in the nature of Royalty and consequently no tax amount be deducted on such payments made by the appellant towards purchases of such software, on the facts and circumstances of the case.

urged above on the facts and circumstances of the case.

9. For the above and other grounds may to be urged during the hearing of the appeal, the Appellant prays before this Hon'ble Tribunal, that the appeal be allowed in the interest of equity and justice. Brief facts of the case are as under: 2.1. The assessee is a company and filed its return of income for assessment year 2007-08 on 09/10/2007 declaring total income of Rs.3,49,99,541/-. The case was selected for scrutiny and notice was issued under section 143(2). In response to statutory notices, representative of assessee appeared before Ld.AO and called requisite details as called for.

2.2. The Ld.AO observed that assessee had international transaction during the relevant previous year and in order to determine arm’s length price case was referred to the Transfer Pricing officer. The Ld.AO observed that, assessee is in the business of import and sale of computer software and the major business of assessee is sale of software. At the time of passing of draft assessment order, the Ld.AO called upon assessee to show cause as to why the above payment should not be treated as royalty, and since no tax was deducted while making the payments, why the amount should not be disallowed by invoking provisions of section 40(A)(ia) of the Act. 2.3. Assessee filed various submissions however the Ld.AO while passing the draft assessment order made disallowance of Rs.14,99,11,553/-. Aggrieved by the addition made by Ld.AO, assessee preferred appeal before the Ld.CIT(A). 2.4. Ld.CIT(A) while considering the issue in light of submissions made by assessee, upheld the disallowance made by the Ld.AO by following the decision of Hon’ble Karnataka High Court in assessee’s own case reported in (2012) 23 taxmann.com 344 for assessment year 2003-04. The Ld.CIT(A) observed that Hon’ble court followed the decision of its coordinate bench in case of CIT vs Samsung Electronics Pvt.Ltd. reported in (2011) 203 taxman 477.

Aggrieved by the order of Ld.CIT(A), assessee is in appeal before us now. 2.5. Admittedly the issue involved in these appeals has been set at rest by the decision of Hon’ble Supreme Court in a recent case of Engineering Analysis Centre of Excellence Pvt.Ltd. vs CIT reported in 2021 SCC online SC 159. Hon’ble Supreme Court while considering the issue of royalty on sale of software, have also considered the decision of Hon’ble Karnataka High Court in case of CIT vs Samsung Electronics Co.Ltd.(supra) and various other decisions. Hon’ble Supreme Court held as under: “CONCLUSION 168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income Tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases. 169.Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non- resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 of the Income Tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment.