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Income Tax Appellate Tribunal, “A ” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN
आदेश/ O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee filed this appeal against the order of the Commissioner of Income Tax (Appeals)-15, Chennai in dated 18.03.2016 for assessment year 2009-10.
:-2-: ITA No.1974/Chny/2016
M/s. Servion Global Solutions Ltd., the assessee, is engaged in the business of development and export of software. While making the assessment for assessment year 2009-10, the Assessing Officer, inter alia, disallowed software license purchased by the assessee at Rs. 1,72,41,400/- treating the same as royalty u/s. 9(1)(vi) on which the assessee has not deducted TDS u/s. 195 r.w.s. 40(a)(i). Further, he disallowed the payments of contribution towards PF at Rs. 84,30,994/- as the sums received by the assessee from its employees towards contribution to PF were made beyond the due date as per PF Act.
Aggrieved, the assessee filed an appeal before the CIT(A). The Ld. CIT(A) sustained the disallowance made u/s. 9(i)(vi). With regard to the disallowance of payment of employees contribution to PF, the Ld. CIT(A) directed the AO to allow the deduction u/s. 36(1)(va), where any payments has been made within the grace period allowed under the PF Act. Aggrieved against that order, the assessee filed this appeal.
The Ld. AR submitted that both the Ld. AO as well as the Ld. CIT(A) failed to appreciate that the purchase of software license is in the nature of goods under the Sales Tax/VAT Act. These products, Acqueon AIQ and IVR connectors are off-the-shelf software and they have been used by the company to develop application as per the requirements of the customers. Acqueon AIQ is a ‘contact center in a :-3-: ITA No.1974/Chny/2016 box’ solution that integrates functionality of various applications of the contact center under multiple channels viz. voice, chat, E-mail, SMS, fax etc. IVR connector is a software tools that grabs information from IVR to populate the same in CTI (Computer Telephonic Integration) that is used by agents in a call center. The product licenses procured during the year were consumed to build application as per the specification of certain customer. The purchase of software from Acqueon Technologies Inc., USA does not involve any transfer of technology fee as royalty or technical fee. In this regard, the Ld. AR invited our attention to the para 4 of the Jurisdictional High Court decision in the case of CIT, Company Circle 3(4), Chennai vs Vinzas Solutions India (P)
Ltd., reported in 254 Taxman 289 (Madras) [2017], 392 ITR 155 (Mad) which reads as under:
We are of the view that the provisions of section 9(1)(vi) dealing with and defining ‘Royalty’ cannot be made applicable to a situation of outright purchase and sale of a product. The Corpus Juris Secundum understands Royalty thus: “The word ‘royalty’ means a share of the product or profit reserved by the owner for permitting another to use the property, the share of the production or profit paid the owner; a share of the product or proceeds therefrom reserved to the owner for permitting the another to use the property; the share of the produce reserved to the owner for permitting another to exploit and use the property; a share of the profit, reserved by the owner for permitting another to use the property; the amount reserved or the rental to be paid the original owner of the whole estate.”
:-4-: ITA No.1974/Chny/2016 Thereafter, he invited our attention to the head note of the decision in the Taxman which reads as under:
“Section 9 of the Income Tax Act, 1961, read with article 12 of OECD Model Tax Convention – Income – Deemed to accrue or arise in India (Royalty) – assessee, a dealer in computer software, had purchased softwares from various companies - Assessing Officer opined that consideration for purchase was in nature of ‘royalty’ and tax ought to have been deducted at source in accordance with provisions of section 194J – whether provisions of section 9(1)(vi) dealing with and defining ‘royalty’ could not be made applicable to a situation of outright purchase and sale of a product – Held, yes – Whether further, there is a difference between a transaction of sale of a ‘copyrighted article’ and one of the ‘ copyright’ itself; provisions of section 9(1)(vi) as a whole, would stand attracted in case of latter and not former – Held, yes” [paras 4,6 and 7] (In favour of assessee).”
4. Relying on these decisions, the Ld. AR pleaded to allow the appeal. With regard to the disallowance made towards delayed payment to employees contribution to PF, the Ld. AR submitted that the Ld. CIT(A) erred in not considering the amendment of provisions of section 43B of the Act in Finance Act, 2003 to allow PF contributions as expenditure as long as they are remitted to the government account before the due date for filing return of income u/s. 139. In this regard, he relied on the Jurisdictional High Court decision in the case of CIT vs Industrial Security and Intelligence India Pvt. Ltd in Tax Case (Appeal)
No. 585 & 586 of 2015 and MP No. 1/2015, dated 24.07.2015.
:-5-: ITA No.1974/Chny/2016 Wherein, the assessee had remitted the employee contribution beyond the due date for payment but within the due date for filing the return of income. The Jurisdictional High Court following the decision of CIT vs Alom Extrusions Ltd. reported in 319 ITR 306 (SC) and Delhi High Court decision in the case of CIT vs Amil Ltd. reported in 321 ITR 508 upheld the tribunal decision that payment of PF and ESI made beyond the grace period/due date allowed under PF & ESI Act but before the due date of filing the income tax return cannot be disallowed u/s. 43 of the Act. Further, the Ld. AR also relied on this ITAT decision in the assessee’s case for assessment year 2005-06. Per contra, on the issue of disallowance on purchase of software license, the Ld. DR supported the order of the Ld. CIT(A). With regard to the disallowance made towards belated payments of employees contribution to PF, the Ld. DR invited our attention to the Para 8 of the assessment order and submitted that the Ld. Officer only quoted the assessee’s submissions that the payments were made before the due date of filing return of income u/s. 139(1), but he has not examined the fact as to whether the impugned amount were paid before the due date of filing return of income u/s. 139(1). Therefore, he pleaded to decide this issue as deemed fit.
:-6-: ITA No.1974/Chny/2016
We heard the rival submissions. It is clear from the fact that the assessee is engaged in the business of development and export of software, providing CTI (Computer Telephonic Integration), system integration, IT consulting services to customers. The assessee has purchased the copyrighted software license from Acqueon Technologies Inc ., USA of Acqueon AiQ and IVR connector as off-the-shelf software and used them to develop application as per the requirements of the customers. Therefore, as held by the Jurisdictional High Court, supra, purchase of copyrighted articles, does not fall within this scope of section 9(1)(vi) of the Act. The assessee has also consumed them to develop the application and sold them. In the absence of any findings from the Revenue that the Acqueon Technologies Ltd Inc. USA was paid over and above the purchase price, its treatment that the impugned transaction falls u/s. 9(1)(vi) is not valid and hence, the corresponding grounds of the assessee are allowed.
With regard to the delayed payment of the employees PF contribution, since the AO has not examined as to whether they were remitted within the due date of filing the return of income u/s. 139(1) of the Act, this issue is remitted back to the AO for examination. If the assessee has remitted the sum before the due date of filing the return
:-7-: u/s. 139(1), the AO shall allow the deduction claimed by the assessee in accordance with the Jurisdictional High Court decision, supra.
In the result, the assessee’s appeal is partly allowed for statistical purposes.
Order pronounced on Wednesday, 12th February, 2020 at Chennai.