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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) -16, Chennai, dated 26.06.2018 confirming the order of the Assessing Officer passed under Section 201(1) & (1A) of the Income-tax Act, 1961 (in short 'the Act').
Shri Sachin S. Sastakar, the Ld. representative for the assessee, submitted that the assessee is a trader in software. The assessee is purchasing software and selling the same to the actual users as a dealer. According to the Ld. representative, the purchase price paid by the assessee was treated as “royalty” by the Assessing Officer and it was held that the assessee failed to deduct tax, therefore, the assessee was treated as “assessee in default” under Section 201(1) & 201(1A) of the Act. According to the Ld. representative, Explanation 4 to Section 9(1)(vi) of the Act was inserted by the Finance Act 2012 with retrospective effect from 01.06.1976. The assessment year under consideration is 2010-11.
Therefore, the assessee cannot be blamed for non-deduction of tax for the year under consideration.
On the contrary, Dr.S. Pandian, the Ld. Departmental Representative, submitted that by Explanation 4 to Section 9(1)(vi) of the Act, which is applicable from 1976, the distinction sought to be made between copyright and copyrighted article was nullified, therefore, what was paid by the assessee is payment for copyrighted article as well. Admittedly, the assessee paid ₹16,45,680/- to M/s Reliasoft Asia Pvt. Ltd. Since it is taxable, according to the Ld. D.R., the same is liable for deduction of tax.
Having heard the Ld. representative for the assessee and the Ld. D.R., we have gone through the Explanation 4 to Section 9(1)(vi) of the Act. For the purpose of convenience, we reproduce Explanation 4 to Section 9(1)(vi) of the Act which reads as follows:-
“Income deemed to accrue or arise in India 9. (1) The following incomes shall be deemed to accrue or arise in India:- (i) ….. ….. ….. ….. ….. ….. ….. ….. (ii) ….. ….. ….. ….. ….. ….. ….. ….. (iii) ….. ….. ….. ….. ….. …… ….. ….. (iv) ….. ….. ….. ….. ….. …… …… …… (v) ….. ….. ….. ….. ….. ….. …… …… (vi) income by way of royalty payable by – (a) the Government ; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :
Explanation 1.- …… ….. ….. ….. ….. …. Explanation 2.- ….. ….. ….. ….. ….. ….. Explanation 3.- ….. …… ….. ….. ….. …..
Explanation 4.— For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred.” 5. Admittedly , Explanation 4 to Section 9(1)(vi) was inserted by Finance Act, 2012 with retrospective effect from 01.06.1976. The assessment year under consideration is 2010-11. Therefore, the assessee is not expected to visualize the amendment to Section 9(1)(vi) by insertion of Explanation 4 by the Parliament. In other words, the retrospective amendment made in the year 2012 cannot be made effective for non-deduction of tax for the assessment year under consideration 2010-11. Even though the provisions are introduced with retrospective effect, the payment was made before the amendment was made. Therefore, the assessee cannot be found fault for non-deduction of tax by virtue of subsequent amendment brought in the statute book in the year 2012.
Therefore, this Tribunal is of the considered opinion that even though Explanation 4 to Section 9(1)(vi) of the Act may be applicable to treat the payment as royalty, in view of Explanation 4 inserted by Parliament in 2012, the same cannot be made applicable to find fault with the assessee for non-deduction of tax for the assessment year 2010-11. In other words, the assessee cannot anticipate retrospective amendment for deduction of tax. In such circumstances, the assessee cannot be treated as “assessee in default” and consequently, there cannot be any levy of tax. Accordingly, orders of both the authorities below are set aside and the addition made by the Assessing Officer is deleted.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the court on 1st August, 2019 at Chennai.