THE COMMISSIONER OF INCOME TAX vs. M/S SOFTWARE AND SILICON SYSTEMS (I) PVT LTD

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 31ST DAY OF MAY 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR.JUSTICE HEMANT CHANDANGOUDAR I.T.A. NO.164 OF 2007 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX

INTERNATIONAL TAXATION

RASTROTHANA BUILDING

NRUPATHUNGA ROAD

BANGALORE. 2. THE INCOME-TAX OFFICER

INTERNATIONAL TAXATION

WARD-19(2), RASTROTHANA BUILDING

NRUPATHUNGA ROAD, BANGALORE.

... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: M/S. SOFTWARE AND SILICON SYSTEMS(I) PVT. LTD., NO.136, AIRPORT ROAD BANGALORE-17.

... RESPONDENT (BY SRI. T. SURYANARAYANA, ADV.) - - - THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 26.04.2006

2 PASSED IN ITA NO.975/BANG/2004, FOR THE ASSESSMENT YEAR 2001-2002, PRAYING TO:

I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. II. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA NO.975/BANG/ 2004 DATED 26.04.2006 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE INCOME TAX OFFICER, INTERNATIONAL TAXATION, WARD-19(2), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. THIS I.T.A. COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT Mr.K.V.Aravind, learned counsel for the revenue. Mr.T.Suryanarayana, learned counsel for the assessee. This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue against the order dated 26.04.2006 passed by the Income Tax Appellate Tribunal, Bangalore. The subject matter of the appeal pertains to the Assessment year 2001-2002. The appeal was admitted by a bench of this Court vide order dated 19.04.2007 on the following substantial questions of law: "a) Whether the Tribunal was correct in holding that the assessee is not liable to deduct

3 TDS in respect of payments made for purchase of software as the same cannot be treated as income liable to tax in India as Royalty or Scientific Work under section 9 of the Act read with Double Taxation Avoidance Agreements and treaties? b) Whether the Tribunal was correct in holding that since the assessee had purchased only a right to use the copyright i.e., the software and not the entire copyright itself, the payment cannot be treated as Royalty as per the Double Taxation Avoidance Agreement and Treaties which is beneficial to the assessee and consequently section 9 of the Act should not take into consideration? c) Whether the Tribunal should have recorded a finding that it is under section 195(2) and (3) and (4) of the Act, the chargeability to tax or not of the recipient is decided and having failed to obtain such a decision the assessee was bound to deduct tax at source as held by the Apex Court in 239 ITR 587?

d) Whether the assessee can question the taxability of the recipient in section 201(1) of the Act proceeding when the assessee has to show only "without good and sufficient reasons failed to deduct and pay tax", which has not

4 been shown in the facts of the present case and non taxability cannot be taken as a sufficient reason, when section 195(2)(3)(4) of the Act certificate is not obtained?

e) Whether the Tribunal was correct in holding that the payment partakes the character of purchase and sale of goods and therefore cannot be treated as royalty payment liable to Income Tax?"

5 PRIVATE LIMITED (supra), the substantial questions of law framed in this appeal are answered in favour of the assessee and against the revenue. In the result, appeal is dismissed. Sd/- JUDGE Sd/- JUDGE RV