COMMISSIONER OF INCOME TAX-III vs. M/S RATIONAL SOFTWARE CORPORATION(INDIA) PVT. LTD.,

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ITA/36/2012HC KarnatakaKAHC01052266201216 June 2020Bench: ALOK ARADHE,M.NAGAPRASANNA4 pages
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What did the High Court hold?

The High Court held that the substantial question of law regarding the classification of payments as royalty and the applicability of Sections 195 and 40(a) was answered in favor of the revenue. The appeal was allowed with observations regarding potential future appeals to the Apex Court and the applicability of the India-Netherlands DTAA.

What were the facts?

The revenue appealed against an ITAT order holding that payments made by the assessee were not royalty, thus not subject to TDS under Section 195 and disallowance under Section 40(a). The High Court noted a previous judgment on a similar substantial question of law.

What were the issues?

Whether payments made by the assessee constitute royalty, triggering TDS liability under Section 195 and disallowance under Section 40(a).

Which sections of the Income-tax Act were involved?

Section 195,Section 40(a),Section 260-A

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 16TH DAY OF JUNE, 2020

PRESENT

THE HON’BLE Mr. JUSTICE ALOK ARADHE

AND

THE HON’BLE Mr. JUSTICE M. NAGAPRASANNA

I.T.A. No. 36/2012

BETWEEN : --------------

1.

Commissioner of Income

Tax-III, C.R. Buildings

Queens Road

Bangalore – 560 001.

2.

Deputy Commissioner of

Income Tax

Circle-12(4)

Bangalore.

… APPELLANTS

(By Sri. E.I. Sanmathi, Adv., )

AND : -------

M/s. Rational Software Corporation (India) Pvt. Ltd., Subramanya Arcade

2 No. 12, Bannerghatta Main Road. Bangalore – 560 029.

… RESPONDENT

(By Sri. H.Y. Harish, Adv., for Smt. Vani H., Adv.)

---

This I.T.A. is filed under Section 260-A of I.T. Act 1961 with a prayer to formulate the substantial questions of law and set aside the order passed by the ITAT, Bangalore in appeal proceedings No. 1536/Bang/2010 dated 10.10.2011 and etc.

This I.T.A. on for Final Hearing this day, ALOK ARADHE J, passed the following;

O R D E R

Mr. E.I. Sanmathi, learned counsel for appellants.

Mr. H.Y. Harsih, learned counsel for respondent.

This appeal has been filed by the revenue which was admitted by a Bench of this Court vide order dated 29.05.2012 on the following substantial question of law:

“Whether on the facts and in the circumstances of the case, the tribunal is justified in holding that the payments made by the assessee

3 cannot be treated as royalty and hence, there is no liability for deduction of tax u/s. 195 of the Act and consequently holding that the provisions of Section 40(a) of the Act are not applicable?”

2.

When the matter was taken up today, learned counsel for the revenue submitted that the aforesaid substantial question of law has been answered in favour of the revenue by a Bench of this Court vide judgment dated 22.06.2015 passed in I.T.A. No. 205/2009.

3.

The aforesaid submission could not be disputed by the learned counsel for the assessee.

4.

In view of the aforesaid submissions, the substantial question of law framed by this Court is answered in favour of the revenue and against the assessee.

5.

However, in the event the assessee succeeds before the Apex Court, it is clear that this order also cannot come into effect. The assessing authority shall therefore, pass an

4 order under Section 260(1A)of the Act, based on the outcome of the assessee’s appeal before the Apex Court. If the assessee loses his battle before the Apex Court, then before giving effect to this order, the assessing authority shall consider the application of Art. 24(4) of the DTAA between India and the Netherlands. Though the said question is not raised by the assessee before the authorities, the same being purely a question of law and the said DTAA being a beneficial piece of delegated legislation, if the assessee is entitled to the benefit of the same, that cannot be denied to it.

Accordingly, the appeal is allowed with the aforesaid observation.

Sd/-

JUDGE. w

Sd/-

JUDGE.

LRS.

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