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Income Tax Appellate Tribunal, BENGALURU BENCH C, BENGALURU
Before: SHRI. INTURI RAMA RAO & SHRI. LALIT KUMAR, JUDICIAL
PER LALIT KUMAR, JUDICIAL MEMBER:
The present appeal is filed by the assessee, against the order of the CIT (A) – 3, Bengaluru, dt.13.01.2016, for the assessment year 2010-11,on the grounds of appeal extracted hereunder :
ITA 595/Bang/2016 Page - 2
The brief facts are, the assessee is a captive service provider and is engaged in the business of providing engineering analysis and ITA 595/Bang/2016 Page - 3 related software development services / export of customised electronic data. During the relevant assessment year the assessee filed its return of income declaring total income of Rs.76.13.59,776/-. The AO disallowed Rs.16,21,82,523/- u/s.40(a)(i) of the Act, on the ground that the assessee was liable to deduct tax at source on payments made to non-resident vendors, for the purchase of software. Aggrieved by the disallowance by the AO, the assessee filed an appeal before the CIT (A).
The CIT (A), in his order confirmed the disallowance made by the AO, on the ground that the issue was considered by the Hon’ble jurisdictional High Court in the assessee’s own case reported in 320 ITR 209, wherein the Hon’ble High Court held that tax was required to be withheld on payments for purchase of software. Further aggrieved the assessee is in appeal before us on the grounds mentioned herein above.
4. It was submitted by the ld. AR of the assessee that learned CIT (A) has followed the judgment of Hon'ble Karnataka High Court rendered in the case of CIT vs. Samsung Electronics Co. Ltd. as reported in 245 CTR 481. He submitted that by a later judgment of Hon'ble Karnataka High Court rendered in the case of WIPRO Ltd. vs. DCIT as reported in 382 ITR 179, similar issue was decided in favour of the assessee by following the earlier judgment of the same High ITA 595/Bang/2016 Page - 4 Court rendered in the case of the same assessee in ITA 507 of 2002 on 25.08.2010 and it was held that no disallowance can be made u/s 40 (a) (i) of I. T. Act in respect of software imported which is in the nature of Royalty u/s 9 (1) (vi) of I. T. Act. He submitted a copy of both these judgments of Hon'ble Karnataka High Court. At this juncture, a query was raised by the bench as to whether the judgment of Hon'ble Karnataka High Court rendered in the case of CIT vs. Samsung Electronics Co. Ltd. (Supra) was brought to the notice of Hon'ble Karnataka High Court in the later case decided on 25.03.2015 because the judgment of Hon'ble Karnataka High Court rendered in the case of CIT vs. Samsung Electronics Co. Ltd. (Supra) is dated 15.10.2011. In reply, learned AR of the assessee submitted that the earlier judgment in the case of Wipro Ltd. (Supra) dated 25.08.2010 was also not brought to the notice of Hon'ble Karnataka High Court in the case of CIT vs. Samsung Electronics Co. Ltd. (Supra) decided on 15.10.2011 and therefore, the first judgment dated 25.08.2010 should be followed and this judgment is in favour of the assessee. In reply, learned DR of the revenue supported the order of CIT (A) and submitted that both the judgments in the case of Wipro Ltd. (Supra) are in the context of section 40 (a) (i) whereas the judgment of Hon'ble Karnataka High Court rendered in the case of CIT vs. Samsung Electronics Co. Ltd. (Supra) is in context of section 195 and in the present case also, the dispute is in context of section 195 and therefore, this judgment ITA ITA 595/Bang/2016 Page - 5 No. 1388/Bang/2013 rendered in the case of CIT vs. Samsung Electronics Co. Ltd. (Supra) should be followed.
The Ld. DR supported the orders of the lower authorities.
We have heard the rival submissions and perused the material on record. We find that the coordinate bench in the matter of Intertec Software Pvt. Ltd., vs ITO, dt.13.10.2017, wherein the author of this order was the co-author, after relying upon the judgment of the jurisdictional High Court in the matter of CIT (Intl.Taxn) v. Samsung Electronics Co. Ltd [(2011) 203 Taxman 477] and distinguishing the later judgment of the jurisdictional High Court in WIPRO Ltd. vs. DCIT as reported in 382 ITR 179, has held as under :
We have considered the rival submissions. First, we examine the applicability of the first judgment of Hon'ble Karnataka High Court rendered in the case of WIPRO Ltd. vs. DCIT (Supra) rendered on 25.08.2010. In this case, the substantial question of law raised as per Para 37 was as under:- "Whether the Tribunal is correct in allowing expenditure on imported software when the expenditure per se is capital in nature and is not allowable?"
5. From this substantial question of law, it comes out that in that case, this was not a dispute before Hon'ble Karnataka High Court as to whether the import of software is Royalty or not? The dispute in that case was this that the import of software is capital expense in that case and therefore, how the same can be allowed as deduction. In that case also, the A.O. held that the payment for software is Royalty and since TDS was not deducted, it is to be disallowed u/s 40 (a) (i) but when the assessee carried the matter ITA 595/Bang/2016 Page - 6 in appeal before CIT (A), he held that it is not Royalty and therefore, cannot be disallowed u/s 40 (a) (i). The revenue filed appeal before the tribunal but the dispute raised was not this that it is Royalty or not? The dispute raised was this that it is capital expenditure and therefore, cannot be allowed. The tribunal held that the tribunal cannot go into this question as this is not what was urged before the lower authorities. The revenue filed appeal before Hon'ble Karnataka High Court and the tribunal order was confirmed. Hence, this is seen that as per this judgment of Hon'ble Karnataka High Court, the decision is not on this aspect that it is Royalty or not and therefore, this judgment is not relevant in the present case.
6. Now, we examine the applicability of the second judgment of Hon'ble Karnataka High Court rendered in the case of WIPRO Ltd. vs. DCIT (Supra) rendered on 25.03.2015. As per this judgment, in Para 171, it was held that in earlier judgment dated 25.08.2010, similar question was decided in favour of the assessee and against the revenue and therefore, in those appeals also, the issue was decided in favour of the assessee. We have already seen that the decision dated 25.08.2010 is not on this aspect that it is Royalty or not and therefore, this judgment is not relevant in the present case. Accordingly, this later judgment dated 25.03.2015 is also not relevant.
7. There is no dispute that the present issue is covered against the assessee by the judgment of Hon'ble Karnataka High Court rendered in the case of CIT vs. Samsung Electronics Co. Ltd. (Supra) and learned AR of the assessee has merely cited these two judgments rendered in the case of WIPRO Ltd. (Supra) and no other argument was made to the effect that this issue is not covered against the assessee by this judgment of Hon'ble Karnataka High Court rendered in the case of CIT vs. Samsung Electronics Co. Ltd. (Supra). Since, these two judgments cited by him are not applicable as per above discussion; ITA 595/Bang/2016 Page - 7 we respectfully follow the judgment of Hon'ble Karnataka High Court rendered in the case of CIT vs. Samsung Electronics Co. Ltd. (Supra) and decline to interfere in the order of CIT (A). Respectfully following the judgment of the Hon’ble jurisdictional High Court (supra) and that of the order of the coordinate bench (supra), on identical facts and circumstances, we uphold the orders of the lower authorities.
In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on 17th day of November, 2017.