DCIT LTU-1, CHENNAI vs. COGNIZANT TECHNOLOGY SOLUTIONS INDIA PVT. LTD., CHENNAI

It was the submission of the ld. DR that the assessee is a wholly owned subsidiary of Cognizant Technology Solutions Corporation, USA and a leading provider of information technology, consulting and business process outsourcing services. Since it was noticed that TDS was not made on the remittances made towards exam fees, software license to non- residents, etc., an order under section 201(1)/201(1A) of the Act dated 26.03.2015 was passed raising a demand of ₹.50,55,940/-. It was the submission of the ld. DR that the payments claimed to be made by the assessee company towards software license are held as royalty for usage of software and taxable in the hands of the non-residents. Since the assessee did not affect the TDS while paying the said amount, the Assessing Officer observed that the said payments constitute royalty and thereby invoked the provisions of section 40(a)(i) of the Act. It was the submission that on appeal, the ld. CIT(A) held that no TDS was deductible by the assessee in connection with acquisition of software licenses by following the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case. It was a submission that the software license payments are covered under the exclusion provided in sub-clause (b) to clause (vi) of section 9(1) of the Act which was inserted with retrospective effect and pleaded that the order of the ld.CIT(A) be reversed and that of the Assessing Officer restored.

In reply, the ld. Counsel for the assessee submitted that the issue is now squarely covered by the decision of the Co-ordinate Benches of this Tribunal in the assessee’s own case for the assessment year 2009-10 passed a combined order in and ITA No.1798/Mds/2014 dated 15.07.2016. He vehemently supported the order of the ld.CIT(A).

We have considered the rival submissions, perused the materials available on record and gone through the orders of authorities below. As it is noticed that the ld.CIT(A) has followed the judicial discipline in following the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case for the assessment year 2009-10, wherein the Coordinate Benches of the Tribunal has observed and held as under: “25. The last issue relates to the addition of Rs.1.95 Crs (rounded of) u/s.40(a)(i) of the Act. Assessee paid the said amount to the residents of Singapore and USA. The same was paid in connection with the purchase of “off the shelf software”. Assessee did not affect the TDS while paying the said amount. In the scrutiny assessment, AO noticed the above and observed that the said payments constitute royalty as contained in Exphnation-2 read with Explanation-3 to section 9(1)(vi) of the Act. AO invoked the provisions of section 40(a)(i) of the Act. 26. During the first appellate proceedings, CIT (A) observed that the said purchases of copyrighted article and copyright of the software do not constitute ‘royalty’ and therefore, there is no liability to deduct tax on payments. CIT (A) noticed that the beneficial provisions of DTAA should be taken into account. Further, he mentioned that an insertion of Explanation 4 to section 9(1)(i) in the absence of amendment to definition of ‘royalty’ in the relevant DTAA, the payment for ‘copyrighted article’ shall not be considered as ‘royalty’. For this proposition, CIT (A) relied on the judgment of the Hon’ble Delhi High Court in the case of DIT vs. Nokia Network OY (358 ITR 259). Aggrieved with the above, Revenue raised the Ground no.6 with its sub- grounds and argued that the said Delhi High Court judgment in the case of Nokia Network OY (supra) will not be accepted by the Revenue as the same is in appeal before the Apex Court. It is the requirement of the Revenue that the issue should be raised before the Tribunal to keep the issue alive for future.

They also raised argumentative grounds saying that the amended provisions to section 9 of the Act has retrospective effect from 1.6.1976 as the amendments are clarificatory in nature. Rebutting the same, Ld Counsel for the assessee submitted that the Government is against the retrospective amendments and the same was repeatedly asserted by the Finance Minister in the Floor of the House. When there are payments like this to the tax residents abroad are involved, where DTAA exists with Singapore and USA, the beneficial provisions apply and not the domestic laws and the amendments if any to the domestic laws. Ld Counsel for the assessee mentioned number of decisions on the issues relating to the copyrighted article v/s copyright of the software; the retrospective effect of the Explanations to section 9 etc. In any case, similar issues were the subject matter of favourable decisions of the Tribunal in the earlier assessment years in the assessee’s own case. In our opinion, CIT (A) merely complied with the direction of the Tribunal. Therefore, in our opinion the decision taken by the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, this ground raised by the Revenue is dismissed.”

In the result, the appeal filed by the Revenue is dismissed. Order pronounced on the 27th April, 2018 at Chennai.