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Income Tax Appellate Tribunal, “L” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)& Shri Shaktijit Dey (JM)
O R D E R Per B.R. Baskaran (AM) :-
Both these appeals filed by the assessee are directed against the orders passed by the learned CIT(A)-10, Mumbai confirming the order passed by the Assessing Officer u/s. 195 of the I.T. Act, wherein the Assessing Officer has held that the payment made by the assessee for purchase of software is liable for deduction of tax at source as royalty.
We have heard the parties and perused the record. The assessee has purchased software from two companies named Radixx Solution International Inc. and Jeppesen GmbH. The software supplied by Radixx Solution International Inc., is for use in providing call centre and internet based customer reservations and information management services for travel related business. The software supplied by Jeppesen GmbH relates to flight navigation information. The assessee applied for making remittance without deduction of tax at source u/s. 195 of the Act. The Assessing Officer held that the license fee paid for use of software is in the nature of Royalty. In this regard he placed
2 Go Airlines India Ltd. reliance on the decision rendered by Hon'ble Karnataka High Court in the case of Wipro Ltd. 355 ITR 284. Accordingly, he directed the assessee to deduct tax at source at the rate of 10% plus surcharge & education cess. The learned CIT(A) also confirmed the orders passed by the Assessing Officer and hence the assessee has filed these appeals before us.
Learned counsel appearing for the assessee submitted that the assessee has been given non-exclusive and non-transferrable license to excess and use software supplied by both the parties and hence the same is in the nature of shrink wrapped software. The assessee placed reliance on the following decisions rendered by Hon'ble Delhi High Court wherein it was held that the remittance towards use of computer software cannot be regarded as royalty. DIT Vs. Ericsson A.B (343 ITR 470)(Delhi) DIT Vs. Nokia Networks OY (358 ITR 259)(Delhi) DIT Vs. Infrasoft (220 Taxmann 273)(Delhi)
Learned AR submitted that Hon'ble Karnataka High Court has taken a different view in the case of CIT Vs. Samsung Electronics Co. Ltd. & Others (345 ITR 494). However, Hon'ble Delhi High Court has considered the decision rendered by Hon'ble Karnataka High Court in the case of Infrasoft Ltd.(supra) and still held that remittance made towards use of computer software cannot be regarded as royalty. Learned AR further submitted that Hon'ble Supreme Court has held in the case of CIT Vs. Vegetable Products Ltd. (88 ITR 192), the view in favour of the assessee should be adopted when there are two conflicting views. The said ratio was applied by the Coordinate Bench in the case of DDIT Vs. M/s. Solid Works Corporation (51 SOT 34). Learned AR also submitted that the Coordinate Bench has held that the payment made for use of software cannot be regarded as royalty in the case of DDIT Vs. Reliance Industries Ltd. (159 ITD 208) and also in the case of Capgemini Business Services (India) Ltd. Vs. ACIT (178 TTJ 129) and also in the case of ADIT Vs. First Advantage (P) Ltd. (77 Taxamann.com 195).
On the contrary, learned Departmental Representative placed reliance on the decision rendered by Hon'ble Karnataka High Court in the case of CIT Vs.
3 Go Airlines India Ltd.
CGI Information Systems & Management Consultants (P) Ltd. (2014) (48 Taxmann.com 264 dated 9.6.2014), wherein it was held that Explanation 4,5&6 to section 9(1)(vi) of the Act can be applied to the DTAA. He submitted that the above said explanation provide that the license fee paid for use of software is not in the nature of royalty. Learned Departmental Representative also placed reliance on the decision rendered by Hon'ble Karnataka High Court in the case of CIT Vs. Synopsis International Old Ltd.(212 Taxman 454), CIT Vs. Samsung Electronics Co. Ltd. (345 ITR 494) and CIT Vs. Wipro Ltd. (355 ITR 284).
We have heard rival contentions and perused the record. We noticed that the Coordinate Benches of the Tribunal are consistently holding the view that the payment made for use of software is not in the nature of royalty in terms of provisions of DTAA, by taking support from the decisions rendered by Hon'ble Delhi High Court in various cases cited above. Even though, Hon'ble Karnataka has taken different view in this matter, the view in favour of the assessee has been adopted by the Coordinate Benches by following the ratio laid down by Hon'ble Supreme Court in the case of Vegetable Products Ltd. (supra). Accordingly, consistent with the view taken by the Coordinate Benches of the Tribunal, we hold that the payment made by the assessee for getting license to use software cannot be treated as royalty. Accordingly, we set aside the orders passed by the learned CIT(A) and hold that the assessee is not liable to deduct tax at source from the impugned payment. We direct the Assessing Officer accordingly.
In the result, both the appeals of the assessee are allowed. Order has been pronounced in the Court on 3.5.2017.