INDIASOFT TECHNOLOGIES PVT. LTD.,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,

आदेश / ORDER

PER VIKAS AWASTHY, JM

These four appeals by assessee for the assessment years 2008-09 to 2011-12 are directed against the orders of Commissioner of Income Tax (Appeals)-1, Pune for the respective assessment years. All the impugned orders are dated 22.01.2016.

2 ITA Nos.431 to 434/PUN/2016 A.Ys.2008-09 to 2011-12

Since, the issues involved in all the four appeals are arising from same set

of facts, these appeals are taken up together for adjudication and are disposed

of vide this common order.

company is engaged in the business of software trading and development. The

return of income filed by assessee for assessment year 2008-09 was subject to

assessment u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as

‘the Act’) vide order dated 22.12.2010. In assessment years 2009-10, 2010-11

and 2011-12, the return filed by the assessee was processed u/s.143(1) of the

Act. The Assessing Officer observed that assessee had purchased software from

foreign companies. The payment made by assessee is in the nature of “Royalty”.

The assessee failed to deduct tax on such payments under provision of section

195 of the Act. Re-assessment proceedings were initiated u/s. 147 r.w.s 148 for

making disallowance of the payments made for purchase of software. The

assessee was held to be “assessee in default” u/s.201(1) for which separate

orders u/s.201(1) and 201(1A) of the Act were passed for the assessment years

2008-09 to 2011-12. The disallowance made by the Assessing Officer for the

assessment years under appeal are as under:

Disallowances Assessment years made by the Assessing Officer 2008-09 Rs.9,47,182/-

2009-10 Rs.1,25,463/-

2010-11 Rs.1,61,307/-

2011-12 Rs.11,37,422/-

3 ITA Nos.431 to 434/PUN/2016 A.Ys.2008-09 to 2011-12

assessee filed appeal for the respective assessment years before Commissioner

of Income Tax (Appeals). The assessee challenged the action of Assessing Officer

in invoking provisions of section 148 r.w.s 147 in the light of CBDT Circular

No.723 dated 21.09.2012The Commissioner of Income Tax (Appeals) rejected

the contentions of assessee and dismissed all the appeals. Now, the assessee is

in second appeal before the Tribunal assailing the findings of Commissioner of

Income Tax (Appeals) for the respective assessment years. The grounds raised

by assessee in ITA No.431/PUN/2016 for the assessment year 2008-09 are as

under:

“1. On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in confirming the action taken by the A.O. for reopening of the assessment invoking the provisions of S.147 of the Act on the basis of retrospective amendment effected from 1-6-1976 by inserting explanation 4, 5 and 6 in S. 9(1)(vii) of the Act. A retrospective amendment could not create a liability to deduct tax u/s.195 r.w.s 40(a)(i) as it was impossible to discharge such liability. In view of this the assessment reopened under S.147 for non-deduction of tax inconsonance with S.195 r.w.s. 40(a)(i) was invalid and without jurisdiction. It be quashed. 2. On the facts and circumstances of the case and in law and in view of Ground No. 1 above the Ld. CIT(A) was not justified in confirming the addition made by the A.O. Rs.9,47,182/- which had an effect of reducing the loss declared. The addition be deleted. 3. The appellant craves to leave, add/amend or alter any of the above grounds of appeal.”

Identical grounds have been raised by the assessee in appeals for the

assessment years 2009-10, 2010-11 and 2011-12.

amendment made by the Finance Act, 2012 to section 9 and 195 of the Act with

retrospective effect from 01.04.1962/01.04.1976 would not apply in the case of

assessee in the light of CBDT clarification vide letter No.[F.No.500/111/2009-

FTD-1(PT.)] dated 29.05.2012. The ld. AR further submitted that Hon'ble

Gauhati High Court in the case of CIT Vs. Ashok Paper Mills Ltd. reported as

256 ITR 673 has held that the act or omission for which no additional income

4 ITA Nos.431 to 434/PUN/2016 A.Ys.2008-09 to 2011-12

tax was payable as per law in force at a given time cannot be subjected to

additional taxation with retrospective effect specially when the imprint of

penalty is ex-facie visible in the amended provision. The TDS is to be deducted

by the payer on the basis of law existing at the time of payment. Explanation 5

& 6 to section 9(1) were inserted subsequently. When the payment was made by

the assessee, there was no default. The assessee could not pre-empt any

retrospective amendment in law for deduction of tax at source, on such

payments. During the impugned assessment years, the assessee was under no

obligation to deduct tax at source u/s.195 of the Act on the payments made to

foreign companies for purchasing software. Retrospective amendment could not

create a liability to deduct tax u/s.195 as it was impossible to discharge such

liability in the absence of any legal requirement existing at that point of time.

Saddling liability on the assessee by retrospective amendment would amount

to penal liability. The ld. AR submitted that re-opening of assessment is itself

bad in law.

On merits of addition, the ld. AR submitted that the foreign companies

have no PE in India; therefore, no TDS was required to be deducted on

payments made for purchase of software. This aspect has not been examined by

the Authorities below.

vehemently supported the findings of Commissioner of Income Tax (Appeals).

The ld. DR submitted that the CBDT Circular referred to by the assessee before

the Commissioner of Income Tax (Appeals) does not apply to the facts and

issues raised by the assessee. Therefore, the Commissioner of Income Tax

(Appeals) has rightly rejected the same. The ld. DR further submitted that in

view of amendments made by the Finance Act, 2012 to section 9 and 195 of the

Act, the Assessing Officer was of the opinion that income from sale of software

5 ITA Nos.431 to 434/PUN/2016 A.Ys.2008-09 to 2011-12

licenses is chargeable to tax in India as “Royalty”. As per section 9(1)(vi) of the

Act and also under DTAA with the respective countries. Since the assessee has

not deducted tax at source in accordance with the provisions to section 195, the

assessee was treated as “assessee in default” u/s.201(1) of the Act for which

separate order u/s. 201(1) was passed. The ld. DR further contended that in

view of the amendments brought by the Finance Act, 2012 to section 9 and 195,

the Assessing Officer has rightly invoked the provisions of section 148 r.w.s 147

of the Act. The ld. DR prayed for upholding the order of Commissioner of

Income Tax (Appeals) and dismissing all the appeals of assessee.

and have perused the orders of Authorities below. The only issue raised by

assessee in all appeals before us is validity of re-opening u/s.147 for non

deduction of tax on the basis of retrospective amendments to section 9 and 195

by the Finance Act, 2012.

inter-alia in respect of section 9 and 195 of the Act with retrospective effect from

01.04.1976. By virtue of amendments, the Explanation 4, 5 and 6 have been

inserted to Clause (vi) sub section 1 to Section 9. Section 9(1)(vi) deals with

income accrued by way of “ Royalty”. The amendment has also been made to

section 195. The CBDT, thereafter, vide letter No. [F.NO.500/111/2009-FTD-1

(PT.)], DATED 29-05-2012 has issued clarification regarding re-opening of

completed assessment on account of amendments introduced by the Finance

Act, 2012. The relevant extract of the letter from Board is reproduced herein

below:

“Letter [F.NO.500/111/2009-FTD-1 (PT.)], DATED 29-05-2012

The Finance Act, 2012 has introduced certain clarificatory amendments in section 2 clause (14), Section 2 clause (47), Section 9 and Section 195, of

6 ITA Nos.431 to 434/PUN/2016 A.Ys.2008-09 to 2011-12

the Income Tax Act, 1961 (“Act”), with retrospective effect from 01.04.1962 or 01.04.1976, whereby meaning of various terms used in these sections have been clarified in order to remove any doubt regarding their interpretations. 2. These amendments have been introduced retrospectively in order to clarify the legislative intent and state the position of law from the date of coming into effect of these sections in the Act. 3. Doubts have been raised in various quarters about the implication of these amendments on the assessments that have already been completed and attained finality. 4. The Board, after due consideration, hereby directs that in case where assessment proceedings have been completed under section 143(3) of the Act, before the first day of April, 2012, and no notice for reassessment has been issued prior to that date; then such cases shall not be reopened under section 147/148 of the Act on account of the abovementioned clarificatory amendments introduced by the Finance Act, 2012. However, assessment or any other order which stand validated due to the said clarificatory amendments in the Finance Act, 2012 would of course be enforced. 5. This may be brought to the notice of all officers in your region immediately.”

From perusal of the clarification issued by Board, it emerges that where

the assessment proceedings have been completed u/s.143(3) before 01.04.2012

and no notice of re-assessment has been issued prior to the said date, no

reopening proceedings shall be initiated. In other words, where assessments

have been completed u/s.143(3) prior to 01.04.2012 and notice u/s.148 has not

been issued prior to the said date; the assessments should not be disturbed on

account of amendment introduced with retrospective effect by the Finance Act,

2012.

2008-09 was completed u/s.143(3) vide order dated 22.12.2010. Notice u/s.148

was issued to the assessee on 31.03.2013. Thus, assessment u/s. 143(3) of the

Act was completed prior to 01.04.2012 and notice u/s. 148 was not issued to

the assessee till 01.04.2012. In view of clarification issued by CBDT, re-

assessment could not have been initiated against the assessee for assessment

7 ITA Nos.431 to 434/PUN/2016 A.Ys.2008-09 to 2011-12

year 2008-09 on account of retrospective amendment to sections 9 and 195

introduced by the Finance Act, 2012.

A perusal of the assessment order dated 11.03.2014 passed u/s. 143(3)

r.w.s 147, clearly shows that re-opening has been done in assessment year

2008-09 merely on account of amendments inserted by the Finance Act, 2012.

Thus, we are of considered view that in view of clarification issued by Board, re-

opening u/s.147 r.w.s. 148 in assessment year 2008-09 is invalid. Accordingly,

appeal of the assessee in ITA No. 431/PUN/2016 for the assessment year

2008-09 is allowed.

2011-12 are concerned, we find that the returns filed by the assessee for the

aforesaid three assessment years have been processed u/s.143(1) of the Act.

There has been no assessments u/s.143(3) of the Act in assessments years

2009-10 to 2011-12. The notice u/s.148 for the aforesaid three assessment

years were issued on 31.03.2013. Since the assessment orders in aforesaid

three assessment years were not passed u/s.143(3) of the Act, the benefit of

clarification issued by the Board vide letter dated 29.05.2012 will not be

available to the assessee.

CIT Vs. Ashok Paper Mills Ltd.(supra) to contend that the retrospective

amendments to section 9 and 195 by the Finance Act, 2012 cannot bind the

assessee to do that was not provided in the statute in the assessment years,

when payments were made. We find that the judgment of Hon'ble Gauhati High

Court in the case of CIT Vs. Ashok Paper Mills Ltd. (supra) has been set aside

by the Hon'ble Supreme Court of India in appeal filed by the Department

reported as 315 ITR 426. The Hon'ble Apex Court remitted the matter back to

8 ITA Nos.431 to 434/PUN/2016 A.Ys.2008-09 to 2011-12

the Hon'ble High Court to decide the issue afresh in the light of judgment of

Hon'ble Supreme Court of India in the case of ACIT Vs. J.K. Synthetic Ltd, 10

SCC 623 : 251 ITR 200.

Thus, in view of the decision of Hon'ble Apex Court, the decision of

Hon'ble Gauhati High Court rendered in the case of CIT Vs. Ashok Paper Mills

Ltd. (supra) cannot be accepted. No other material has been placed on record by

the assessee to contend that re-opening in assessment years 2009-10, 2010-11

and 2011-12 are bad in law. The ld. Counsel has not placed before us any

judgment holding retrospective amendments introduced by Finance Act, 2012

as bad in law. Therefore, the same are valid and enforceable. The clarification

issued by CBDT does not provide any relief to assessee in assessment years

2009-10, 2010-11 and 2011-12. We do not find any infirmity in re-opening of

the assessments for assessment years 2009-10, 2010-11 and 2011-12.

concerned, we find that the orders of the authorities below are silent on the

aspect of existence of PEs of foreign companies in India to whom payments are

made by assessee. Further, it is not discernable from the orders of lower

authorities the exact nature of transaction i.e. whether it is outright purchase of

software or purchase of rights to use software etc. In the absence of findings by

lower authorities on these vital issues, we deem it appropriate to remit the issue

back to the file of Assessing Officer to examine the issues and pass speaking

order. The Tribunal has remitted the appeals of assessee in ITA Nos. 1709 to

1712/PUN/2013 for the assessment years 2008-09 to 2011-12 assailing the

orders passed u/s. 201 r.w.s 201(1A) of the Act for similar reasons. The

additions on merits in the present set of appeals are remitted back to the file of

Assessing Officer to maintain consistency and uniformity on the issue. The

Assessing Officer shall grant opportunity of hearing to the assessee before

9 ITA Nos.431 to 434/PUN/2016 A.Ys.2008-09 to 2011-12

passing the order in accordance with law. Accordingly, the appeals of assessee for assessment years 2009-10, 2010-11 and 2011-12 are partly allowed for statistical purposes.

Order pronounced on Wednesday, the 28th day of February, 2018.

Sd/- Sd/- (डी. क�णाकरा राव/D. KARUNAKARA RAO) (�वकास अव�थी /VIKAS AWASTHY) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER

पुणे / Pune; �दनांक / Dated : 28th February, 2018 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals)-1, Pune. 4. The Pr. CIT-1, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// स�या�पत ��त // True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.