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Income Tax Appellate Tribunal, MUMBAI BENCHES “C”, MUMBAI
Before: SHRI JASON P.BOAZ (AM) & SHRI RAM LAL NEGI (JM)
PER RAM LAL NEGI, JM This appeal has been preferred by the assessee against impugned order dated 28/01/2014 passed by the CIT(Appeals)-14, Mumbai, for the Asst. year 2006-07, whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against order dated 25/03/2011 passed u/s 201(1)/201(1A)/206C/206C (6)/6(A)/206C(7) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
Brief facts of the case are that survey action was carried out at the premises of the assessee company on 26/09/2008 u/s 133A of the Act. During the course of survey, various aspects of TDS compliance were examined
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/verified, pertaining to the F.Y. 2008-09 (up to 25/09/2008) and earlier financial years 2005-06 to 2007-08. It was noticed that the assessee company had not deducted tax at source in respect of purchase of trading goods on payment made to various parties and contract payments during the financial year 2005-06. On the basis of details submitted by the assessee in response to the notices u/s 201(1) and 201(1A) of the Act, the A.O declared the assessee company as assessee in default under section 201(1) r.w.s. 194C for non deducting of the TDS of payment made on account of purchase of trading goods of Rs. 28,95,41,788/- and computed tax at Rs. 65,61,017/-. The AO further held that the company is also liable to pay interest u/s 201(1A) of the Act. Similarly, since the assessee company had sold scrap worth Rs. 2,60,74,278/-, the AO asked to explain whether tax was collected at source as per the provisions of section 206C and further asked to furnish the details thereof. On the basis of explanation furnish by the assessee, A.O held the assessee liable to pay the balance tax of Rs. 43,715/- on the sale value of manufacturing scrap of Rs. 93,71,514/-u/s 206C(6)/(6A) of the Act. The assessee company is further liable to pay interest u/s 206C (7) on the tax payable. The A.O also noticed during the course of assessment proceedings that the assessee had not deducted tax at source u/s 194J of the Act on purchased software of Rs. 19,00,250/-. Accordingly the A.O calculated the tax at Rs. 1,06,604/- and also held the assessee liable to pay interest u/s 201(1A) on the tax payable.
Aggrieved, the assessee challenged the assessment order before the Ld. CIT(A). The Ld. CIT(A) after hearing the assessee confirmed the findings of the A.O inter alia holding that purchase of software comes within the ambit of royalty and TDS was required to be deducted u/s 194J of the Act on purchase of software. Still Aggrieved, the assessee is in appeal before the Tribunal on the following effective grounds of appeal:-
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Ground No. I:
On the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the Income Tax Officer (TDS)-2(5) (“the A.O”) in treating the Appellant as “assessee in default” u/s 201(1)/(1A) of the Act without establishing and proving that whether the recipient had not paid taxes or not discharged the tax liability on the income received from the Appellant as required u/s 191 of the Act. 2. The Appellant prays that the order passed by the A.O be quashed/annulled and A.O be directed to examine whether the taxes have been paid by the recipient on their income.
Ground No. II : Non deduction of TDS on Purchase of Software Rs. 19,00,250/-
On the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the A.O in treating the expenses incurred on purchase of software of Rs. 19,00,250/- as in the nature of royalty and thereby hold that the tax is required to be deducted at source u/s 194J of the Act without appreciating the fact that tax is not liable to be deducted on purchase of software.
On the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in directing the A.O to charge interest u/s 201(1A) of the Act without appreciating the fact that recipients of the income would have paid taxes by way of advance tax or filed loss return and hence, in such cases there is no loss to the revenue.
The Appellant prays that the A.O be directed not to charge interest u/s 201(1A) of the Act if the recipients of the income have filed loss return or have paid taxes by way of advance tax.
Before us, the Ld. Counsel for the assessee submitted that the assessee does not want to press ground No I of the appeal. Accordingly, we dismiss ground No 1 as not pressed. As regards ground No II the Ld. Counsel
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submitted that the Ld. CIT (A) has wrongly upheld the action of the A.O as the tax at source was not required to be deducted on purchase of software during the financial year relevant to the assessment year under consideration. The Ld. Counsel further pointed out that royalty was brought within the ambit of section 194J of the Act by Taxation Laws (Amendment) Act 2006 w.e.f. 13/07/2006, applicable from Financial year 2007-08 and the assessee’s appeal pertains to the financial year 2006-07. Since, the amended provision was not applicable during the relevant previous year the impugned order is erroneous and liable to be set aside.
On the other hand the Ld. Departmental Representative (DR) relying on the concurrent findings of the authorities below submitted that since royalty comes under 194J of the Act, the assessee was required to deduct the tax at source. However, the Ld. DR did not produce any case law to rebut the contention of the assessee.
We have heard the rival submissions and also perused the material placed on record in the light of the rival submissions. The assessee has challenged the findings of the Ld. CIT(A) that purchase of software is in the nature of royalty and TDS was required to be deducted. We notice that the Ld. CIT(A) has relied on the judgment of Hon’ble Karnataka High Court passed in M/s Synopsys International Ltd. 212 taxman 454 (karnataka), wherein it has been held that payment made for software purchase are for certain rights in copyright and it meets the definition of royalty under the Act. No doubt as per the said judgment purchase of software falls within the ambit of royalty, however, the said decision pertains to the post amendment period i.e., after bringing royalty under section 194J of the Act. Thus there is merit in the contention of the Ld. Counsel for the assessee that since, financial year relevant to the assessment year under consideration pertains to the pre
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amendment period, the assessee was not required to deduct the tax at source on purchase of software during the relevant financial year. We notice that royalty was brought under section 194J of the Act by Taxation Laws (Amendment) Act 2006 w.e.f. 13/07/2006, applicable from financial year 2007-08 and the assessee’s appeal pertains to the financial year 2006-07. Since, royalty was not there under section 194J of the Act in the financial year relevant to the assessment year under consideration, the Ld. CIT(A) was not supposed to determine the question whether the purchase of software meets the definition of royalty or not. Hence in our considered view the impugned order passed by the Ld. CIT(A) is erroneous and not sustainable in law. We, therefore, hold that the assessee was not required to deduct tax at source u/s 194J of the Act on purchase of software and accordingly decide this ground of appeal in favour of the assessee.
The assessee has raised the alternative ground without prejudice to the ground No I. Since, we have decided the main ground of the appeal in favour of the assessee, the alternative ground has become academic. We, therefore, do not consider it necessary to adjudicate the same separately.
In the result appeal filed by the assessee for the A.Y. 2006-07 is allowed.
Order pronounced in the open court 17th February, 2017.
Sd/- Sd/- (JASON P BOAZ) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated:17/02/2017
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आदेश ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT(A)- 4. आयकर आयु�त / CIT 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file.
आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai Pramila