Loading judgment…
Facts
The assessee, a US-based company, provided software solutions and services in India, earning royalty income. Invoices were raised, and TDS was deducted. Subsequently, credit notes were issued to align margins, reducing the net taxable royalty income. The AO restricted TDS credit to the proportion of offered income, not the gross amount reflected in Form 26AS.
Held
The Tribunal, following a coordinate bench's decision in the assessee's own case for AY 2020-21, directed the AO to allow full TDS credit to the assessee, as available in Form 26AS. The Tribunal found that TDS deducted against payments represented by credit notes should be allowed as credit, as the income represented by credit notes had not accrued and was not offered to tax.
Key Issues
Whether the assessee is entitled to full TDS credit on royalty income, considering credit notes issued, and whether the reassessment proceedings were validly initiated.
Sections Cited
147, 144C, 155(14), 148, 149(1)(b), 254(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM & HON’BLE SHRI MANU KUMAR GIRI, JM
(िनधा�रणवष� / Assessment Year: 2015-2016) Dassault Systemes Simulia Corp, Vs. The Deputy Commissioner of C/o. Deloitte Haskins and Sells LLP, Income Tax, 7th floor, ASV Ramana Towers, International Taxation 1(1) 52,Venkatnarayana Road, Chennai. Chennai 600 017. [PAN: AADCD 3705D] (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/ Appellant by : Shri. S.P. Chidambaram, Advocate ��यथ� क� ओर से /Respondent by : Shri. Nilay Baran Som, IRS, CIT. सुनवाई क� तार�ख/Date of Hearing : 27.08.2024 घोषणा क� तार�ख /Date of Pronouncement : 28.08.2024 आदेश / O R D E R PER MANU KUMAR GIRI (Judicial Member)
Aforesaid appeal by assessee for Assessment Year (AY) 2015-16 arises out of final assessment order dated 12.12.2023 passed by Ld. Deputy Commissioner of Income Tax, International Taxation-1(1), Chennai (AO) u/s 147 r.w.s. 144C(13) of the Act pursuant to the directions of Ld. Dispute Resolution Panel-2, Bengaluru (DRP) u/s 144C of the Act dated 20.11.2023. The substantive grievance of the
The assessee has raised the following grounds of appeal:- 1. ‘’General 1.1. The order of the learned Assessing Officer ("AO") is contrary to canons of equity and natural justice, contrary to law and facts involved, not based on facts and circumstances of the case, contrary to mandatory provisions of the Income-tax Act, 1961 ("Act"), lacks jurisdiction and is liable to be struck down.
2. Restriction of TDS Credit in respect of Royalty income 2.1 The Ld. AO and DRP has erred in law and on facts by not granting the credit for Taxes Deducted at Source ("TDS") to the appellant to an extent of Rs. 3,28,28,475/ 2.2. The Ld. AO and DRP has erred in law and on facts in restricting the TDS credit to a proportion of the royalty income offered to tax and erred in not granting the full TDS credit available as per Form 26AS of the appellant. 2.3. The Ld. AO and DRP has erred in law and on facts in applying the proviso to Section 155(14) of the Act and restricting the TDS credit to the appellant 2.4. The Ld.AO and DRP erred in not allowing the taxes actually deducted by the deductor while making payment to the appellant, when the appellant has offered the royalty income to tax to the extent taxable 2.5. The Ld. AO and DRP has erred in restricting the TDS credit claimed by the appellant in the return of income without considering the fact that TDS was deducted on gross value of the invoices. without considering the credit notes, which were subsequently raised by the appellant. 2.6. The Ld. AO and DRP failed to appreciate that the excess credit deducted by the customer pertains to the royalty income which has been offered to tax by the Appellant. 2.7. The Ld. AO and DRP failed to appreciate that TDS is a machinery provision for collecting tax and thus, TDS credit cannot be the finality to decide the tax amount. 2.8. The Ld. AO and DRP failed to appreciate the judicial precedents cited by the appellant and stated that the case laws are different from the case of the appellant.
3. Reopening of Assessment u/s 147 of the act is invalid 3.1. The DRP has erred in upholding the reopening the assessment under section 147 of the Act in the absence of essential conditions necessary for reopening the assessment. 3.2. The Ld. AO and DRP ought to have appreciated that "income chargeable to tax has escaped assessment" constitute a condition precedent to the exercise of jurisdiction under section 148 of the Act and as such restricting TDS credits cannot form the basis for reopening the assessment. 3.3. The Ld. AO and DRP erred in not appreciating the fact that that all the material facts were provided during the course of scrutiny proceedings u/s.143(3) and the AO has satisfied themselves on the explanations provided, had concluded the assessment by passing an assessment order under Section 143(3) of the Act. 3.4. The Ld. AO erred by disregarding the scrutiny proceedings and initiated the re-assessment proceedings when there was no failure from the appellant in disclosing the materials during the scrutiny proceedings and there was no fresh tangible material for initiating re-assessment proceedings. 3.5. The reasons provided by the Ld. AO for initiation of reassessment proceedings merely reflects a "change in opinion" and therefore, lacks jurisdiction under Section 147 of the Act and thus, is invalid and void ab initio. 3.6. The Ld. AO erred in passing an order on an issue different from the reason for which it was reopened. The Ld. AO passed an order restricting the TDS credits available in Form 26AS, while the notice u/s 148A was issued by the AO issued on the ground that the appellant has offered less income for taxation as compared to receipts reflecting in Form 26AS. 3.7. The Ld. AO initiated the re-assessment proceedings, when the notice u/s.148 is barred by limitation in pursuance of Section 149(1)(b) of the Act, as the notice u/s.148 can be issued beyond three years and up to 10 years, only if any income chargeable to tax of the appellant, represented in the form of asset, has escaped assessment. The AO and the DRP ought to have appreciated that there is no income which is chargeable to tax represented in the form an asset has escaped assessment which is imperative for initiating re-assessment proceedings beyond three years. Restricting TDS credits available in Form 26AS/ taxing the excess revenue appearing in Form 26AS for AY 2015-16 does not represent any asset in the hands of the appellant as per section 149 of the Act. Each of the above ground is independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Honourable Income Tax Appellate Tribunal to decide this appeal according to law’’.
3. Brief facts of the case are that the assessee ‘’Dassault Systèmes Simulia Corp’’ (in short "DSSC") is a company incorporated under the laws of the Rhodes Island, United States of America ("USA") and a tax resident of USA. The appellant is engaged in the provision of Product Life Cycle Management Software solutions, application and services to digitally define and simulate products. The appellant had entered into an Intercompany distribution and licence agreement with Dassault Systémes India Private Limited ("DSIPL") to grant the license to reproduce market and distribute its software products directly or indirectly in India. In relation to the services rendered as per the agreement, the appellant had raised invoices amounting to Rs.43,15,87,142/- and TDS amounting to Rs.6,47,38,069/- was deducted by DSIPL. Subsequently, the appellant had raised credit notes amounting to Rs.21,88,56,512/- in order to align the margin earned by the Indian AE in accordance with the Transfer Pricing provisions of the Income tax Act, 1961 ("the Act"). Hence, the appellant had offered the net royalty income of Rs.21,27,30,630/- to tax in its return of income for the assessment year 2015-16 filed on 28.03.2017. The return of income for AY 2015-16 was selected for scrutiny and the assessment was completed without any adjustments. Subsequently, re-assessment proceedings were initiated under Section 147 by the AO and draft assessment order was passed dated 20.02.2023 under section 143(3) read with section 147 read with section 144C of the Act, by restricting the TDS credit to Rs.3,19,09,594/- i.e. to a proportion of the royalty income offered to tax instead of granting the full TDS credit available as per Form 26AS of the appellant. The Appellant filed an application before the Hon’ble Dispute Resolution Panel ("DRP") under section 144C of the Act. The ld.DRP, vide its directions confirmed the draft assessment order
4. At the outset, the ld.Counsel for the assessee submitted that the issue of denial of Tax Deducted at Source (TDS) credit by the authorities below is covered in favour of assessee by the order of co-ordinate bench of Chennai Tribunal in assessee’s own case for AY 2020-21 in dated 23.01.2024. Per contra, the ld.DR, Mr. Nilay Baran Som, CIT pointed that against the order of Tribunal dated 23.01.2024 in a miscellaneous application [M.A. No.47/Chny/2024] u/s.254(2) of the Act has been filed by the revenue before the Tribunal to recall the matter. To this, the ld.Counsel for the assessee submitted that the aforesaid miscellaneous application filed u/s.254(2) by the revenue has already been dismissed vide Tribunal order dated 26.07.2024.
We have heard the rival submissions and perused the materials on record, orders of lower authorities and co-ordinate bench order of Tribunal dated 23.01.2024 cited supra. The co-ordinate bench order of Tribunal dated 23.01.2024 in titled Dassault Systemes Simulia Corp Vs DCIT held as under: “2. Both sides advanced arguments and filed written submissions. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under.
The assessee is a non-resident company incorporated in United States of America (USA). The assessee returned income of Rs.37.95 Crores and claimed refund of Rs.3.51 Crores. It transpired that the assessee earned contractual royalty income from M/s Dassault Systems India Pvt. Ltd. and offered the same to tax. However, in the financial statements, the assessee offered royalty income of Rs.37.86 Crores whereas as per Form 26AS, the Rs.69.83 Crores to the assessee after deducting tax at source for Rs.7.62 Crores.
The assessee explained that the amount reflected in Form 26AS represents gross invoices raised by the assessee which, in turn, are based on the amounts reported by the deductor payer in its TDS returns. However, the assessee has raised few credit notes subsequent to raising of invoices which were not reflected in Form 26AS since the same would not have any TDS implications. It was also explained that the assessee raised invoices for Rs.72.93 Crores against which credit notes were issued to the extent of Rs.35.07 Crores. The assessee also submitted financials of deductor payer wherein the amount paid to the assessee company was reflected as Rs.37.86 Crores. However, Ld. AR, invoking the provisions of Sec. 155(14), restricted TDS credit in proportion to the income reflected by the assessee in the financial statements and denied the TDS credit of balance amount. The action of Ld. AO was upheld by Ld. DRP against which the assessee is in further appeal before us.
5. From the fact, it emerges that the assessee has received contractual royalty payment from the Indian entity. The assessee would raise invoices on the payer entity who would deduct TDS and remit the remaining amount to the assessee. However, at year-end, the payment of royalty would be re- computed as per the terms of the agreement. Pursuant to the same, the assessee has issued credit notes to the payer entity. The income thus accrued to the assessee is gross invoices less the credit notes issued by the assessee. The same amount, on net basis, would be reflected by the assessee in the financial statements. This figure tallies with the financial statement of the payer entity. The assessee has duly reconciled the amounts reflected in financial statement vis-à-vis amount reflected in Form 26AS. Though income to the extent of credit notes issued by the assessee would never accrue to the assessee, nevertheless, TDS as been deducted against these payments and the same has been deducted against the assessee. Therefore, the assessee would be entitled for the credit of the same. The amount of credit notes could not be held to be the income of the assessee. Therefore, lower authorities are not justified in denying the credit of the same. The provisions of Sec. 155(14) would not apply since these provisions would apply only in cases where the TDS certificate is furnished later and where the income has not been disclosed in the return of income. In the present case, the income to the extent of credit notes would never accrue to the assessee and hence, there is no question of offering the same to tax. The Ld. CIT-DR has submitted that the assessee could have insisted deductor to file revise TDS return and claim the excess TDS amount from the deductor. However, once TDS is deducted and deposited with the Central government, the only mechanism with the assessee to claim the refund of the same would be through filing of Income Tax Return which is the correct way of claiming the TDS credit. Therefore, considering the facts and circumstances of the case, we direct Ld. AO to allow full TDS credit to the assessee which is otherwise available as per Form 26AS.
The appeal stands allowed in terms of our above order.
6. We respectfully following the order of the Co-ordinate bench of the Chennai Tribunal in assessee’s own case dated 23.01.2024 in AY 2020-21 titled Dassault Systemes Simulia Corp Vs DCIT, we direct the ld.AO to follow the same direction for this AY 2015-16 also as directed by the Tribunal in AY 2020-21 (supra) as under: “Therefore, considering the facts and circumstances of the case, we direct Ld. AO to allow full TDS credit to the assessee which is otherwise available as per Form 26AS.”
Since, we have decided the appeal on merits, therefore, we are refraining ourselves to adjudicate challenge of assumption of jurisdiction u/s 147 of the Act.
The appeal stands partly allowed in terms of our above order. Order pronounced in the open court on 28th day of August, 2024.