SHINHAN BANK,MUMBAI vs. DCIT (IT) 4(2)(1), MUMBAI

सुनवाई की तायीख / Date of Hearing : 05.12.2016 घोषणा की तायीख /Date of Pronouncement : 05.12.2016 आदेश / O R D E R

PER D. KARUNAKARA RAO, AM:

2. The Hon‟ble Dispute Resolution Panel erred in law and on facts in direction the DCIT (IT)-4(1)(2), Mumbai in disallowing payment (of Rs. 2,59,397) of software charges u/s 40(a)(ia) of the Act for non-deduction of tax.”

2. At the outset, Ld Counsel for the assessee submitted that Ground no.1 has to be allowed in favour of the Revenue, being relatable to the applicable rate of tax. Ld AR further submitted that the said issue is repetitive in nature and the same is consistently decided against the assessee. She further submitted that a matter is pending before the Hon‟ble High Court, therefore, the ground is required to be decided based on the finding of the Tribunal in the assessee‟s own case. After hearing both the parties, we dismissed the said Ground no.1 and confirm the decision of the DRP / AO on this issue.

3. Referring to the Ground no.2, which relates to the non-deduction of tax on software charges, Ld Counsel for the assessee submitted that the AO / DRP came to the conclusion that the software charges received by the assessee has to be considered as „royalty‟. Accordingly, AO proceeded to invoke the provisions of section 40(a)(ia) of the Act considering the assessee‟s failure to make TDS on the said software charges. In this regard, bringing our attention to the order of the Tribunal in the assessee‟s own case in (AY 2009-2010), dated 4.7.2016, Ld Counsel for the assessee submitted that the said order of the Tribunal was passed subsequent to the directions of the DRP (dated 30.10.2014) and the AO‟s order dated 29.12.2014. Bringing our attention to the contents of the said order of the Tribunal in general and para 4 in particular, which deals with similar disallowance of software charges, Ld Counsel for the assessee demonstrated that on identical ground, the Tribunal came to the conclusion stating that the said software charges received did not amount to „royalty‟. The contents of para 8 of the said order of the Tribunal (supra) are relevant in this regard. For the sake of completeness of the order, relevant lines from the said para 8 of the Tribunal‟s order (supra) are extracted as under:- “8.......The case of the assessee has been that it has only purchased software for its banking business and license was given only for using the software. There is no transfer of any copy right albeit it was the transfer of the copy righted article. Without going into the merits whether the said payment will fall within the nature of “royalty” under the newly amended provision brought with retrospective effect or not, we are of the opinion that, at the time of making of the payment there was no such provision under the law to tax such payment of computer software as “royalty”..........Thus, we hold that the assessee was not obliged to deduct TDS at the time of making the payment and the law which has come into statute after four years from the date of payment cannot be held to be applied retrospectively at best for deduction of TDS. Thus, we hold that disallowance u/s 40(a)(i) for non-deduction of TDS cannot be upheld.....”

4. Considering the above settled legal position on the facts of the present case, we are of the opinion, Ground no.2 has to be decided in favour of the assessee. AO is directed accordingly.