It Is Not Disputed Before Us, Rather Admitted That,Insofar As The Substantial Questions Of Law Nos.1 To 4 Areconcerned, The Hon'ble Supreme Court In The Case Of v. Commissioner Ofincome Tax And Another Reported In (2021) Scc Online Sc 159, Hasheld In Favour Of The Assessee

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM : THE HON'BLE MR. JUSTICE T.S. SIVAGNANAMAND THE HON'BLE MR. JUSTICE SATHI KUMAR SUKUMARA KURUP Tax Case Appeal No.154 of 2015 The Commissioner of Income tax,Chennai ...Appellant M/s. Financial Software and Systems Private Ltd'Saradha' Ground Floor, No.42, Third Main Road,Gandhi Nagar, Adyar, Chennai – 600 020. ... Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal, Madras "A" Bench, dated 05.06.2014 passed inI.T.A.No.2194/Mds/2013. Against the order of the Commissioner ofIncomeTax(Appeals)-II,Chennai,dated.30.08.13inI.T.A.No.564/2013-14 and against the order of the DeputyCommissioner of Income Tax, Company Circle II (i), Chennai-34,dated.31.12.2010 in PAN/GIR No. for the AssessmentYear 2007-2008. For Appellant : Mr.Karthik Ranganathan Senior Standing Counsel For Respondent : Mr.N.V.Balaji This Tax Case Appeal filed by the Revenue under Section260A of the Income Tax Act, 1961 ('the Act' for brevity), isdirected against the order of the Income Tax Appellate Tribunal,Madras"A"Bench,dated05.06.2014passedinI.T.A.No.2194/Mds/2013 for the Assessment Year 2007-08. https://hcservices.ecourts.gov.in/hcservices/ 2.The appeal has been admitted on 06.07.2015 on thefollowing substantial questions of law : “1.Whether on the facts and circumstances of thiscase, the Tribunal was right in deleting thedisallowance made by the AO holding that the amendmentto Section 9(1)(vi) introduced by Finance Act, 2012with retrospective effect from 01.06.1976 is notapplicable and therefore no TDS needs to be deducted? 2.Is not the finding of the Tribunal bad,especially when a non resident companies, ACI ofSingapore and IRPL of Australia have permanentestablishment in India through the medium of assesseecompany and as such liable to deduct tax at source onthe payment received? 3.Whether the Tribunal was right in holding thatthe amounts paid by the assessee company to the nonresident company for use of the assessee customer inIndia of operating net work payments, ATMs is notRoyalty as per the provisions of Section 9(1)(vi) ofthe Income Tax Act? 4.Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunal wasright in holding that payments made to two companiesno TDS is required to be deducted under Section 195 ofthe Income Tax Act? 5.Whether on the facts and in the circumstancesof the case, the Tribunal was right in holding thatthe expenses incurred in relation to travel in foreigncountry and communication charges are to be allowedboth from the Export turnover and Total turnover whichis contrary to the Statute? 6.Whether on the facts and in the circumstancesof the case, the Tribunal was right in granting reliefto the assessee especially when the unrealized foreignexchange was to be allowed both from the Exportturnover without making corresponding deduction fromthe total turnover?” 3.We have heard Mr.Karthik Ranganathan, learned SeniorStanding Counsel for the appellant/Revenue and Mr.N.V.Balaji,learned counsel for the respondent/assessee. 4.It is not disputed before us, rather admitted that,insofar as the substantial questions of law Nos.1 to 4 areconcerned, the Hon'ble Supreme Court in the case of EngineeringAnalysis Centre of Excellence Private Limited v. Commissioner ofIncome Tax and another reported in (2021) SCC Online SC 159, hasheld in favour of the assessee. 5.In the said decision, there were four categories of casesas mentioned below : “4.The appeals before us may be grouped into fourcategories: categories: 3.We have heard Mr.Karthik Ranganathan, learned SeniorStanding Counsel for the appellant/Revenue and Mr.N.V.Balaji,learned counsel for the respondent/assessee. 4.It is not disputed before us, rather admitted that,insofar as the substantial questions of law Nos.1 to 4 areconcerned, the Hon'ble Supreme Court in the case of EngineeringAnalysis Centre of Excellence Private Limited v. Commissioner ofIncome Tax and another reported in (2021) SCC Online SC 159, hasheld in favour of the assessee. 5.In the said decision, there were four categories of casesas mentioned below : “4.The appeals before us may be grouped into fourcategories: categories: i) The first category deals with cases in whichcomputer software is purchased directly by anend-user, resident in India, from a foreign, non-resident supplier or manufacturer.computer software is purchased directly by anend-user, resident in India, from a foreign, non-resident supplier or manufacturer. ii)The second category of cases deals with residentIndian companies that act as distributors orresellers, by purchasing computer software fromforeign, nonresident suppliers or manufacturersand then reselling the same to resident Indianend-users. Indian companies that act as distributors orresellers, by purchasing computer software fromforeign, nonresident suppliers or manufacturersand then reselling the same to resident Indianend-users. iii)The third category concerns cases wherein thedistributor happens to be a foreign, non-residentvendor, who, after purchasing software from aforeign, nonresident seller, resells the same toresident Indian distributors or end-users. distributor happens to be a foreign, non-residentvendor, who, after purchasing software from aforeign, nonresident seller, resells the same toresident Indian distributors or end-users. iv)The fourth category includes cases whereincomputer software is affixed onto hardware and issold as an integrated unit/equipment by foreign,non-resident suppliers to resident Indiandistributors or end-users.” 6.After elaborately considering the entire issues, theHon'ble Supreme Court held as follows : “172. Given the definition of royalties containedin Article 12 of the DTAAs mentioned in paragraph 41of this judgment, it is clear that there is noobligation on the persons mentioned in section 195 of https://hcservices.ecourts.gov.in/hcservices/ the Income Tax Act to deduct tax at source, as thedistribution agreements/EULAs in the facts of thesecases do not create any interest or right in suchdistributors/end-users, which would amount to the useof or right to use any copyright. The provisionscontained in the Income Tax Act (section 9 (1)(vi),along with explanations 2 and 4 thereof), which dealwith royalty, not being more beneficial to theassessees, have no application in the facts of thesecases. 173. Our answer to the question posed before us,is that the amounts paid by resident Indian end-users/distributors to non-resident computer softwaremanufacturers/suppliers, as consideration for theresale/use of the computer software throughEULAs/distribution agreements, is not the payment ofroyalty for the use of copyright in the computersoftware, and that the same does not give rise to anyincome taxable in India, as a result of which thepersons referred to in section 195 of the Income TaxAct were not liable to deduct any TDS under section195 of the Income Tax Act. The answer to this questionwill apply to all four categories of cases enumeratedby us in paragraph 4 of this judgment. 174. The appeals from the impugned judgments ofthe High Court of Karnataka are allowed, and theaforesaid judgments are set aside. The ruling of theAAR in Citrix Systems (AAR) (supra) is set aside. Theappeals from the impugned judgments of the High Courtof Delhi are dismissed.” 174. The appeals from the impugned judgments ofthe High Court of Karnataka are allowed, and theaforesaid judgments are set aside. The ruling of theAAR in Citrix Systems (AAR) (supra) is set aside. Theappeals from the impugned judgments of the High Courtof Delhi are dismissed.” 7.Therefore, the substantial questions of law Nos.1 to 4are answered against the Revenue. 8.Insofar as the substantial questions of law Nos.5 and 6are concerned, the same have to be answered against the Revenueby following the decision of the Hon'ble Supreme Court in thecase of Commissioner of Income-tax, Central-III v. HCLTechnologies Ltd. reported in (2018) 93 taxmann.com 33 (SC). 9.In the said decision, it was held that the definition of'total turnover' given under Sections 80HHC and 80HHE cannot be https://hcservices.ecourts.gov.in/hcservices/ adopted for the purpose of Section 10A as technical meaning oftotal turnover, which does not envisage reduction of anyexpenses from total amount, is to be taken into considerationfor computing deduction under Section 10A; when meaning isclear, there is no necessity of importing meaning of 'totalturnover' from other provisions. 10.Thus, by applying the said decision, the substantialquestions of law Nos.5 and 6 are answered against the Revenue. 11.In the result, this Tax Case Appeal is dismissed and thesubstantial questions of law are answered against the Revenue.No costs. Sd/- Assistant Registrar(CS IX) //True Copy// Sub Assistant Registrar mkn To1. The Income Tax Appellate Tribunal, Madras 'A'Bench, Chennai2. The Commissioner of Income tax, Chennai.3. The Deputy Commissioner of Income Tax, Company Circle II(i), Chennai+1CC to Mr.Karthik Ranganathan, Advocate, Sr.No.45043+1CC to Mr.N.V.Balaji, Advocate, Sr.No.45266 Tax Case Appeal No.154 of 2015AJS (CO)K.RK. (27.10.2021)