Ita/133/2013 Of The Director Of Income-Tax v. M/S Autodesk Asia Pvt Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 15 DAY OF SEPTEMBER 2020. PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD LT.A. NO.133 OF 2013 BETWEEN: 1.THE DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION RASHTROTHANA BHAVAN NRUPATHUNGA ROAD, BANGALORE. 2 |THE DY. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) CIRCLE-1(1), RASHTROTHANA BHAVANNRUPATHUNGA ROAD, BANGALORE.CIRCLE-1(1), RASHTROTHANA BHAVANNRUPATHUNGA ROAD, BANGALORE. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.,) AND: M/S. AUTODESK ASIA PVT. LTD.,03, FUSIONOPOLLS WAY#10-21 SMBIOSIS, SINGAPORE-138 633PAN —- AAFCA 6398 D. ... RESPONDENT (BY SRI. T. SURYANARAYANA, ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,196L ARISING OUT OF ORDER DATED 26.10.2012 PASSED IN ITA]NO.509/BANG/2011 FOR THE ASSESSMENT YEAR 2006-07,|PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN. (1) ALLOW THE APPEAL AND SET ASIDE THE ORDERS)PASSED BY THE ITAT, BANGALORE IN ITA NO.509/BANG/2011|DATED 26-1LO-201L2 AND CONFIRM THE ORDER OF THE APPELLATCOMMISSIONER CONFIRMING THE ORDER PASSED BY THE|DEPUTY DIRECTOR OF INCOME TAX, (INTL. TAXN), CIRCLE-1(1),|BANGALORE. THIS ITA COMING ON FOR FINAL HEARING, THIS DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax|Act, 1961 (hereinafter referred to as the Act for short)Nas been preferred by the revenue. Tne subject matter of the appeal pertains to the Assessment year 2006-07.The appeal was admitted by a bench of this Court videorder dated 12.08.2013 on the following substantialquestion of law: (I)Whether the Tribunal was correct inholding that the assessee Is liable to betaxed at 10% in view of replacement of15% with 10% of tax In Article 17 oftheDIAAwithouttakingIntoconsideration that the modification ofrate of tax by way of notification dated18.07.7005Waswith effectfromholding that the assessee Is liable to betaxed at 10% in view of replacement of15% with 10% of tax In Article 17 oftheDIAAwithouttakingIntoconsideration that the modification ofrate of tax by way of notification dated18.07.7005Waswith effectfrom 01.08.2005 and recorded a perversefinding? (iI)Whether the Tribunal was correct inextending the benefit of Notification tothe whole of the Previous year, whenthe Notification was given effect from01.08.2005 as per Article 7 of theDTAA ?extending the benefit of Notification tothe whole of the Previous year, whenthe Notification was given effect from01.08.2005 as per Article 7 of theDTAA ? 2 |Facts leading to filing of the appeal brieflystated are that the assessee is a company based inSingapore and is engaged in the business of marketing|and sale of software. The assessee sold softwarelicences to Indian customers and in connection with saleof software also provided certain ancillary services to theIndian customers. The assessee showed turnover onsale of software licences and ancillary services at USD1,02,15,762/-, out of which 95% of software licenceswere sold to authorized distributors viz., INGRAM MicroIndia Pvt. Ltd. and M/s Tech Pacific India Limited. Thus,sales to the tune of 100,52,271%$ was made to the 2 |Facts leading to filing of the appeal brieflystated are that the assessee is a company based inSingapore and is engaged in the business of marketing|and sale of software. The assessee sold softwarelicences to Indian customers and in connection with saleof software also provided certain ancillary services to theIndian customers. The assessee showed turnover onsale of software licences and ancillary services at USD1,02,15,762/-, out of which 95% of software licenceswere sold to authorized distributors viz., INGRAM MicroIndia Pvt. Ltd. and M/s Tech Pacific India Limited. Thus,sales to the tune of 100,52,271%$ was made to the authorized distributors. The assessee filed a return ofincome for the Assessment Year 2006-07 on 08.11.7006by declaring the taxable income as ‘NIL’. The case wasselected for scrutiny and notice under Section 143(2) ofthe Act was issued to the assessee, by which assesseewas asked to furnish details such as agreements,invoices etc. The Assessing Officer by an order dated.26.12.2008 on examination of the agreements anddocuments supplied by the assessee inter alia held thatsoftware supplied is chargeable to income tax fromroyalty and technical services. Accordingly, the order ofassessment was concluded. The aforesaid order wasaffirmed in appeal by an order dated 17.02.2011 byCommissionerofIncome.Tax(Appeals). Beingaggrieved, the assessee approached the Income TaxAppellate Tribunal (hereinafter referred to as theTribunal’ for short). The Tribunal by an order dated26.10.2012 allowed the appeal preferred by theassessee. In the aforesaid factual background, this appeal has been filed. 3.)Learned counsel! for the revenue submittedthat the Notification dated 18.07.2005 issued underSection 90 of the Act came Into force with effect from|01.08.2005. With reference to Section 195(1) of theAct, it was contended that the rates in force mean thedates on which credit take place in the account andtherefore, the Assessing Officer has rightly applied therate of tax under the Double Taxation AvoidanceAgreement (DTAA). On the other hand, learned counselfor the assessee submitted that from perusal of Article 4of the Notification dated 18.07.2015, it is evident thatparagraph 12 of Article 12 of DTAA has been deletedand has been substituted by the paragraph whichprovides for levy of tax on the royalties or fees fortechnical services at the rate not exceeding 10%. Thus,the instant case is a case of substitution by repeal andtherefore, the Tribunal has rightly held that newprovision which is in existence shall apply for the entire fiscal year as defined in DTAA. In support of aforesaidSubmission, reliance has been placed on decision of theSupreme Court in‘GOVERNMENT OF INDIA AND|OTHERS VS. INDIAN TOBACCO ASSOCIATION,(2005) 7 SCC 396. aWe have considered the submissions madeby learned counsel for the parties and have perused therecord. The singular issue which arises for considerationin this appeal is with regard to the rate of tax under theDTAA for Assessment Year 2006-07. Before proceedingfurther, we may advert to well settled rules ofInterpretation with regard to taxing statutes. Thesubstitution of a provision results in repeal of earlierprovision and its replacement by new provision. [See:U.P.SUGAR MILLS ASSN. VS. STATE OF U.P.’,(2002) 2 SCC 645|. The aforesaid principle of law was.reiterated by the Supreme Court inWEST UP SUGARMILS ASSOCIATION V. STATE OF UP (2012) 2 SCC7/3and by this Court in-GOVARDHAN M V. STATE OF| KARNATAKA (2013) 1 KarLJ 497.When a new rule in. place of an old rule is substituted, the old one is neverintended to keep alive and the substitution has theeffect of deleting the old rule and making the new rule.operative. 5.|In the backdrop of aforesaid well settled legalposition, facts of the case may be seen. In the instantcase, relevant extract of Notification dated 18.07.2005issued under Section 90 of the Act reads as under:| ‘Article 4: Paragraph 2 of Article 12(Royalties and Fees for Technical Services)|of the agreement shal/i be deleted andreplaced by the following paragrapnN: KARNATAKA (2013) 1 KarLJ 497.When a new rule in. place of an old rule is substituted, the old one is neverintended to keep alive and the substitution has theeffect of deleting the old rule and making the new rule.operative. 5.|In the backdrop of aforesaid well settled legalposition, facts of the case may be seen. In the instantcase, relevant extract of Notification dated 18.07.2005issued under Section 90 of the Act reads as under:| ‘Article 4: Paragraph 2 of Article 12(Royalties and Fees for Technical Services)|of the agreement shal/i be deleted andreplaced by the following paragrapnN: "2. However, such royalties and feesfor technical services may also be taxed in|the Contracting State in which they arise andaccording to the laws of that Contracting|State, but if the recipient is the beneficial|owner of the royalties or fees for technicalservices, the tax charged shall not exceed10%.” 6.|Thus, it is evident that paragraph 2 of Article12, which provided for levy of tax on royalties or fees fortechnical services at the rate not exceeding 12% hasbeen deleted and in its place, the provision whichprovides for levy of tax on the royalties or fees fortechnical services at the rate not exceeding 10% hasbeen substituted. Thus, the substitution has the effect ofdeleting the old rule and making the new rule operative. —Therefore, the Tribunal has rightly determined the rateof tax as substituted in Clause 27 of Article 12 of DTAAbetween India and Singapore applicable for the entirefiscal year as defined in DTAA and Is liable to be taxed at10%. For the aforementioned reasons, the substantialquestions of law framed by this court are answered inaffirmative and against the revenue. �6�:.3�83054:!�C3�7;�6;:�</67�16@�=38/:�/6�:./0�122314���.3�01=3�<1/40!�167�/0�.383?@�7/0=/0037�� ����������� �����������00�