Of The Income Tax, Act 1961 (Hereinafter Referred To As It Act v. Samsung Electronics Co.ltd., (Reported In [2012] 345 Itr 494 [Kar

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 17 DAY OF APRIL, 2021 PRESENT THE HON'BLE MR. JUSTICE SATISH CHANDRA SHARMA AND THE HON'BLE MR. JUSTICE S VISHWAJITH SHETTY BETWEEN ITA NO.40/2019 ALLEGIS SERVICES (INDIA) PRIVATE LIMITED COMMERCE @ MANTRI LEVEL 3, 12/1, N S PALYA BANNERGHATTA ROAD, BENGALURU-560076 REPRESENTED HEREIN BY ITS PRAVIN CHAND TATAVARTI MANAGING DIRECTOR ...APPELLANT (By SRI : SURYANARAYANA T, ADVOCATE) AND 1 . THE DEPUTY COMMISSIONER OF INCOME TAX- CIRCLE 1(1)(1) BANGALORE, BMTC BUILDING, KORAMANGALA 6 BLOCK, BANGALORE-560095 INCOME TAX- CIRCLE 1(1)(1) BANGALORE, BMTC BUILDING, KORAMANGALA 6 BLOCK, BANGALORE-560095 2 . THE PRINCIPAL COMMISSIONER OF INCOME TAX-1, BANGALORE BMTC BUILDING, KORAMANGALA 6 BLOCK BANGALORE-560095 INCOME TAX-1, BANGALORE BMTC BUILDING, KORAMANGALA 6 BLOCK BANGALORE-560095 ...RESPONDENTS (By SRI : ARAVIND K V, ADVOCATE) THIS ITA IS FILED UNDER SECTION 260A OF INCOME TAX ACT, 1961 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW AND ALLOW THE APPEAL AND SET ASIDE THE ORDER PRONOUNCED ON 13.6.2018 BY THE TRIBUNAL IN ITA.NO.325/BANG/2018 (ANNEXURE-C) TO THE EXTENT QUESTIONS HEREIN AND ETC. THIS ITA HAVING BEEN HEARD AND RESERVED ON 9.4.2021 COMING ON FOR ‘PRONOUNCEMENT OF JUDGMENT’ THIS DAY, SATISH CHANDRA SHARMA J.,DELIVERED THE FOLLOWING: JUDGMENT The present appeal has been filed challenging the order of the Income-tax Appellate Tribunal dated 13.6.2018 allowing the revenue’s appeal and upholding the disallowance made under Section 40(a)(i) of the Income-tax Act, 1961 for non deduction of tax at source under Section 195 of the Income Tax Act in respect of the payments made by the appellant for purchase of computer software by holding that the said payments are in the nature of ‘royalty’. 2. The facts of the case reveal that in the financial year relevant to the assessment year 2011-12, the appellant purchased software from non-residents. The appellant did not have the right to make copies or reproduce any part of the software procured for internal use. The appellant did not also have the authorization to make copies of the software for the purposes of backup or otherwise. Since the payments made to the non-residents for purchase of software was not chargeable to tax in India, the appellant did not deduct tax under Section 195 of the Income Tax, Act 1961 (hereinafter referred to as IT Act). 3. The return of income filed by the appellant for the assessment year 2011-12 was picked up for scrutiny. The assessing officer passed an order dated 20.3.2015, inter alia, making a disallowance under Section 40(a)(i) of the Act by holding that the payment made by the appellant for purchase of software was in the nature of ‘royalty’ on which tax was deductible at source under Section 195 of the Act. In arriving at this conclusion, the assessing officer placed reliance on the decision of this Hon’ble Court in the case of CIT vs. Samsung Electronics Co.Ltd., (reported in [2012] 345 ITR 494 ). 4. The appellant being aggrieved filed an appeal before the Commissioner of Income-tax (Appeals), who vide an order dated 27.9.2017 allowed the appeal and held that since the above decision of this Hon’ble Court in the case of Samsung Electronics (supra) was passed on 15.10.2011 i.e., after the end of the financial year under consideration and before that the order of the Tribunal was in favour of the assessees, it was not possible for the appellant to deduct tax at source. 5. Aggrieved by the order passed by the appellate authority, the Revenue filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal) and the Tribunal vide impugned order 13.6.2018 allowed the appeal on two counts i.e., (1) the payments are in the nature of ‘royalty’ as held by this Hon’ble Court in Samsung Electronics (supra) and (2) it was not impossible for the appellant to deduct tax at source at the time of making the payment. 5. Aggrieved by the order passed by the appellate authority, the Revenue filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal) and the Tribunal vide impugned order 13.6.2018 allowed the appeal on two counts i.e., (1) the payments are in the nature of ‘royalty’ as held by this Hon’ble Court in Samsung Electronics (supra) and (2) it was not impossible for the appellant to deduct tax at source at the time of making the payment. 6. This Court by an order dated 5.3.2020 has admitted the present appeal to consider the following substantial questions of law; 1. The Hon’ble Tribunal was correct in holding that the entire payments of INR 10,07,64,509/- made for purchase of software during the financial year 2010-11 amounted to ‘Royalty’? 2. The Hon’ble Tribunal was correct in holding that the Appellant was liable to withhold taxes on the entire payments made for the purchase of software without considering impossibility of performance? 3. Whether the Hon’ble Tribunal was correct in holding that it was not impossible for the Appellant to deduct tax at source and the assessee can deduct taxes from the subsequent payments made to the same party?” 7. When the matter was taken up for hearing, at the outset it has been brought to the notice of this Court that the issue involved in the present appeal has been put to rest in view of the decision rendered by the Division Bench of this Court in ITA.No.308 of 2018 (Technicolor India Private Limited vs Income-Tax Officer (International Taxation) and Anr.,) decided on 8.3.2021. 8. In the aforesaid decision, the Division of this Court in paragraphs 3 and 4 has held as under; “ 3. When the matter was taken up today, learned counsel for the assessee submitted that the issue involved in this appeal has been put to rest in view of the decision rendered by the Supreme Court in Civil Appeal Nos.8733-8734/2018 between ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE LIMITED VS. THE COMMISSIONER OF INCOME TAX & ANOTHER, vide order dated 02.03.2021 and the issue involved in this appeal has been answered against the Revenue and in favour of the assessee. 4. Learned counsel for the Revenue was unable to dispute the aforesaid submission.” 9. Learned counsel for the Revenue has not controverted the aforesaid submission. 10. In light of the above, for the reasons assigned in the aforesaid judgment rendered by the Supreme Court in Civil Appeal Nos.8733-8734/2018 vide order dated 2.3.201, the substantial questions of law involved in this appeal are answered in favour of the assessee and against the Revenue. Resultantly, the appeal is allowed. The order passed by the Tribunal dated 13.6.2018 is hereby quashed. Sd/- JUDGE Sd/- JUDGE nd