The Commissioner Of Income Tax,Chennai v. M/S. Dasault Systems Sumulia Pvt. Ltd.,10Th Floor, Asv N Ramana Tower,37 & 38 Venkatnarayana Road,T. Nagar, Chennai - 600 017

THE HIGH COURT OF JUDICATURE AT MADRAS DATE: 30.03.2021 CORAM: THE HON'BLE MR. JUSTICE M.DURAISWAMYAND THE HON'BLE MRS.JUSTICE T.V.THAMILSELVI T.C.A.Nos.758 of 2013 & 443 of 2017 The Commissioner of Income Tax,Chennai... Appellant in both TCAs v. M/s. Dasault Systems Sumulia Pvt. Ltd.,10th Floor, ASV N Ramana Tower,37 & 38 Venkatnarayana Road,T. Nagar, Chennai - 600 017. ... Respondent in TCA. No.758/2013 M/s. Dasault Systems Sumulia Pvt. Ltd.,(Formerly known as ABAQUS INC)Rising Sun Mills, 166, Vally Street,Providence, USAPAN AADCD 3705D ... Respondent in TCA. No.443/2017 T.C.A.No.758 of 2013 : Appeal preferred under Section 260A ofthe Income Tax Act, 1961, against the order of the Income TaxAppellate Tribunal, Chennai, "C'' Bench, dated 22.01.2013 inI.T.A.No.323/Mds/2012 for the Assessment Year 2008-2009. Appeal against the order of the Commissioner of Income Tax(Appeals)-IX, Chennai-34, made in ITA No.68/11-12 dated19.12.2011, assessment year 2008-09. Appeal against the order of the Assistant Commissioner ofIncome Tax, Company Circle-I(4), Chennai, dated 31.12.2010 madein PAN: . T.C.A.No.443 of 2017 : Appeal preferred under Section 260A ofthe Income Tax Act, 1961, against the order of the Income TaxAppellate Tribunal, Chennai, "D'' Bench, dated 30.11.2016 inI.T.A.No.1399/Mds/2014 for the Assessment Year 2010-2011. https://hcservices.ecourts.gov.in/hcservices/ Appeal against the order of the Commissioner of Income Tax(Appeals)-VII, 121, Mahatma Gandhi Road, Chennai-34 made in ITANo.877/13-14 dated 03/03/2014, Assessment Year 2010-11 Appeal against the order of the Deputy Director of IncomeTax, International Taxation-(I), 121, Mahatma Gandhi Road,Aayakar Bhavan, Room No.204, Annexe Building, 2nd floor,Chennai-34 made in PAN: order dated 29.01.2013,assessment year 2010-11. For Appellant : Mr. S. Rajesh,(in both TCA) Standing CounselFor Respondent : Mr. Sandeep Begmar R.(in both TCA) and Dwarakesh Prabhakaran Challenging the orders passed in I.T.A.No.323/Mds/2012 inrespect of the Assessment Year 2008-2009. on the file of theIncome Tax Appellate Tribunal, Chennai,"C" Bench andI.T.A.No.1399/Mds/2013 in respect of the the Assessment Year2010-2011, on the file of the Income Tax Appellate Tribunal,Chennai, "D'' Bench, the Revenue has filed the above appeal. 2. The appellant has raised the following questions of lawin TCA. No.758 of 2013:- “(i) Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in deleting thedisallowance made u/s.40(a)(i) of the Act for nondeduction of tax at source for the payment madeby the assessee to Abaqus Inc., USA? (ii) Whether the finding of the Tribunal isproper since the payments made were royaltyfalling under section 9(1)(vi) of the I.T. Actand the assessee was obliged to deduct TDS as perprovisions of Sec. 195 since payments were madeto nonresident? (iii) Whether the finding of the Tribunalwas proper in holding that the assessee acquiredonly right to use a copy right software and notcopy right in a software especially when theclauses int eh agreement clearly show that itwould fall within the definition of royalty?" 3.The appellant has raised the following questions of lawin TCA. No.443 of 2017:- “(i) Whether on the facts and in thecircumstances of the case, the Tribunal was rightin deleting the addition made on account ofroyalty income which was taxable as per provisionof section 9(1)(vi) of the I.T. Act?" (iii) Is not the finding of the Tribunal badespecially when as per Explanation (2) to section 9(1)(vi) royalty income is deemed to accrue orarisen in India?" 4. We have heard Mr. S. Rajesh, learned Standing Counselappearing for the appellant and Mr. Sandeep Begmar R.learned counsel appearing for the respondent. 3.The appellant has raised the following questions of lawin TCA. No.443 of 2017:- “(i) Whether on the facts and in thecircumstances of the case, the Tribunal was rightin deleting the addition made on account ofroyalty income which was taxable as per provisionof section 9(1)(vi) of the I.T. Act?" (iii) Is not the finding of the Tribunal badespecially when as per Explanation (2) to section 9(1)(vi) royalty income is deemed to accrue orarisen in India?" 4. We have heard Mr. S. Rajesh, learned Standing Counselappearing for the appellant and Mr. Sandeep Begmar R.learned counsel appearing for the respondent. 5. Mr. S. Rajesh, learned Standing Counsel appearing for theappellant fairly submitted that the questions of lawinvolved in the above appeals were already decided by theHon'ble Supreme Court of India against the revenue and infavour of the assessee in the Judgment reported in 2021 SCCOnLine SC 159 [Engineering Analysis Centre of ExcellencePrivate Limited v. Commissioner of Income Tax and Another ]wherein the Hon'ble Supreme Court held as follows:- " ............... 4. The appeals before us maybe grouped into four categories: i) The first category deals with cases inwhich computer software is purchased directlyby an end-user, resident in India, from aforeign,non-residentsupplierormanufacturer. ii) The second category of cases dealswith resident Indian companies that act asdistributors or resellers, by purchasingcomputer software from foreign, nonresidentsuppliers or manufacturers and then resellingthe same to residentIndian end-users. iii) The third category concerns caseswherein the distributor happens to be aforeign, non-resident vendor, who, afterpurchasingsoftwarefromaforeign,nonresident seller, resells the same toresident Indian distributors or end-users. iv) The fourth category includes caseswherein computer software is affixed ontohardware and is sold as an integratedunit/equipment by foreign, non-resident suppliers to resident Indian distributors orend-users. 7. An appeal was made from the order of theITAT to the High Court of Karnataka by the Revenue.The Division Bench of the High Court of Karnatakaheard a batch of appeals and framed nine questions,of which question nos. 8 and 9 are important and areset out as follows: “8. Whether the Tribunal was correct inholding that since the assessee hadpurchased only a right to use the copyrighti.e. the software and not the entirecopyright itself, the payment cannot betreated as Royalty as per the Double TaxationAvoidance Agreement and Treaties, which [are]beneficial to the assessee and consequentlysection 9 of the Act should not take intoconsideration. ........................171. The Revenue, therefore, when referring to“royalties” under the DTAA, makes a distinctionbetween such royalties, no doubt in the context oftechnical services, and remittances for supply ofcomputer software, which is then treated as businessprofits, taxable under the relevant DTAA dependingupon whether there is a PE through which theassessee operates in India. This is one morecircumstance to show that the Revenue has itselfappreciated the difference between the payment ofroyalty and the supply/use of computer software inthe form of goods, which is then treated as businessincome of the assessee taxable in India if it has aPE in India. CONCLUSION172. Given the definition of royaltiescontained in Article 12 of the DTAAs mentioned inparagraph 41 of this judgment, it is clear thatthere is no obligation on the persons mentioned insection 195 of the Income Tax Act to deduct tax atsource, as the distribution agreements/EULAs in thefacts of these cases do not create any interest orright in such distributors/end-users, which wouldamount to the use of or right to use any copyright.The provisions contained in the Income Tax Act(section 9 (1)(vi), along with explanations 2 and 4thereof), which deal with royalty, not being morebeneficial to the assessees, have no application inthe facts of these cases. 173. Our answer to the question posed beforeus, is that the amounts paid by resident Indianend-users/distributors to non-resident computersoftware manufacturers/suppliers, as considerationfor the resale/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 toany income taxable in India, as a result of whichthe persons referred to in section 195 of theIncome Tax Act were not liable to deduct any TDSunder section 195 of the Income Tax Act. The answerto this question will apply to all four categoriesof cases enumerated by us in paragraph 4 of thisjudgment. 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.The appeals from the impugned judgments of the HighCourt of Delhi are dismissed." 6. Mr. Sandeep Begmar R., learned counsel appearing forthe respondents submitted that in view of the ratio laid downby the Hon'ble Supreme Court in the Judgment reported in 2021SCC OnLine SC 159 [cited supra] the questions of law may bedecided against the revenue and in favour of the assessee. 7. On a reading of the Judgment of the Hon'ble SupremeCourt, it is clear that the substantial questions of law,which were raised in the present appeals, were already decidedby the Hon'ble Supreme Court against the revenue. 8. Following the ratio laid down by the Hon'ble SupremeCourt in the Judgment reported in 2021 SCC OnLine SC 159[cited supra] the questions of law are decided against therevenue and in favour of the assessee. In view of thesame, the Tax Case Appeals preferred by the appellant areliable to be dismissed. Accordingly, the Tax Case Appealsare dismissed. No costs. Sd/- Assistant Registrar //True Copy// RJ Sub Assistant Registrar To 1. The Income Tax Appellate Tribunal, Chennai, 'C'' Bench2. The Income Tax Appellate Tribunal, Chennai, "D'' Bench, Chennai, 'C'' Bench2. The Income Tax Appellate Tribunal, Chennai, "D'' Bench, 3. The Commissioner of Income Tax, Chennai Chennai 4. The Commissioner of Income Tax(Appeals)-VII 121, M.G.Road, Chennai 34 121, M.G.Road, Chennai 34 5. The Deputy Director of Income Tax, International Taxation-(I), 121, M.G Road, Aayakar Bhavan, Room No.204, Annexe Building, 2nd floor, Chennai-34 6. The Commissioner of Income Tax(Appeals)-IX Chennai-347. The Assistant Commissioner of Income Tax, Company Circle-I(4), Chennai-34+2cc to Mr.R.Sandeep Begmar, Advocate, S.R.No.20873, 20872 International Taxation-(I), 121, M.G Road, Aayakar Bhavan, Room No.204, Annexe Building, 2nd floor, Chennai-34 6. The Commissioner of Income Tax(Appeals)-IX Chennai-347. The Assistant Commissioner of Income Tax, Company Circle-I(4), Chennai-34+2cc to Mr.R.Sandeep Begmar, Advocate, S.R.No.20873, 20872 T.C.A.Nos.758 of 2013 & 443 of 2017 SR-II(CO)KM(30/04/2021)