The Revenue Has Preferred This Appeal Against The v. Xsamsung Electronics Privatelimited In Ita

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATBD THIS THER DAY OF JANUARY, 2015 PRESENT THR HON' BLE MR. JUSTICK N. KUMAR ANT) THR HON' BLE MR. JUSTICEK B. VEBRAPPA INCOME TAX APPEAL No. 6048/200 BERITIWE 1.)THE COMMISSIONER OF INCOME-TAX, C.R. BUILDING, QUEENS ROAD, BANGALORE iaTHER ASST. COMMISSIONBR OF INCOMBE-TA CIRCLE-12(2), C.R. BUILDING, QUEENS ROAD, BANGALORE _ APPKRLLANTS~ (BY SRI K V ARAVIND, ADVOCATE) ANT) M/S. RATIONAL SOFTWARE CORPORATIONINDIA PVT., LTD.,NO.12, SUBRAMANYA ARCADE,BANNERGHATTA MAIN ROAD,BANGALORE -34 —. RBSPONDBENT (BY SRI T. SURYANARAYANA FOR KING & PARTRIDGEADVOCATES) This ITA is filed under Section J6O0O-A of thIncome Tax Act, 1961, arising out of Order dated11.01.2008 passed in ITA No.172/Bang/2007, tor theassessment year 2003-04, praying to formulate thesubstantial questions of law stated therein and to allowthe appeal and set aside the order passed by the ITATBangalore in ITA No.1/72/Bang/2007, dated 11.01.2008confirming the order of the Appellate Commissioner andconfirm the order passed by the Deputy Commissionerof Income Tax, Circle-12(2), Bangalore. This Income Tax Appeal coming on for Hearingthis day, N. Kumar, J., delivered the following: JUDGMENT The revenue has preferred this appeal against the order passed by the Tribunal holding that theremittances towards the cost of the software productsimported from foreign suppliers is not royalty and hencethere was no liability for deduction of tax under Section195 of the Income Tax Act, 1961 (hereinafter referred toas ‘the Act) and accordingly the provisions of Section40(a)(i1) of the Act are not attracted. 2 |This Court had an occasion to consider the|assessees case itself and the order passed by theTribunal holding that the remittances towards costs ofthe software products purchased/imported from foreignsuppliers is not royalty, was set aside by this Court inITA No.261/2006 following the judgment of this Courtin the case ofCOMMISSIONER OF INCOME TAX ANDANOTHER v. xSAMSUNG ELECTRONICS PRIVATELIMITED in ITA No. 2808/2005 and connected cases(D.D. 15.10.2011) 3.It is submitted by the learned counsel for theassessee that the assessee has preferred an appealagainst the said order in ITA No.261/2006 before theApex Court and it is pending consideration in SpecialLeave Petition (Civil) No. 19092/2012. In the event, theassessee succeeds before the Apex Court, then Section4O(a)(1) of the Act is not attracted and therefore, a consequent order is to be passed. Even if the assesseedoes not succeed before the Apex Court and Section4O(a)(i) of the Act is attracted, still its claim in terms ofArticle 24(4) of DTAA between India and the Netherlands.that a similar disallowance was not provided under theAct under Section 4O(a)(ia) if the payment was made to aresident, is to be considered and a proper order is to bepassed. 4Per contra, learned counsel for the revenuesubmits that the said question was not raised beforeany of the authorities and for the first time it is beingraised before this Court. 5In view of the judgment of this Court in ‘Samsung Electronics Private Limited’Case, ads)already the earlier order of the Tribunal is set aside bythis Court, the impugned order passed, which isrunning counter to the said judgment, requires to be set aside and therefore, the appeal is allowed and thesubstantial question of law is answered in favour of therevenue and against the assessee. © 4Per contra, learned counsel for the revenuesubmits that the said question was not raised beforeany of the authorities and for the first time it is beingraised before this Court. 5In view of the judgment of this Court in ‘Samsung Electronics Private Limited’Case, ads)already the earlier order of the Tribunal is set aside bythis Court, the impugned order passed, which isrunning counter to the said judgment, requires to be set aside and therefore, the appeal is allowed and thesubstantial question of law is answered in favour of therevenue and against the assessee. © 6. However, in the event, the assessee succeedsbefore the Apex Court, it 1s clear that this order alsocannot come into effect. The assessing authority shalltherefore pass an order under Section 260(1A) of theAct, based on the outcome of the assessee’s appealbefore the Apex Court. If the assessee loses his battlebefore the Apex Court, then before giving effect to thisorder, the assessing authority shall consider theapplication of Article 24(4) of the DITAA between Indiaand the Netherlands. Though the said question is notraised by the assessee before the authorities, the samebeing purely a question of law and the said DTAA beinga beneficial piece of delegated legislation, if the assesseeis entitled to the benefit of the same, that cannot be 325.23�8 �.8����77 63.5=1@��8-2�:>>2:1�./�:11 C23�C.8-�8-2�:0 62/:.3� A/26D:8. 5/���� �632623�:77 63.5=1@�� �������3$'��������������������������������3$'������������ Sbs*