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 Req v. Commissioner Of Incometax And Another Reported In (2021) Scc Online Sc 159

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HON'BLE MR. JUSTICE T.S. SIVAGNANAMAND THE HON'BLE MR. JUSTICE SATHI KUMAR SUKUMARA KURUP Tax Case Appeal No.151 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 IncomeTax Act, 1961 against the order of the Income Tax AppellateTribunal, Madras "A" Bench, dated 05.06.2014 passed inI.T.A.No.2191/Mds/2013 against the order of the commissionerof Income Tax (Appeals) II, Chennai-34, dated 30.08.2013 inITA.No.132/2013-2014 and against the order of DeputyCommissioner of Income Tax, Company circle II(1) Chennai dated31.12.2010 in PAN/GIR No. for the Assessment year2004-2005. 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 AppellateTribunal, Madras "A" Bench, dated 05.06.2014 passed inI.T.A.No.2191/Mds/2013 for the Assessment Year 2004-05. 2.The appeal has been admitted on 06.07.2015 on thefollowing substantial questions of law :“1.Whether on the facts and circumstances ofthis case, the Tribunal was right in deleting thedisallowance made by the AO holding that theamendment to Section 9(1)(vi) introduced by Financehttps://hcservices.ecourts.gov.in/hcservices/Act, 2012 with retrospective effect from 01.06.1976 is not applicable and therefore no TDS needs to bededucted? 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 ofassessee company and as such liable to deduct tax atsource on the payment received? 3.Whether the Tribunal was right in holdingthat the amounts paid by the assessee company to thenon resident company for use of the assesseecustomer in India of operating net work payments,ATMs is not Royalty as per the provisions of Section9(1)(vi) of the 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 195of the Income Tax Act?” 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 that the substantialquestions of law, which have been raised in this appeal, havebeen answered in favour of the assessee in the decision of theHon'ble Supreme Court in the case of Engineering AnalysisCentre of Excellence Private Limited v. Commissioner of IncomeTax and another reported in (2021) SCC Online SC 159. 5.In the said decision, there were four categories ofcases as mentioned below :“4.The appeals before us may be grouped into fourcategories: 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.ii)The second category of cases deals withresident Indian companies that act asdistributors or resellers, by purchasingcomputer software from foreign, nonresidentsuppliers or manufacturers and then resellingthe same to resident Indian end-users. iii)The third category concerns cases wherein thedistributor happens to be a foreign, non-resident vendor, who, after purchasing softwarefrom a foreign, nonresident seller, resells thesame to resident Indian distributors or end-https://hcservices.ecourts.gov.in/hcservices/users. iv)The fourth category includes cases whereincomputer software is affixed onto hardware andis sold as an integrated unit/equipment byforeign, non-resident suppliers to residentIndian distributors or end-users.” 6.After elaborately considering the entire issues, theHon'ble Supreme Court held as follows : “172. 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 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 toany income taxable in India, as a result of whichthe persons referred to in section 195 of the IncomeTax Act were not liable to deduct any TDS undersection 195 of the Income Tax Act. The answer tothis question will apply to all four categories ofcases enumerated by us in paragraph 4 of thisjudgment. 174. The appeals from the impugned judgmentsof the 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.” 7.Following the above decision, this Tax Case Appealfiled by the Revenue is dismissed and the substantialquestions of law are answered against the Revenue. No costs. Sd/- Assistant Registrar(CS IX) //True Copy// Sub Assistant Registrar mkn To 1. The Income Tax Appellate Tribunal Madras 'A' Bench, Chennai. 2.The Commissioner of Income tax, Chennai. Chennai. 3.The Deputy Commissioner of Income Tax, Company Circle II(i),Chennai. Company Circle II(i),Chennai. +1cc to Mr.Karthi Ranganathan Senior Standing Counsel,Advocate, S.R.No.45040 Tax Case Appeal No.151 of 2015 AJS(CO)KRG(03/09/2021)