Madras High Court
The Commissioner Of Income Tax vs M/S.Dassault Systems Simulia ... on 7 April, 2021
Tax Case Appeal Nos.1061 to 1065 of 2015
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 07.04.2021
CORAM
THE HON'BLE MR.JUSTICE M. DURAISWAMY
AND
THE HON'BLE MRS.JUSTICE R.HEMALATHA
Tax Case Appeal Nos.1061 to 1065 of 2015
The Commissioner of Income Tax,
Chennai. ... Appellant in all 5 TCAs
Vs.
M/s.Dassault Systems Simulia Corporation
(formerly known as Abaqus Inc)
Rising Sun Mills, 166, Valley Street,
Providence, USA. ... Respondent in
TCA.Nos.1061 to 1064/2015
M/s.Dassault Systems Simulia P. Ltd.,
10th Floor, ASVN Ramana Rower,
37 & 38, Venkatnarayana Road,
T.Nagar,
Chennai – 600 017. ... Respondent in
T.C.A.No.1065/2015
Appeals filed under Section 260A of the Income Tax Act, 1961
against the orders of the Income Tax Appellate Tribunal, Madras "C"
Bench, dated 09.01.2014 passed in I.T.A.Nos.1024 to 1027 & 1177/
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Tax Case Appeal Nos.1061 to 1065 of 2015
Mds/2013 for the assessment year 2003-04, 2004-05, 2005-06, 2006-07
and 2009-10.
For Appellant : Mr.Karthick Ranganathan,
(in all 5 TCAs) Senior Standing Counsel
For Respondents : Mr.Sandeep Bagmar.R
(in all 5 TCAs)
COMMON J U D G M E N T
(Delivered by M.DURAISWAMY, J.)
Challenging the orders passed in I.T.A.Nos.1024 to 1027 & 1177/
Mds/2013 in respect of the Assessment Year 2003-04, 2004-05, 2005-06,
2006-07 and 2009-10 on the file of the Income Tax Appellate Tribunal,
Madras "C" Bench, Chennai, the Revenue has filed the above appeals.
2.The appeals in T.C.A.Nos.1061 to 1064 of 2015 were admitted
on the following substantial questions of law:
“1)Whether on the facts and in the circumstances of
the case, the Tribunal was right in deleting the additions
made on account of royalty income which is taxable in
terms of Section 9(1)(vi) of the Income Tax Act?
2)Is not the finding of the Tribunal bad especially as
per Explanation (iv) was introduced by Finance Act, 2012
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Tax Case Appeal Nos.1061 to 1065 of 2015
with retrospective effect from 01.04.1976 clearly provided
that all types of transactions in software amounted to
“royalty” for the purpose of Section 9(1)(vi) of the Income
Tax Act and therefore taxable?
3)Whether on the facts and in the circumstances of
the case, the Tribunal was right in holding that the
disallowance made under Section 40(a)(ia) for non
deduction of tax at source on payments effected by the
assessee is not taxable under Section 9(1)(vi) of the Income
Tax Act?”
3.The appeal in T.C.A.No.1065 of 2015 was admitted on the
following substantial questions of law:
“1)Whether on the facts and in the circumstances of
the case, the Tribunal was right in deleting the
disalllowance made under Section 40(a)(ia) for non
deduction of tax at source on payments made by the
assessee?
2)Is not the finding of the Tribunal bad since as per
clauses 3D, 5B, 8A and 8B of the agreement entered
between the assessee company and Abaques Inc USA
clearly indicate that it was royalty as per definition in
Article 12(3) of DTAA between India and USA?
3)Whether the finding of the Tribunal is correct
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Tax Case Appeal Nos.1061 to 1065 of 2015
especially when the payments made by the assessee fall
under the category of royalty since what was sold by the
assessee was copyright/licence only?
4)Whether on the facts and in the circumstances of
the case, the Tribunal was right in not considering the fact
that the consideration received would be in the nature of
royalty in respect of transfer of all or any right including
grant of licence falling under Clause (v) of Explanation 2 to
Section 9(1)(vi)?”
4.We have heard Mr.Karthick Ranganathan, learned senior
standing counsel appearing for the appellant - Revenue and
Mr.Sandeep Bagmar.R, learned counsel appearing for the respondent –
assessee.
5.Mr.Karthick Ranganathan, learned Senior Standing Counsel
appearing for the appellant fairly submitted that the questions of law
involved in the above appeals were already decided by the Hon'ble
Supreme Court of India against the revenue and in favour of the assessee
in the judgment reported in 2021 SCC OnLine SC 159 [Engineering
Analysis Centre of Excellence Private Limited v. Commissioner of
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Tax Case Appeal Nos.1061 to 1065 of 2015
Income Tax and Another], wherein the Hon'ble Supreme Court held as
follows:
" ............... 4. The appeals before us may be
grouped into four categories:
i) The first category deals with cases in
which computer software is purchased directly
by an end-user, resident in India, from a foreign,
non-resident supplier or manufacturer.
ii) The second category of cases deals with
resident Indian companies that act as distributors
or resellers, by purchasing computer software
from foreign, nonresident suppliers or
manufacturers and then reselling the same to
resident Indian end-users.
iii) The third category concerns cases
wherein the distributor happens to be a foreign,
non-resident vendor, who, after purchasing
software from a foreign, nonresident seller,
resells the same to resident Indian distributors or
end-users.
iv) The fourth category includes cases
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Tax Case Appeal Nos.1061 to 1065 of 2015
wherein computer software is affixed onto
hardware and is sold as an integrated
unit/equipment by foreign, non-resident
suppliers to resident Indian distributors or end-
users.
7. An appeal was made from the order of the
ITAT to the High Court of Karnataka by the Revenue.
The Division Bench of the High Court of Karnataka
heard a batch of appeals and framed nine questions, of
which question nos. 8 and 9 are important and are set out
as follows:
“8. Whether the Tribunal was correct in
holding that since the assessee had purchased
only a right to use the copyright i.e. the software
and not the entire copyright itself, the payment
cannot be treated as Royalty as per the Double
Taxation Avoidance Agreement and Treaties,
which [are] beneficial to the assessee and
consequently section 9 of the Act should not take
into consideration.
........................
171. The Revenue, therefore, when referring to
“royalties” under the DTAA, makes a distinction
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Tax Case Appeal Nos.1061 to 1065 of 2015
between such royalties, no doubt in the context of
technical services, and remittances for supply of
computer software, which is then treated as business
profits, taxable under the relevant DTAA depending
upon whether there is a PE through which the assessee
operates in India. This is one more circumstance to show
that the Revenue has itself appreciated the difference
between the payment of royalty and the supply/use of
computer software in the form of goods, which is then
treated as business income of the assessee taxable in
India if it has a PE in India.
CONCLUSION
172. Given the definition of royalties contained in
Article 12 of the DTAAs mentioned in paragraph 41 of
this judgment, it is clear that there is no obligation on
the persons mentioned in section 195 of the Income Tax
Act to deduct tax at source, as the distribution
agreements/EULAs in the facts of these cases do not
create any interest or right in such distributors/end-users,
which would amount 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 4
thereof), which deal with royalty, not being more
beneficial to the assessees, have no application in the
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Tax Case Appeal Nos.1061 to 1065 of 2015
facts of these cases.
173. Our answer to the question posed before us,
is that the amounts paid by resident Indian end-
users/distributors to non-resident computer software
manufacturers/suppliers, as consideration for the
resale/use of the computer software through
EULAs/distribution agreements, is not the payment of
royalty for the use of copyright in the computer
software, and that the same does not give rise to any
income taxable in India, as a result of which the persons
referred to in section 195 of the Income Tax Act were
not liable to deduct any TDS under section 195 of the
Income Tax Act. The answer to this question will apply
to all four categories of cases enumerated by us in
paragraph 4 of this judgment.
174. The appeals from the impugned judgments of
the High Court of Karnataka are allowed, and the
aforesaid judgments are set aside. The ruling of the AAR
in Citrix Systems (AAR) (supra) is set aside. The appeals
from the impugned judgments of the High Court of Delhi
are dismissed."
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Tax Case Appeal Nos.1061 to 1065 of 2015
6.Mr.Sandeep Bagmar.R, learned counsel appearing for the
respondents submitted that in view of the ratio laid down by the Hon'ble
Supreme Court in the judgment reported in 2021 SCC OnLine SC 159
(cited supra) the questions of law may be decided against the revenue
and in favour of the assessee.
7.On a reading of the judgment of the Hon'ble Supreme Court, it
is clear that the substantial questions of law, which are raised in the
present appeals, were already decided by the Hon'ble Supreme Court
against the revenue.
8.Following the ratio laid down by the Hon'ble Supreme Court in
the judgment reported in 2021 SCC OnLine SC 159 [cited supra], this
Court, in the appeals in T.C.A.Nos.758 of 2013 [The Commissioner of
Income Tax, Chennai Vs. M/s. Dasault Systems Sumulia Pvt. Ltd.,
10th Floor, ASV N Ramana Tower, 37 & 38 Venkatnarayana Road,
T. Nagar, Chennai - 600 017] and T.C.A.No.443 of 2017 [The
Commissioner of Income Tax, Chennai Vs. M/s. Dasault Systems
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Tax Case Appeal Nos.1061 to 1065 of 2015
Sumulia Pvt. Ltd., (Formerly known as ABAQUS INC), Rising Sun
Mills, 166, Vally Street, Providence, USA], by a common judgment
dated 30.03.2021, decided the questions of law against the revenue and
in favour of the assessee.
9.Following the ratio laid down by the Hon'ble Supreme Court in
the judgment reported in 2021 SCC OnLine SC 159 [cited supra] and
the common judgment of this Court dated 30.03.2021 made in
T.C.A.Nos.758 of 2013 & 443 of 2017, the questions of law are decided
against the revenue and in favour of the assessee. In view of the same,
the Tax Case Appeals preferred by the appellant are liable to be
dismissed. Accordingly, the Tax Case Appeals are dismissed. No costs.
[M.D., J.] [R.H., J.]
Index : Yes/No 07.04.2021
Internet : Yes
va
To
1. Income Tax Appellate Tribunal, Madras "C" Bench
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Tax Case Appeal Nos.1061 to 1065 of 2015
M. DURAISWAMY, J.
and
R.HEMALATHA, J.
va
Tax Case Appeal Nos.1061 to 1065 of 2015
07.04.2021
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