Madras High Court
The Commissioner Of Income Tax vs M/S. Financial Software And ... on 3 September, 2021
Tax Case Appeal No.154 of 2015
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 03.09.2021
CORAM :
THE HON'BLE MR. JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE MR. JUSTICE SATHI KUMAR SUKUMARA KURUP
Tax Case Appeal No.154 of 2015
The Commissioner of Income tax,
Chennai ... Appellant
Vs.
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 Income Tax Act,
1961 against the order of the Income Tax Appellate Tribunal, Madras "A"
Bench, dated 05.06.2014 passed in I.T.A.No.2194/Mds/2013.
For Appellant : Mr.Karthik Ranganathan
Senior Standing Counsel
For Respondent : Mr.N.V.Balaji
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Tax Case Appeal No.154 of 2015
JUDGMENT
(Judgment was delivered by T.S. SIVAGNANAM, J.)
This Tax Case Appeal filed by the Revenue under Section 260A of the
Income Tax Act, 1961 ('the Act' for brevity), is directed against the order of
the Income Tax Appellate Tribunal, Madras "A" Bench, dated 05.06.2014
passed in I.T.A.No.2194/Mds/2013 for the Assessment Year 2007-08.
2.The appeal has been admitted on 06.07.2015 on the following
substantial questions of law :
“1.Whether on the facts and circumstances of this case,
the Tribunal was right in deleting the disallowance made by
the AO holding that the amendment to Section 9(1)(vi)
introduced by Finance Act, 2012 with retrospective effect from
01.06.1976 is not applicable and therefore no TDS needs to be
deducted?
2.Is not the finding of the Tribunal bad, especially when
a non resident companies, ACI of Singapore and IRPL of
Australia have permanent establishment in India through the
medium of assessee company and as such liable to deduct tax
at source on the payment received?
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Tax Case Appeal No.154 of 2015
3.Whether the Tribunal was right in holding that the
amounts paid by the assessee company to the non resident
company for use of the assessee customer in India of operating
net work payments, ATMs is not Royalty as per the provisions
of Section 9(1)(vi) of the Income Tax Act?
4.Whether on the facts and in the circumstances of the
case, the Income Tax Appellate Tribunal was right in holding
that payments made to two companies no TDS is required to be
deducted under Section 195 of the Income Tax Act?
5.Whether on the facts and in the circumstances of the
case, the Tribunal was right in holding that the expenses
incurred in relation to travel in foreign country and
communication charges are to be allowed both from the Export
turnover and Total turnover which is contrary to the Statute?
6.Whether on the facts and in the circumstances of the
case, the Tribunal was right in granting relief to the assessee
especially when the unrealized foreign exchange was to be
allowed both from the Export turnover without making
corresponding deduction from the total turnover?”
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Tax Case Appeal No.154 of 2015
3.We have heard Mr.Karthik Ranganathan, learned Senior Standing
Counsel for the appellant/Revenue and Mr.N.V.Balaji, learned counsel for
the respondent/assessee.
4.It is not disputed before us, rather admitted that, insofar as the
substantial questions of law Nos.1 to 4 are concerned, the Hon'ble Supreme
Court in the case of Engineering Analysis Centre of Excellence Private
Limited v. Commissioner of Income Tax and another reported in (2021)
SCC Online SC 159, has held in favour of the assessee.
5.In the said decision, there were four categories of cases as
mentioned below :
“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
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Tax Case Appeal No.154 of 2015
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 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.”
6.After elaborately considering the entire issues, the Hon'ble Supreme
Court held as follows :
“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
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Tax Case Appeal No.154 of 2015
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 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 No.154 of 2015
7.Therefore, the substantial questions of law Nos.1 to 4 are answered
against the Revenue.
8.Insofar as the substantial questions of law Nos.5 and 6 are
concerned, the same have to be answered against the Revenue by following
the decision of the Hon'ble Supreme Court in the case of Commissioner of
Income-tax, Central-III v. HCL Technologies Ltd. reported in (2018) 93
taxmann.com 33 (SC).
9.In the said decision, it was held that the definition of 'total turnover'
given under Sections 80HHC and 80HHE cannot be adopted for the purpose
of Section 10A as technical meaning of total turnover, which does not
envisage reduction of any expenses from total amount, is to be taken into
consideration for computing deduction under Section 10A; when meaning is
clear, there is no necessity of importing meaning of 'total turnover' from
other provisions.
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Tax Case Appeal No.154 of 2015
10.Thus, by applying the said decision, the substantial questions of
law Nos.5 and 6 are answered against the Revenue.
11.In the result, this Tax Case Appeal is dismissed and the substantial
questions of law are answered against the Revenue. No costs.
(T.S.S., J.) (S.S.K., J.)
03.09.2021
(5/14)
mkn
Internet : Yes
Index : Yes / No
To
The Commissioner of Income tax,
Chennai.
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Tax Case Appeal No.154 of 2015
T.S. SIVAGNANAM, J.
and
SATHI KUMAR SUKUMARA KURUP, J.
mkn
Tax Case Appeal No.154 of 2015
03.09.2021
(5/14)
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