2017-TII-INSTANT-ALL-434
09 March 2017   

TII BRIEF

Protocol signed to amend India-Belgium DTAA ...

CASE LAWS

2017-TII-11-SC-INTL

CIT Vs HALLIBURTON EXPORT INC: SUPREME COURT OF INDIA (Dated: March 6, 2017)

Income tax - Sections 9(1)(vi) & 90(3) - India-USA DTAA - Article 12(3)

Keywords: pre-packaged copyrighted software - royalty & FTS

The assessee is in the business of providing technical products and services for petroleum and natural gas exploration and production. It had filed its return and assessment order was passed. The assessee's counsel had filed the present appeal contending that the matter was covered by assessee's own case for the A.Y 2008-09 in favour of the assessee being ITA No. 5209/Del/2011 and it was confirmed by the HC.

The HC held that Section 90 (3) makes it clear in the context of an agreement ('treaty') for avoidance of double taxation, that it is only when the provisions of the Act are more beneficial to the Assessee the Act will prevail over the treaty. Conversely, where the provision of the treaty is more beneficial to the Assessee, the treaty would prevail over the Act. Court is not persuaded to re-examine the above issue which stands answered against the Revenue by the aforementioned order.

On appeal, the Supreme Court grants leave to the Revenue to defend their case and to be heard with Civil Appeal No.3369 of 2017.

Leave granted

2017-TII-10-SC-INTL

CIT Vs ALCATEL LUCENT ITALIA SPA: SUPREME COURT OF INDIA (Dated: March 6, 2017)

Income Tax - Section 9(1)(vii) - India-France DTAA - Article 13(3)

Keywords: embedded software - process - royalty & supply of software

The assessee, a tax resident of France, was in the business of manufacturing, trading and supplying of equipment and services for GSM Cellular Radio Telephones System. It had filed its return disclosing total income of Rs 1,13,95,910/-. AO asked the assessee to furnish the details of revenue received from India but assessee did not do so. In the re-assessment order, AO observed that the assessee had supplied hardware and software to various entities in India. Software licenced by the assessee embodied the process which was required to control and manage the specific set of activities involved in the business use of its customers. Software also made available the process to its customers, who used it to carry out their business activities. In this view of the matter, the AO felt that consideration of supply of software amounted to royalty u/s 9(1)(vi). AO finally estimated assessee's revenue in India at US$ 40 Million. On appeal, CIT(A) allowed assessee to furnish additional evidence under Rule 46A and reduced the quantum of additions.

The HC held that ITAT had relied upon the ruling of HC in DIT V. Ericsson A.B. 2011-TII-46-HC-DEL-INTL wherein identical argument with respect to whether consideration paid towards supply of software along with hardware – rather software embedded in the hardware amounted to royalty. After noticing several contentions of the revenue, HC held in favour of Ericsson A.B. HC also noticed that the ITAT had in addition relied upon other judgment of HC i.e. DIT V. M/s. Nokia Networks 2012-TII-49-HC-DEL-INTL.

On appeal, the Supreme Court grants leave to the Revenue to defend their case against M/s Alcatel Lucent Italia SPA and to tag the same with S.L.P.(C) No.30850 of 2016.

Leave granted

2017-TII-09-HC-KAR-INTL

SYNOPSYS INTERNATIONAL LTD Vs JDIT: KARNATAKA HIGH COURT (Dated: March 1, 2017)

Income Tax - Sections 9(1)(v)(a), 143(3), 144C, 195 & 234B - India-Ireland DTAA - Article 12

Keywords: charge of interest - royalty - TDS - shrink-wrapped software - obligation to deduct tax & right to use.

The assessee company was incorporated under the laws of Ireland. It was enagaged in the sales and marketing of software licenses to the customers especially to software companies in India. AO held that sale of shrink wrapped software in India was not sale of goods, but was only a right to use computer software and the consideration received by giving such a right to use, partakes the character of ‘royalty' within the meaning of section 9(1)(v)(a) as well as Article 12 of the DTAA between India and Ireland. AO held that assessee's being a non-resident u/s 195, there was an obligation placed upon the payer; i.e. any person responsible for making payment to a non-resident, had to deduct tax at source at the rates in force from such payments.

Tribunal held that respectfully following the decision of the Karnataka HC in the case of Samsung Electronics Co. Ltd. & Others reported 2011-TII-43-HC-KAR-INTL and of the co-ordinate benches of this Tribunal in the assessee's own case for AY 2006-07 in - 2013-TII-01-ITAT-BANG-INTL , and AY 2007-08 in IT(TP)A No.1518/Bang/2010 dt.5.12.2014 we hold that the payments received by non-resident assessee as consideration for sale of shrink-wrapped software constitute ‘royalty' within the meaning of Article 12(3) of the Indo Ireland DTAA and also as per the provisions of section 9(1)(vi). Consequently, assessee was under obligation to deduct tax at source u/s 195 form the amount paid to foreign software suppliers.

On appeal the High Court held that,

Whether if a question raised before the High Court is already covered by a Court of the same jurisdiction & the same is not stayed by the Apex Court, any substantial question of law would still arise in respect of that very question - NO: HC

++ counsel appearing for the appellant has brought to our notice that in respect of the very assessee similar issue came up for consideration before this Court in the case of Commissioner of Income Tax Vs Synopsis International Old Limited 2010-TII-36-HC-KAR-INTL and as per the said decision this Court held in favour of the revenue and against the assessee. However, she did submit that the matter is carried before the Apex Court by the assessee but no stay order has been granted. In our view, when the questions are already covered by the above referred decision of this Court, at this stage, no substantial questions of law would arise for consideration more particularly when the Judgment of this court is not stayed by the Apex Court. Under the circumstances, present appeal is dismissed.

Assessee's appeal dismissed

 

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