TII Instant Update - 2017-TII-INSTANT-ALL-456

2017-TII-21-HC-DEL-INTL

CIT Vs ASPECT SOFTWARE INC: DELHI HIGH COURT (Dated: April 25, 2017)

Income tax - Section 9(1)(vii) & India USA DTAA - Article 12(4)

Keywords - supply of customized software - royalty

The Revenue preferred the present appeal challenging the action of ITAT in holding that the supply of customized software was not "royalty" under Article 12(4) of the Indo-US DTAA r/w/s 9(1)(vii) of Income Tax Act.

On appeal, the HC held that,

Whether the payment for supply of customized software would be treated as "royalty" under Article 12(3) of the Indo-US DTAA r/w/s 9(1)(vi) of the I-T Act, merely because there was separate invoicing for purchase & other transactions - NO: HC

+ it is seen that a batch of appeals has been decided by the Court by its decision in The Commissioner of Income Tax International Transaction -2 v. ZTE Corporation - 2017-TII-03-HC-DEL-INTL. The questions that arose in the aforementioned batch of appeals also involved the questions that arise in the present batch of appeals and they were answered in favour of the Assessee and against the Revenue. The first issue is whether the payment for supply of customized software would be treated as "royalty" under Article 12(3) of the Indo-US Double Taxation Avoidance Agreement (DTAA) read with Section 9(1)(vi) of Act. In ZTE Corporation case, the Assessee being a resident of Republic of China the transactions were governed by the Indo-China DTAA containing identical clauses as the Indo-US DTAA. Relying on the decision of this Court in Director of Income Tax v. Ericsson AB - 2011-TII-46-HC-DEL-INTL, this Court in ZTE Corporation case has held that: "....The supplies made (of the software) enabled the use of the hardware sold. It was not disputed that without the software, hardware use was not possible. The mere fact that separate invoicing was done for purchase and other transactions did not imply that it was royalty payment. In such cases, the nomenclature (of license or some other fee) is indeterminate of the true nature. Nor is the circumstance that updates of the software are routinely given to the Assessee's customers. These facts do not detract from the nature of the transaction, which was supply of software, in the nature of articles or goods....";

+ it is seen that further by a separate order passed today, this Court has answered identical questions urged by the Revenue in ITA No. 909 of 2015 [Commissioner of Income Tax (International Taxation-1 v. Aspect Software Inc. - 2017-TII-20-HC-DEL-INTL] and batch concerning earlier AYs, against it and in favour of the same Assessee. The ITAT having followed the decisions of this Court and this Court having reiterated the legal position in Commissioner of Income Tax, International Taxation -2 v. ZTE Corporation, the Court answers the question in the negative and holds that the impugned order of the ITAT suffers from no legal infirmity.

Revenue's appeal dismissed

2017-TII-26-HC-MAD-TP

VOLEX INTERCONNECT INDIA PVT LTD Vs DCIT: MADRAS HIGH COURT (Dated: April 17, 2017)

Income tax - ALP - alternate remedy - writ interference

The case of the assessee is that it was originally issued with orders of assessment and challenging such orders, the assessee had filed an appeal before the DRP, which in turn issued some directions to the AO to consider the method for determination of ALP. Challenging the said decision, the Revenue filed an appeal before the ITAT and the ITAT remitted the matter back to the AO for considering the issue in the light of the Judgment rendered by the Delhi High Court in ITA No.5097/Del/2011 - 2012-TII-138-ITAT-DEL-TP in the case of M/s.Knorr Bremse India Pvt. Ltd., Vs. ACIT. Consequent upon such remand, the Dy CIT passed the present impugned order. According to the counsel for assessee, the Dy CIT had not applied the said decision of the Delhi High Court in the case of M/s.Knorr Bremsc India Pvt. Ltd., Vs. ACIT to the assessee's case and therefore the order issued by the Dy CIT was not in accordance with the directions issued by the Tribunal.

On appeal, the HC held that,

Whether availing of statutory appellate remedy has to be first exhausted in cases involving fiscal nature, before approaching writ jurisdiction under Article 226 of the Constitution of India - YES: HC

+ it is not in dispute that the giving effect orders passed by the Dy CIT, impugned in these writ petitions can be challenged before the next fact finding authority, namely the FAA. No doubt the counsel for assessee sought to contend that the Dy CIT has not given effect to the orders passed by the Tribunal, by applying the decision of the Delhi High Court in M/s.Knorr Bremsc India Pvt. Ltd., Vs. ACIT case. But a perusal of the order impugned would show that the Dy CIT sought to distinguish the facts and circumstances of the present case, with that of the facts and circumstances of M/s.Knorr Bremsc India Pvt. Ltd., Vs. ACIT case. Whether such distinction of the facts as done by the DycIT is correct or not, is for the next fact finding authority to consider and decide, as such exercise involves appreciation of the facts and circumstances of both the cases. Therefore, this Court, at this stage is not inclined to entertain this writ petition, by exercising jurisdiction under Article 226 of the Constitution of India, as the assessee is having an effective alternative remedy of appeal before the FAA, who is undoubtedly, the fact finding appellate authority as well;

+ moreover, it is well settled that in cases involving fiscal nature, availing of statutory appellate remedy has to be first exhausted and the party cannot come directly to this court and file a petition under Article 226 of the Constitution of India. It is held in those cases that when an alternative remedy is available, more particularly, in the cases of fiscal nature, invoking of the jurisdiction under Article 226 of the Constitution of India, is not permissible. When the petitioner is having an alternative remedy of appeal to file the appeal before the CESTAT, it is for them to file such appeal and canvass all the points. This Court exercising discretionary jurisdiction under Article 226 of the Constitution of India, is not inclined to entertain this writ petition only on the reason of availability of alternative remedy.

Assessee's petition dismissed