COMMISSIONER OF INCOME-TAX, INTERNATIONAL TAXATION, RASTROTHANA BUILDING, NRUPATUNGA ROAD, BANGALORE AND THE INCOME TAX OFFICER (INTL. TAXATION) WARD 19(2), RASTROTHANA BUILDING, NRUPATUNGA ROAD, BANGALORE Vs. M/S WIPRO LTD., DODDAKANNELLI, SAR

JUDGEMENT

(1.) THESE three appeals arise out of the common order passed by the Income Tax Appellate Tribunal (for short, 'the Tribunal') Bangalore Bench 'B' in I.T.A. Nos.153/Bang/2004, 154/Bang/2004 and 152/Bang/2004 respectively dated 30.12.2004.

(2.) THE material facts leading up to these three appeals are as follows: 2.1 On perusal of the details filed in respect of Foreign remittances made by the respondent - assessee, it was noticed by the revenue that certain payments had been made by the assessee to a non -resident, M/s. Garner Group (hereinafter referred to as the M/s.Gartner'), U.S.A / Ireland, on which no tax was deducted under Section 195 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). It was found that the following payments had been made by the assessee during the period from 18.04.2000 to 02.12.2002: <FRM>JUDGEMENT_2201_TLKAR0_2011.html</FRM> Since prima facie, the payments appeared to be royalty payments, wherein the respondent - assessee was required to deduct tax at source on such remittances and no deduction had been made as required under Section 195(1) of the Act, show cause notice under Section 201 of the Act was issued to the assessee to explain the reasons for non -deduction of tax. In response to the show cause notice, the assessee filed a reply dated 10.01.2003. wherein it was submitted that payment is akin to making a subscription for a journal or magazine of a foreign publisher and though the journal contained information concerning commercial, industrial or technical knowledge, the payee makes no attempt to impart the same to the payer. Thus, the payment falls outside the scope of Clause (ii) of Explanation 2 to Section 9(1)(vi) of the Act and the payment was not contingent 'on productivity, use or disposition of the information concerning industrial, commercial or scientific experience in order to be construed as royalty within the meaning of Article 12 of the Double Taxation Avoidance Agreement (for short, 'the DTAA') between India and USA. In any case, the payment will not be covered by Section 9(1)(vi) as it would fall into the exception (b) under that Section and the payment is for the purposes of a business carried on outside India or for the purposes of making or earning any income from any source outside India. 2.2 The Assessing Officer held that the payments as referred to above made to M/s. Gartner was "royalty" within the meaning of explanation 2 to Section 9(1)(vi) of the Act and in the alternative "Fees for technical services" (included services), both of which are liable for tax in India in terms of Section 195 read with Section 9(1)(vi) and (vii) of the Income Tax Act and the relevant provisions of the DTAA and accordingly, passed the order of assessment on 07/03/2003 and demanded amount of Rs. 52,96,440/ -(Rupee Fifty Two Lakhs Ninety Six Thousand Four Hundred and Forty Only) towards payment of royalty under Section 195 of the Act and interest at Rs. 11,33,640/ - (Rupees Eleven Lakhs Thirty Three Thousand Six Hundred and Forty only) under Section 201(1A) of the Act. Being aggrieved by the said order of assessment made by the Income Tax Officer (International Taxation), Ward 19(2), Bangalore, three appeals were Pled by the respondent herein in ITA Nos.11, 12 and 13/R -19/CIT(A)IV/2003 -04 on the file of the Commissioner of Income Tax (Appeals) - IV, Bangalore. 2.3 The appellate authority, by order dated 28.11.2003, upheld the finding of the Assessing Officer that the payment made by the respondent to M/s. Gartner would amount to royalty and confirmed the order of assessment passed by the Assessing Officer in respect of the assessment years 2001 -2002 and 2003 -2004. However, in respect of the assessment year 2002 -2003, the appeal was allowed in part holding that the provisions of Section 195 of the Act are not applicable to payment of Rs.31,20,566/ - made by the respondent to M/s. Gartner in respect of professional fees on 17.08.2001 sine the consideration involved was not 'royalty' or 'fees for included services' under Article 12 of DTAA with USA. Being aggrieved by the said order of the appellate authority, the revenue did not prefer any appeal regarding allowing of the appeal in part pertaining to the assessment year 2002 -2003 as referred to above. However, the respondent herein preferred I.T.A. Nos.152/Bang/2004, 153/Bang/2004 and 154/Bang/2004 before the Tribunal. 2.4 The Tribunal, by order dated 30.12.2004, allowed the appeals filed by the respondent - assessee by holding that payment made by the respondent to M/s. Gartner did not constitute royalty as the same was in the nature of subscription made to the journal or magazine and no part of the copyright or copyright was transferred to the respondent and wherefore, the income was not chargeable to tax in India. Further, the Tribunal held that there was no obligation on the part of the respondent to deduct tax under Section 195(1) of the Act and accordingly, set aside the orders passed by the appellate authority and the Assessing Officer and deleted both the tax liability under Section 201(1) of the Act and the interest levied under Section 201(1A) of the Act. Being aggrieved by the said order of the Tribunal dated 30.12.2004, these appeals are filed. 2.5 These appeals were admitted for consideration of the substantial questions of law raised in the respective appeal memo and ordered to be posted along with ITA No.2988/2005. This Court, by common order dated 24/9/2009, allowed the said I.T.A. No.2988/2005 and connected cases filed by the revenue by setting aside the order passed by the Tribunal. Being aggrieved by the Said common order, the respondent in those cases, filed Civil Appeal Nos.7541 -7542/2010 and connected matters before the Hon'ble Supreme Court and the Hon'ble Supreme Court by order dated 9 -9 -2010 set aside the order passed by the Division Bench of this Court by analyzing the provisions of Section 195 of the Act and remitted the matter to this Court for answering the 'substantial question of law framed by it, which reads as under: The question which the High Court will answer is - - - 'whether on facts and circumstances of the case, the ITAT was justified in holding that the amount(s) paid by the appellant(s) to the foreign software Suppliers was not 'royalty' and that the same did not give rise to any 'income' taxable, in India and, therefore, the appellant(s) was not liable to deduct any tax at source?

(3.) THE learned counsel appearing for the appellants - revenue submitted that the finding of the Tribunal is erroneous as the payment made by the respondent to M/s. Gartner is by way of royalty as what is granted to the respondent is a licence to have access to the database maintained by M/s, Gartner, which is a scientific, technical service and wherefore, there is transfer of copyright to the extent of having access to the database maintained by M/s. Gartner, which access, but for the licence would have been an infringement of copyright and copyright continued to be with M/s. Gartner and wherefore, payments made by the respondent amount to royalty and the same cannot be considered akin to subscription made to journal or magazine.