Import of Shrink wrapped software--Not subject to Tax Withholding

One more favorable judgment on “Import of Software”, not being subjected to tax withholding…

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'B'
ITA Nos.470 to 478(BNG)/08Assessment Year : 2007-08
INCOME TAX OFFICER (INTL TAXATION)WARD-19(2), BANGALORE
Vs
M/s SONATA INFORMATION TECHNOLOGY LTDNO 193, 1st FLOOR, R V ROAD, BASAVANAGUDIBANGALORE

Dated : November 07, 2008

Appellant Rep. by : Shri K P Rao Respondent Rep. by : Shri Krupal Kanakia
Income tax - import of shrink softwrae products from USA - AO argues that the software was licensed for limited use and the payment made for the same to be treated as royalty payment taxable u/s 9 (1)(vi) - CIT(A) deletes the same in view of the Tribunal's decision in the Samsung Electronics Co Ltd case - Held, as earlier decided in the case of assessee itself, the payment was made for the article which partook the character of sale of goods, no tax was required to be deducted u/s 195 - Revenue's appeal dismissed

ORDER
Per : Bench :

Common issues have been raised by the revenue in these appeals on the following grounds :
"The order of the ld. CIT(A)-IV, Bangalore is liable to be set aside, since it is contrary to law and to the facts of this case.

The learned CIT(A) has placed reliance on the order of the Tribunal in the case of M/s. Samsung Electronics Co. Ltd. (ITA No.264 to 266/Bang/2002).However, while passing this order, the Tribunal has not taken into account that the impugned transaction was not one of outright sale of software but was a licence for limited use thereof. The agreement between the resident payer and the non-resident payee too clarifies this point.

In the above order in the case of M/s. Samsung Electronics Co. Ltd, the Tribunal has placed reliance on the judgment of the Supreme Court in the case of Tata Consultancy Services Vs. The State of Andhra Pradesh (157 KLJ 345) (2004).However, while doing so, it has not taken into account the fact that the Supreme Court was adjudicating the matter in terms of the Andhra Pradesh General Sales Tax Act and not in terms of the Income Tax Act. As such, the said ratio would not be squarely applicable to the instant case.

For the aforesaid reasons, the decision of the Tribunal in the case of M/s. Samsung Electronics Co. Ltd. had not been accepted and an appeal u/s.260A filed. Further, the learned CIT(A) failed to even discuss whether the payment would be considered as royalty in terms of use of secret formula or process, etc apart from use of copy right as detailed in the order."

2. The ld. Counsel for the assessee at the outset submitted that the issue is squarely covered by the earlier decision of the Tribunal beginning A.Y. 2001-02 when the Tribunal was pleased to hold that the purchases made by the assessee was that of shrink software products from USA and were sold to distributors appointed by the company. The transactions of imported Shrink Wrapped Software was equivalent to purchase of goods. Hence did not attract provisions of section 9(1)(vi). The authorities below had held a view that the payment made by the assessee was related as per section 9(1)(vi) of Income Tax Act read with section Article 12(2) of Double Tax Avoidance Act between India and US which was considered by the Tribunal not applicable to the facts of the assessee's case. Copies of the orders of the earlier years have been annexed in the paper book submitted.

3. The learned D.R. agreed that the issue stands covered by the earlier decision of the Tribunal in assessee's own case but relied on the ground so agitated by the A.O. as mentioned above for his part of submission.

4. We have heard the rival contentions and perused the material available on record. We are inclined to hold that the issue stands covered in favour of the assessee as submitted by the learned counsel. We have perused the order of the learned CIT(A) who has taken a note thereof and had called for report from the A.O. to consider the assessee's transaction whether can be held as related. The relevant extract of the AO's report dt.26.2.2008 is reproduced below :

"The transactions in question involve trading in imported Shrink Wrapped Software and they are similar in nature to the transactions involved in the Tribunal decisions in the case of M/s. Sonata Information Technology Ltd. And M/s. Sonata Software Ltd.. The transactions involved in the appeals are identical to the kind of transaction in respect of which ITAT has allowed relief."

After hearing both the sides, we find that similar issue had come up for consideration in assessee's case as well as on appeal by the revenue when the Tribunal held that payments made by the assessee for acquiring quoted rate articles which partook the character of sales of goods, hence no tax was required to be deducted u/s. 195 in respect of payments made for acquisition of software. This decision was reported in 103 ITD 324, therefore, the issue stands covered by the earlier decision by the Tribunal which we are inclined to follow. No controverting material thereto has been submitted by the revenue on this score. In view thereof the appeals are dismissed.