ITAT duty-bound to deal with all judgements cited during hearing

Whenever any decision has been relied upon and/or cited by the assessee and/or any party, the authority/tribunal is bound to consider and/or deal with the same and opine whether in the facts and circumstances of the particular case, the same will be applicable or not. In the instant case, the Tribunal has failed to consider and/or deal with the aforesaid decision cited and relied upon by the assessee. Under the circumstances, all these appeals are required to be remanded to the Tribunal to consider the addition made by the AO towards alleged bogus purchases/sales and to take appropriate decision in accordance with law and on merits and after considering the decision of this Court in the case of CIT vs. President Industries 258 ITR 654.

Non-exclusive & non-transferable license to use customized software not taxable as “royalty” under Article 12 of India-USA DTAA

In order to qualify as a royalty payment under Article 12(3) of the India-USA DTAA, it is necessary to establish that there is a transfer of all or any rights (including the granting of any licence) in respect of a copyright of a literary, artistic or scientific work. There is a clear distinction between royalty paid on transfer of copyright rights and consideration for transfer of copyrighted articles. Right to use a copyrighted article or product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to invoke the royalty definition. Viewed from this angle, a non-exclusive and non-transferable licence enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in Article 12 of DTAA. Where the purpose of the licence or the transaction is only to restrict use of the copyrighted product for internal business purpose, it would not be legally correct to state that the copyright itself or right to use copyright has been transferred to any extent. The parting of intellectual property rights inherent in and attached to the software product in favour of the licensee/customer is what is contemplated by the Treaty. Merely authorizing or enabling a customer to have the benefit of data or instructions contained therein without any further right to deal with them independently does not, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licensee should acquire rights either in entirety or partially co-extensive with the owner/ transferor who divests himself of the rights he possesses pro tanto. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use is only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process is necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by Article 12 because it is only integral to the use of copyrighted product. Apart from such incidental facility, the licensee has no right to deal with the product just as the owner would be in a position to do. Consequently there is no transfer of any right in respect of copyright by the assessee and it is a case of mere transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article and cannot be considered as royalty either under the Income-tax Act or under the DTAA (Ericson AB 343 ITR 370 (Del) & Nokia Networks OY 25 taxmann.com 225 followed; Samsung Electronics 345 ITR 494 (Kar) not followed)

S. 45(4) does not apply if the retiring partner takes only money
towards the value of his share and there is no distribution of capital assets among the partners

S. 45(4) deals with a distribution of capital assets on the dissolution of a firm or other AOP or BOI or otherwise and provides that if in the course of such distribution of capital asset there is a transfer of a capital asset by the firm, the firm shall be chargeable to tax on capital gains. In order to attract s. 45(4), the conditions precedent are (1) there should be a distribution of capital assets of a firm; (2) such distribution should result in transfer of a capital asset by firm in favour of the partner; (3) on account of the transfer there should be a profit or gain derived by the firm and (4) such distribution should be on dissolution of the firm or otherwise. In other words, the capital asset of the firm should be transferred in favour of a partner, resulting in firm ceasing to have any interest in the capital asset transferred and the partners should acquire exclusive interest in the capital asset. On facts, the partnership firm purchased the property and it was not in the name of any partner. No partner brought that capital asset as capital contribution into the firm. Also, there was no dissolution of the firm because the firm continued to exist even after the retirement of some partners. What was given to the retiring partners is cash representing the value of their share in the partnership. No capital asset was transferred on the date of retirement. In the absence of distribution of a capital asset and in the absence of transfer of capital asset in favour of the retiring partners, no profit or gain arose in the hands of the partnership firm and so the question of the firm being assessed u/s 45(4) would not arise

S. 234B: A non-resident assessee which does not admit income chargeable to tax must be inferred to have induced the Indian payer not to deduct TDS and so it is liable for advance-tax interest

There is a distinction between a case where the assessee admits that it has income chargeable to tax in India but does not pay advance tax on the basis that the Indian payer ought to have deducted tax at source u/s 195. In such a case (as was the fact situation in Jacabs), the assessee is entitled to take credit for the tax which was “deductible” by the Indian payer while computing its advance tax liability even though no tax was in fact deducted. However, in a case where the assessee does not admit any income in the return, this benefit is not available. An inference or presumption can be drawn that the assessee had represented to its Indian telecom dealers not to deduct tax from the remittances made to it even though there is no positive or direct evidence to that effect

Tribunal has no power to dismiss appeal for non-appearance of appellant. It has to deal with the merits. An application for recall of an ex-parte dismissal order is under s. 254(2) & must be filed within 4 years from the date of the order. The Tribunal must permit “mentioning” of matters

Under Rule 24, the Tribunal has no power to dismiss an appeal for non-appearance of the assessee. It has to decide the appeal on merits. The dismissal order is consequently erroneous and the assessee is entitled to have the order set aside (S. Chenniappa Mudaliar 74 ITR 41 (SC) followed; Chemipol (244) ELT 497 (Bom) distinguished)

High Court irked by apathy of Government towards the (non) working of the Sales-tax Tribunal despite 4000 pending appeals with revenue effect of Rs. 4,500 crore

The problem highlighted by the Petitioner appears to be very genuine and quite serious. It appears that the policy of the State Government is not to give official accommodation to members of such Tribunals if they are retired Administrative Officers / Police Officers / Judicial Officers. Official accommodation is being provided to only those who are in service before reaching the age of superannuation. This Court fails to understand why the State Government should not provide official accommodation to the members of Administrative Tribunals even if they have retired and are now employed after their retirement

Non-residents are eligible for the benefit of 10% tax rate on long-term capital gains under the Proviso to s. 112. The AAR should avoid giving conflicting rulings

It is not possible to decipher the exact legislative purpose behind the proviso to s. 112(1) in a categorical and unambiguous manner. However, if one squarely focuses on the words used in the proviso and interprets them without extracting or subtracting any phrase or word, a non-resident assessee is entitled to benefit of the said provision. The proviso to s. 112(1) does not state that an assessee, who avails benefits of the first proviso to s. 48, is not entitled to benefit of lower rate of tax @ 10%. The said benefit cannot be denied because the second proviso to s. 48 is not applicable. In case the Legislature wanted to deny the said benefit where the assessee had taken benefit of the first proviso to s. 48, it was easy and this would have been specifically stipulated. The fact that by this interpretation, a non-resident becomes entitled to double deductions by way of computation of gains in foreign currency under the first proviso to s. 48 and then the benefit of lower rate of tax under the proviso to s. 112(1) is no reason to interpret the proviso differently. Further, as the AAR had taken a view in Timkin France SAS which was followed in several cases over several years, it ought not to have taken an opposite view and brought about uncertainty in understanding the effect of the proviso to s. 112(1). There should be consistency and uniformity in interpretation of provisions as uncertainties can disable and harm governance of tax laws. The AAR should follow its’ earlier view, unless there are strong grounds and reasons to take a contrary view.

S. 40(a)(ia) TDS: Amendment by Finance Act 2010 permitting TDS payment till due date of ROI is retrospective. Bharati Shipyard 132 ITD 53 (Mum)(SB) disapproved

The intention behind s. 40(a)(ia) is to ensure that TDS is deducted and paid. The object of introduction of s. 40(a)(ia) is to ensure that TDS provisions are scrupulously implemented without default in order to augment recoveries. It is not to penalise an assessee when payment has been made within the time stated. Failure to deduct TDS or deposit TDS results in loss of revenue and may deprive the Government of the tax due and payable. The provision should be interpreted in a fair, just and equitable manner. It should not be interpreted in a manner which results in injustice and creates tax liabilities when TDS has been deposited/ paid and the respondent who is following cash system of accountancy has made actual payment to the third party for services rendered. Also, s. 40(a)(ia), prior to the insertion of the proviso by the Finance Act 2010, was not free from interpretative difficulties and problems. The amended provisions are clear and free from any ambiguity and doubt and will help curtail litigation. The amended provision clearly support the view that the expression “said due date” used in clause A of proviso to the un-amended section refers to the time specified in s. 139(1) of the Act. The amended s. 40(a)(ia) expands and further liberalises the statue when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance. Consequently, the proviso to s. 40(a)(ia) must be treated as retrospective in operation (Virgin Creations referred/ followed; Bharati Shipyard 132 ITD 53 (Mum)(SB) disapproved)

S. 92CA(2A), though substantive, applies to all proceedings pending on 1.6.2011 & TPO can examine un-referred transactions. S. 92CA(2B) applies even to cases where Form 3CEB is filed but the transaction is not reported. DRP has power to hold that TPO had no jurisdiction & to quash his order. Writ cannot be entertained where there is alternate remedy

In AY 2008-09, the assessee entered into two transactions: (i) it sold its call center business to Hutchison Whampoa and (ii) it assigned its call options to Vodafone International Holdings B.V. The said two transactions were not reported in Form 3CBEB. The AO made a reference on 25.01.2010 u/s 92CA(1) to the TPO to determine the ALP of certain other transactions entered into by the assessee with the AEs. The said two transactions were not a part of the reference. The TPO took suo motu cognizance of the said two transactions and held that though the sale of the center business was between two domestic companies, it was pursuant to the share sale agreement with Vodafone International and so was hit by s. 92-B(2). He also held that the assignment of the call options was the transfer of a capital asset giving rise to capital gains. He made an adjustment of Rs. 8,590 crore. The assessee did not raise any objection on the jurisdiction of the TPO to consider the said two un-referred transactions though it filed objections on the merits before the DRP. During the pendency of the DRP proceedings, the assessee filed a Writ Petition contending that (a) under the law laid down in Amadeus 203 TM 602 (Del) the TPO has no jurisdiction to go beyond the reference made by the AO, (b) s. 92CA(2A) which was inserted on 1.6.2011 to provide that the TPO can suo motu take cognizance of an un-referred international transaction is a substantive provision and cannot apply retrospectively to a reference made on 25.01.2010, (c) the rewriting of the call options was not an international transaction in view of the law laid down in Vodafone International Holdings B.V. 341 ITR 1. It was urged that as there was inherent lack of jurisdiction in the TPO and as the DRP did not have jurisdiction u/s 144C(8) to quash the TPO’s order, the Writ Petition was maintainable. HELD by the High Court dismissing the Petition