DIT vs. Autodesk Asia Pvt Ltd (Karnataka High Court)

IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 15TH DAY OF SEPTEMBER 2020
PRESENT
THE HON’BLE MR. JUSTICE ALOK ARADHE
AND
THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD
I.T.A. NO.133 OF 2013
BETWEEN:
1. THE DIRECTOR OF INCOME TAX
INTERNATIONAL TAXATION
RASHTROTHANA BHAVAN
NRUPATHUNGA ROAD, BANGALORE.
2. THE DY. DIRECTOR OF INCOME TAX
(INTERNATIONAL TAXATION)
CIRCLE-1(1), RASHTROTHANA BHAVAN
NRUPATHUNGA ROAD, BANGALORE.
… APPELLANTS
(BY SRI. K.V. ARAVIND, ADV.,)
AND:
M/S. AUTODESK ASIA PVT. LTD.,
03, FUSIONOPOLLS WAY
#10-21 SMBIOSIS, SINGAPORE-138 633
PAN – AAFCA 6398 D.
… RESPONDENT
(BY SRI. T. SURYANARAYANA, ADV.)
– – –
THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,
1961 ARISING OUT OF ORDER DATED 26.10.2012 PASSED IN ITA
NO.509/BANG/2011 FOR THE ASSESSMENT YEAR 2006-07,
PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO:

(I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW
STATED THEREIN.
(I) ALLOW THE APPEAL AND SET ASIDE THE ORDERS
PASSED BY THE ITAT, BANGALORE IN ITA NO.509/BANG/2011
DATED 26-10-2012 AND CONFIRM THE ORDER OF THE APPELLATE
COMMISSIONER CONFIRMING THE ORDER PASSED BY THE
DEPUTY DIRECTOR OF INCOME TAX, (INTL. TAXN), CIRCLE-1(1),
BANGALORE.
THIS ITA COMING ON FOR FINAL HEARING, THIS DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:
JUDGMENT

This appeal under Section 260A of the Income Tax
Act, 1961 (hereinafter referred to as the Act for short)
has been preferred by the revenue. The subject matter
of the appeal pertains to the Assessment year 2006-07.
The appeal was admitted by a bench of this Court vide
order dated 12.08.2013 on the following substantial
question of law:
(i) Whether the Tribunal was correct in
holding that the assessee is liable to be
taxed at 10% in view of replacement of
15% with 10% of tax in Article 12 of
the DTAA without taking into
consideration that the modification of
rate of tax by way of notification dated
18.07.2005 was with effect from
01.08.2005 and recorded a perverse
finding?

(ii) Whether the Tribunal was correct in
extending the benefit of Notification to
the whole of the Previous year, when
the Notification was given effect from
01.08.2005 as per Article 7 of the
DTAA?
2. Facts leading to filing of the appeal briefly
stated are that the assessee is a company based in
Singapore and is engaged in the business of marketing
and sale of software. The assessee sold software
licences to Indian customers and in connection with sale
of software also provided certain ancillary services to the
Indian customers. The assessee showed turnover on
sale of software licences and ancillary services at USD
1,02,15,762/-, out of which 95% of software licences
were sold to authorized distributors viz., INGRAM Micro
India Pvt. Ltd. and M/s Tech Pacific India Limited. Thus,
sales to the tune of 100,52,271$ was made to the
authorized distributors. The assessee filed a return of
income for the Assessment Year 2006-07 on 08.11.2006
by declaring the taxable income as ‘NIL’. The case was
selected for scrutiny and notice under Section 143(2) of
the Act was issued to the assessee, by which assessee
was asked to furnish details such as agreements,
invoices etc. The Assessing Officer by an order dated
26.12.2008 on examination of the agreements and
documents supplied by the assessee inter alia held that
software supplied is chargeable to income tax from
royalty and technical services. Accordingly, the order of
assessment was concluded. The aforesaid order was
affirmed in appeal by an order dated 17.02.2011 by
Commissioner of Income Tax (Appeals). Being
aggrieved, the assessee approached the Income Tax
Appellate Tribunal (hereinafter referred to as ‘the
Tribunal’ for short). The Tribunal by an order dated
26.10.2012 allowed the appeal preferred by the
assessee. In the aforesaid factual background, this
appeal has been filed.

3. Learned counsel for the revenue submitted
that the Notification dated 18.07.2005 issued under
Section 90 of the Act came into force with effect from
01.08.2005. With reference to Section 195(1) of the
Act, it was contended that the rates in force mean the
dates on which credit take place in the account and
therefore, the Assessing Officer has rightly applied the
rate of tax under the Double Taxation Avoidance
Agreement (DTAA). On the other hand, learned counsel
for the assessee submitted that from perusal of Article 4
of the Notification dated 18.07.2015, it is evident that
paragraph 12 of Article 12 of DTAA has been deleted
and has been substituted by the paragraph which
provides for levy of tax on the royalties or fees for
technical services at the rate not exceeding 10%. Thus,
the instant case is a case of substitution by repeal and
therefore, the Tribunal has rightly held that new
provision which is in existence shall apply for the entire
fiscal year as defined in DTAA. In support of aforesaid
submission, reliance has been placed on decision of the
Supreme Court in ‘GOVERNMENT OF INDIA AND
OTHERS VS. INDIAN TOBACCO ASSOCIATION’,
(2005) 7 SCC 396.

4. We have considered the submissions made
by learned counsel for the parties and have perused the
record. The singular issue which arises for consideration
in this appeal is with regard to the rate of tax under the
DTAA for Assessment Year 2006-07. Before proceeding
further, we may advert to well settled rules of
Interpretation with regard to taxing statutes. The
substitution of a provision results in repeal of earlier
provision and its replacement by new provision. [See:
U.P.SUGAR MILLS ASSN. VS. STATE OF U.P.’,
(2002) 2 SCC 645]. The aforesaid principle of law was
reiterated by the Supreme Court in WEST UP SUGAR
MILS ASSOCIATION V. STATE OF UP (2012) 2 SCC
773 and by this Court in GOVARDHAN M V. STATE OF
KARNATAKA (2013) 1 KarLJ 497. When a new rule in
place of an old rule is substituted, the old one is never
intended to keep alive and the substitution has the
effect of deleting the old rule and making the new rule
operative.

5. In the backdrop of aforesaid well settled legal
position, facts of the case may be seen. In the instant
case, relevant extract of Notification dated 18.07.2005
issued under Section 90 of the Act reads as under:

“Article 4: Paragraph 2 of Article 12
(Royalties and Fees for Technical Services)
of the agreement shall be deleted and
replaced by the following paragraph:

“2. However, such royalties and fees
for technical services may also be taxed in
the Contracting State in which they arise and
according to the laws of that Contracting
State, but if the recipient is the beneficial
owner of the royalties or fees for technical
services, the tax charged shall not exceed
10%.”

6. Thus, it is evident that paragraph 2 of Article
12, which provided for levy of tax on royalties or fees for
technical services at the rate not exceeding 12% has
been deleted and in its place, the provision which
provides for levy of tax on the royalties or fees for
technical services at the rate not exceeding 10% has
been substituted. Thus, the substitution has the effect of
deleting the old rule and making the new rule operative.
Therefore, the Tribunal has rightly determined the rate
of tax as substituted in Clause 2 of Article 12 of DTAA
between India and Singapore applicable for the entire
fiscal year as defined in DTAA and is liable to be taxed at
10%. For the aforementioned reasons, the substantial
questions of law framed by this court are answered in
affirmative and against the revenue.

In the result, we do not find any merit in this
appeal. The same fails, and is hereby dismissed.
Sd/-
JUDGE
Sd/-
JUDGE
ss