Reliance Communications Ltd vs. DDIT (ITAT Mumbai)

(i) The main contention of the assessees is that the Tribunal did not follow the co-ordinate bench decision rendered in the case of Solid Works Corporation (51 SOT 34) and the same has resulted in a mistake apparent from record. In this regard, the assessees have placed reliance on various decisions referred supra to support their contentions. It is an admitted fact that the decision rendered by coordinate bench has been relied upon by the counsel of the assessees and the Tribunal has also noted the same in page 28 of the order. In the case of Solid Works Corporation (supra), the co-ordinate bench of Tribunal has considered the issue, viz., whether the payment received by the assessee cited above from resellers in India on sale of computer software is royalty or not as per DTAA between India and USA. The co-ordinate bench of the Tribunal considered the decisions rendered by the Hon’ble Karnataka High Court in the case of Samsung Electronics Co. Ltd (2009)(185 Taxman 313) and the Hon’ble Delhi High Court in the case of DIT Vs. Ericsson AB (ITA No.504/2007 dated 23.12.2007) and held that the consideration received by the assessee for sale of software was not royalty. The co-ordinate bench held so by following the view expressed by the Hon’ble Delhi High Court in the case of DIT Vs. Ericsson AB, New Delhi (supra) since the same was favourable to the assessee. In this regard, the co-ordinate bench has followed the principle laid down by Hon’ble Supreme Court in the case of Vegetable Products Ltd (88 ITR 192).

(ii) In the instant appeals, the Tribunal admittedly did not consider the decision rendered by co-ordinate bench in the case of Solid Works Corporation (supra), even though it was relied upon by the assessees herein. The assessees have contended that the non-consideration of the decision of co-ordinate bench, when it was specifically relied upon by the assessee would result in a mistake apparent from record and would warrant recall of the order. In support of this contention, the assessees have placed their reliance on the decision rendered by Hon’ble Supreme Court in the case of Honda Siel Power Products Ltd (supra), wherein the Hon’ble Apex Court has held that the Tribunal was justified in exercising its power u/s 254(2) when it was pointed out to the Tribunal that the judgement of co-ordinate bench was placed before the Tribunal when the original order came to be passed but it had committed a mistake in not considering the material which was already on record. The Hon’ble jurisdictional Bombay High Court had an occasion, in the case of Hatkesh Co. op Hsg Society Ltd Vs. ACIT (ITA No.328 of 2014 dated 22-08-2016), to consider the question as to whether the Tribunal was justified in taking a view contrary to the decision of the co-ordinate bench of the Tribunal rendered in the appellant’s own case on identical facts without making reference to a larger bench.

(iii) We notice that the assessee has submitted that the software purchased by it is specific to run the hardware and its functionality is that of embedded software. This aspect has been distinguished by the Tribunal by observing that the software has been purchased separately. The Ld A.R submitted that the assessee has purchased software and hardware together in some cases, but the Tribunal has failed to consider those cases, even though the Ld CIT(A) has analysed each of the agreements for purchase of hardwares/softwares. He submitted that these facts show that the Tribunal has not properly considered all the cases of software and decided the issue by generalizing the facts, which renders the order erroneous.

(iv) The above cited decisions support the contentions of the assessee that misreading of decision of Hon’ble High Court would result in a mistake apparent from record warranting recall of the order. We have noticed that the assessees have submitted that the software purchased by them is specific to run the hardware and hence it was not a case of shrink wrapped software. Further the Hon’ble Delhi High Court has held in the case of Ericsson (supra) that the software would not be royalty, even it was supplied separately. All these points support the case of the assessee that the Tribunal has misread the decision rendered by Hon’ble Delhi High Court in the case of Ericsson (supra). We also notice that the Tribunal has committed an error in not appreciating the facts prevailing in the instant cases. Hence we find merit in the contentions of the assessees that the impugned order of the Tribunal suffers from mistake apparent from record.

(v) In view of the foregoing reasons alone, we are of the view that the impugned orders passed in Reliance Group cases deserve to be recalled.

(vi) The Applicant, during the course of hearing has relied on a decision of the Mumbai Tribunal in the case of DDIT v/s Reliance Infocomm Ltd. and vice versa (ITA no.5374 & 6093/Mum./2008). These were two appeals where the Applicant had filed Miscellaneous Applications and were recalled by the Tribunal vide order dated 16th April, 2014. The Ld A.R also submitted that the Tribunal has considered about the taxability of these payments in the hands of recipients and it has been held that the consideration for sale of software received by them are not royalty. He submitted that those decisions have been rendered prior to the passing of the order by the Tribunal in the hands of the assessees. Accordingly it was submitted that the Tribunal could not have taken a different view in the cases of the assessees, when it has been held in the hands of recipients that the payments received on supply of software are not in the nature of royalty. The Ld A.R fairly admitted that the assessees did not cite those decisions before the Tribunal at the time of hearing, but contended that the Tribunal is bound by the decision rendered by the co-ordinate benches, since they were available at that point of time itself. In our view, the Tribunal cannot be found fault for non-consideration of decisions which were not cited before it, though in principle there may be merit in the contentions of the assessees. Hence we are of the view that these contentions cannot be considered in the miscellaneous petitions filed u/s 254(2) of the Act.