IN THE HIGH COURT OF KARNATAKA AT BENGALURU
\nDATED THIS THE 15TH DAY OF SEPTEMBER 2020
\nPRESENT
\nTHE HON\u2019BLE MR. JUSTICE ALOK ARADHE
\nAND
\nTHE HON\u2019BLE MR. JUSTICE H.T.NARENDRA PRASAD
\nI.T.A. NO.133 OF 2013
\nBETWEEN:
\n1. THE DIRECTOR OF INCOME TAX
\nINTERNATIONAL TAXATION
\nRASHTROTHANA BHAVAN
\nNRUPATHUNGA ROAD, BANGALORE.
\n2. THE DY. DIRECTOR OF INCOME TAX
\n(INTERNATIONAL TAXATION)
\nCIRCLE-1(1), RASHTROTHANA BHAVAN
\nNRUPATHUNGA ROAD, BANGALORE.
\n… APPELLANTS
\n(BY SRI. K.V. ARAVIND, ADV.,)
\nAND:
\nM\/S. AUTODESK ASIA PVT. LTD.,
\n03, FUSIONOPOLLS WAY
\n#10-21 SMBIOSIS, SINGAPORE-138 633
\nPAN \u2013 AAFCA 6398 D.
\n… RESPONDENT
\n(BY SRI. T. SURYANARAYANA, ADV.)
\n– – –
\nTHIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,
\n1961 ARISING OUT OF ORDER DATED 26.10.2012 PASSED IN ITA
\nNO.509\/BANG\/2011 FOR THE ASSESSMENT YEAR 2006-07,
\nPRAYING THAT THIS HON\u2019BLE COURT MAY BE PLEASED TO:<\/p>\n
(I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW
\nSTATED THEREIN.
\n(I) ALLOW THE APPEAL AND SET ASIDE THE ORDERS
\nPASSED BY THE ITAT, BANGALORE IN ITA NO.509\/BANG\/2011
\nDATED 26-10-2012 AND CONFIRM THE ORDER OF THE APPELLATE
\nCOMMISSIONER CONFIRMING THE ORDER PASSED BY THE
\nDEPUTY DIRECTOR OF INCOME TAX, (INTL. TAXN), CIRCLE-1(1),
\nBANGALORE.
\nTHIS ITA COMING ON FOR FINAL HEARING, THIS DAY,
\nALOK ARADHE J., DELIVERED THE FOLLOWING:
\nJUDGMENT<\/p>\n
This appeal under Section 260A of the Income Tax
\nAct, 1961 (hereinafter referred to as the Act for short)
\nhas been preferred by the revenue. The subject matter
\nof the appeal pertains to the Assessment year 2006-07.
\nThe appeal was admitted by a bench of this Court vide
\norder dated 12.08.2013 on the following substantial
\nquestion of law:
\n(i) Whether the Tribunal was correct in
\nholding that the assessee is liable to be
\ntaxed at 10% in view of replacement of
\n15% with 10% of tax in Article 12 of
\nthe DTAA without taking into
\nconsideration that the modification of
\nrate of tax by way of notification dated
\n18.07.2005 was with effect from
\n01.08.2005 and recorded a perverse
\nfinding?<\/p>\n
(ii) Whether the Tribunal was correct in
\nextending the benefit of Notification to
\nthe whole of the Previous year, when
\nthe Notification was given effect from
\n01.08.2005 as per Article 7 of the
\nDTAA?
\n2. Facts leading to filing of the appeal briefly
\nstated are that the assessee is a company based in
\nSingapore and is engaged in the business of marketing
\nand sale of software. The assessee sold software
\nlicences to Indian customers and in connection with sale
\nof software also provided certain ancillary services to the
\nIndian customers. The assessee showed turnover on
\nsale of software licences and ancillary services at USD
\n1,02,15,762\/-, out of which 95% of software licences
\nwere sold to authorized distributors viz., INGRAM Micro
\nIndia Pvt. Ltd. and M\/s Tech Pacific India Limited. Thus,
\nsales to the tune of 100,52,271$ was made to the
\nauthorized distributors. The assessee filed a return of
\nincome for the Assessment Year 2006-07 on 08.11.2006
\nby declaring the taxable income as \u2018NIL\u2019. The case was
\nselected for scrutiny and notice under Section 143(2) of
\nthe Act was issued to the assessee, by which assessee
\nwas asked to furnish details such as agreements,
\ninvoices etc. The Assessing Officer by an order dated
\n26.12.2008 on examination of the agreements and
\ndocuments supplied by the assessee inter alia held that
\nsoftware supplied is chargeable to income tax from
\nroyalty and technical services. Accordingly, the order of
\nassessment was concluded. The aforesaid order was
\naffirmed in appeal by an order dated 17.02.2011 by
\nCommissioner of Income Tax (Appeals). Being
\naggrieved, the assessee approached the Income Tax
\nAppellate Tribunal (hereinafter referred to as ‘the
\nTribunal’ for short). The Tribunal by an order dated
\n26.10.2012 allowed the appeal preferred by the
\nassessee. In the aforesaid factual background, this
\nappeal has been filed.<\/p>\n
3. Learned counsel for the revenue submitted
\nthat the Notification dated 18.07.2005 issued under
\nSection 90 of the Act came into force with effect from
\n01.08.2005. With reference to Section 195(1) of the
\nAct, it was contended that the rates in force mean the
\ndates on which credit take place in the account and
\ntherefore, the Assessing Officer has rightly applied the
\nrate of tax under the Double Taxation Avoidance
\nAgreement (DTAA). On the other hand, learned counsel
\nfor the assessee submitted that from perusal of Article 4
\nof the Notification dated 18.07.2015, it is evident that
\nparagraph 12 of Article 12 of DTAA has been deleted
\nand has been substituted by the paragraph which
\nprovides for levy of tax on the royalties or fees for
\ntechnical services at the rate not exceeding 10%. Thus,
\nthe instant case is a case of substitution by repeal and
\ntherefore, the Tribunal has rightly held that new
\nprovision which is in existence shall apply for the entire
\nfiscal year as defined in DTAA. In support of aforesaid
\nsubmission, reliance has been placed on decision of the
\nSupreme Court in \u2018GOVERNMENT OF INDIA AND
\nOTHERS VS. INDIAN TOBACCO ASSOCIATION\u2019,
\n(2005) 7 SCC 396.<\/p>\n
4. We have considered the submissions made
\nby learned counsel for the parties and have perused the
\nrecord. The singular issue which arises for consideration
\nin this appeal is with regard to the rate of tax under the
\nDTAA for Assessment Year 2006-07. Before proceeding
\nfurther, we may advert to well settled rules of
\nInterpretation with regard to taxing statutes. The
\nsubstitution of a provision results in repeal of earlier
\nprovision and its replacement by new provision. [See:
\nU.P.SUGAR MILLS ASSN. VS. STATE OF U.P.\u2019,
\n(2002) 2 SCC 645]. The aforesaid principle of law was
\nreiterated by the Supreme Court in WEST UP SUGAR
\nMILS ASSOCIATION V. STATE OF UP (2012) 2 SCC
\n773 and by this Court in GOVARDHAN M V. STATE OF
\nKARNATAKA (2013) 1 KarLJ 497. When a new rule in
\nplace of an old rule is substituted, the old one is never
\nintended to keep alive and the substitution has the
\neffect of deleting the old rule and making the new rule
\noperative.<\/p>\n
5. In the backdrop of aforesaid well settled legal
\nposition, facts of the case may be seen. In the instant
\ncase, relevant extract of Notification dated 18.07.2005
\nissued under Section 90 of the Act reads as under:<\/p>\n
\u201cArticle 4: Paragraph 2 of Article 12
\n(Royalties and Fees for Technical Services)
\nof the agreement shall be deleted and
\nreplaced by the following paragraph:<\/p>\n
\u201c2. However, such royalties and fees
\nfor technical services may also be taxed in
\nthe Contracting State in which they arise and
\naccording to the laws of that Contracting
\nState, but if the recipient is the beneficial
\nowner of the royalties or fees for technical
\nservices, the tax charged shall not exceed
\n10%.\u201d<\/p>\n
6. Thus, it is evident that paragraph 2 of Article
\n12, which provided for levy of tax on royalties or fees for
\ntechnical services at the rate not exceeding 12% has
\nbeen deleted and in its place, the provision which
\nprovides for levy of tax on the royalties or fees for
\ntechnical services at the rate not exceeding 10% has
\nbeen substituted. Thus, the substitution has the effect of
\ndeleting the old rule and making the new rule operative.
\nTherefore, the Tribunal has rightly determined the rate
\nof tax as substituted in Clause 2 of Article 12 of DTAA
\nbetween India and Singapore applicable for the entire
\nfiscal year as defined in DTAA and is liable to be taxed at
\n10%. For the aforementioned reasons, the substantial
\nquestions of law framed by this court are answered in
\naffirmative and against the revenue.<\/p>\n
In the result, we do not find any merit in this
\nappeal. The same fails, and is hereby dismissed.
\nSd\/-
\nJUDGE
\nSd\/-
\nJUDGE
\nss<\/p>\n","protected":false},"excerpt":{"rendered":"
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.\u2019, (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.<\/p>\n