Full Text
HIGH COURT OF DELHI
Decision delivered on: 08.08.2023
COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-1, NEW DELHI ..... Appellant
Through: Mr Puneet Rai, Sr. Standing Counsel with Mr Ashvini Kumar and Ms
Madhavi Shukla, Jr. Standing Counsel.
Through: None.
HON'BLE MR. JUSTICE GIRISH KATHPALIA [Physical Hearing/Hybrid Hearing (as per request)]
RAJIV SHAKDHER, J. (ORAL):
JUDGMENT
1. Allowed, subject to just exceptions. CM APPL.40438/2023[Application filed on behalf of the appellant/revenue seeking condonation of delay of 24 days in filing the appeal] CM APPL.40439/2023 [Application filed on behalf of the appellant/revenue seeking condonation of delay of 94 days in re-filing the appeal]
2. These are applications which seek condonation of delay in filing and re-filing.
3. According to the appellant/revenue, there is a delay of 24 days in filing the appeal and 94 days in re-filling the appeal.
4. Having regard to the period of delay and the stand taken by the counsel for the appellant/revenue, we are inclined to condone the delay.
5. It is ordered accordingly.
6. The applications shall stand disposed of, in the aforesaid terms.
7. This appeal concerns Assessment Year (AY) 2011-12.
8. Insofar as AY 2012-13 (ITA No. 434/2023) is concerned, a separate appeal has been filed by the appellant/revenue, which is also on our board today.
9. The appeal arises out of a common order dated 03.10.2022 passed by the Income Tax Appellate Tribunal [in short, “Tribunal”].
10. The short question which arose for consideration before the Tribunal was whether the consideration received by the respondent/assessee, i.e., a company incorporated and based in Israel, was royalty under the provisions of the Indian Income Tax Act, 1961 [in short, “the Act”].
11. The Assessing Officer (AO),via the draft assessment order, proposed imposition of tax on consideration received by the respondent/assessee as royalty, by invoking Article 12(3) of the India-Israel Double Tax Avoidance Agreement (DTAA) and Section 9(1)(vi) of the Act.
12. Mr Puneet Rai, learned senior standing counsel, who appears on behalf of appellant/revenue, says that the total amount received by the respondent/assessee for the sale of software was Rs.37,74,58,451/-, a figure which is reflected in the impugned order.
13. Furthermore, out of the said sum, Rs. 15,44,738/- was received by the respondent/assessee from an Indian entity, i.e., Wipro Ltd. (India)
14. The Tribunal has taken the view that there was no transfer of copyright in the „off the shelf‟ sale software; the consideration received thereby could not be construed as royalty and hence was not taxable.
15. The Tribunal also noticed its decision concerning the respondent/assessee for AY 2010-11passed in ITA No. 7111/Del/2019, and accordingly ruled in favour of the respondent/assessee.
16. Mr Puneet Rai, learned senior standing counsel, who appears for the appellant/revenue, informs us that the appellant/revenue had not preferred an appeal qua AY 2010-11 before this Court, as the tax effect was below the prescribed threshold limit.
17. However, the extract of the order passed by the Tribunal for AY 2010-11 shows that the Tribunal, at that stage, had noticed the judgment of the Supreme Court on the very same issue rendered in Engineering Analysis Centre of Excellence Private Limited vs CIT (2021) 432 ITR 471 (SC).
18. Faced with this, the representative of the appellant/revenue could not dispute the principle of law enunciated in the aforementioned judgment of the Supreme Court. This aspect is noted in paragraph 7 of the impugned order.
19. Although Mr Rai sought to contend that the software was custombuilt, he was unable to demonstrate such case was set up by the appellant/revenue before the statutory authorities.
20. As a matter of fact, the assertions made in the appeal seem to clearly indicate that even the appellant/revenue accepted that what was sold by the respondent/assessee was „off the shelf‟ software.
21. Mr Rai also attempted to draw our attention to the agreement entered into by the respondent/assessee with Wipro Ltd.
22. It is required to be noted this agreement has not been placed before us. In ground „B,‟ there is a short extract of the agreement has been set forth which adverts to the fact that the respondent/assessee also extends services in the nature of training to the employees of Wipro Ltd., at their own facility, which is presumably located in Israel or through virtual mode.
23. These are the aspects, which, even according to Mr Rai, were not raised before the statutory authorities and hence they had no occasion to discuss them.
24. The appellant/revenue, for the first time, seeks to engage the Court qua aspects which do not emerge from the record or impugned orders.
25. According to us, the Tribunal was right in concluding, both in ITA No. 341/DEL/2021 and ITA No. 342/DEL/2021, that the consideration received by the respondent/assessee, did not constitute royalty in consonance with the principle enunciated by the Supreme Court in Engineering Analysis.
26. Thus, in our opinion, no substantial question of law arises for our consideration.
27. Accordingly, the pending appeal and applications are closed.
28. The Registry will dispatch a copy of the order to the respondent/assessee at the address given in the memo of parties and if possible, via email.
29. At this stage, Mr Rai says that a review petition has been preferred against the decision of the Supreme Court rendered in Engineering Analysis.
30. As far as this Court is concerned, the pendency of the review petition will not affect the outcome of this writ petition. Surely, the parties will have to abide by the decision rendered by the Supreme Court in the review petition preferred qua Engineering Analysis.