Dismissed

The Commissioner of Income Tax v. M/S Infosys Ltd.

Karnataka HC22 May 2023ITA/341/2017

Case brief

AI extract

What is this about?

The High Court dismissed appeals filed by the Revenue challenging an order allowing a tax deduction claim. The Court held that the explanation to Section 9, inserted in the Finance Act 2010, applies only from AY 2011-12 and not retrospectively to AYs 2009-10 and 2010-11.

What did the court decide?

Appeals dismissed; Question of law answered in favor of the assessee and against the Revenue.

The Commissioner of Income Tax Vs M/S Infosys Ltd. — Income Tax | Karnataka HC (2023)

¶1

¶2

ITA No. 341 of 2017 C/W ITA No. 327 of 2017

¶3

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

¶4

DATED THIS THE 22^ND DAY OF MAY, 2023

¶5

PRESENT

¶6

THE HON'BLE MR JUSTICE P.S.DINESH KUMAR

¶7

AND

¶8

THE HON'BLE MR JUSTICE T.G. SHIVASHANKARE GOWDA

¶9

INCOME TAX APPEAL NO.341 OF 2017 C/W

¶10

INCOME TAX APPEAL NO.327 OF 2017

¶11

IN I.T.A No.341 OF 2017

¶12

BETWEEN:

¶13

Digitally signed by ANUSHA V Location: HIGH COURT OF KARNATAKA

¶14

THE COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION 7^TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095

¶15

THE DEPUTY DIRECTOR OF INCOME-TAX INTERNATIONAL TAXATION CIRCLE-1(1), 7^TH FLOOR, BMTC BUILDING 80 FEET ROAD KORMANGALA

¶16

BENGALURU-560 095 …APPELLANTS

¶17

(BY SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)

¶18

AND:

¶19

M/S. INFOSYS LTD ELECTRONIC CITY HOSUR ROAD

¶20

¶21

ITA No. 341 of 2017 C/W ITA No. 327 of 2017

¶22

BENGALURU-560 100

¶23

PAN:AAACI 4798L …RESPONDENT

¶24

(BY SHRI. T. SURYANARAYANA, SENIOR ADVOCATE FOR SHRI. T.S. SURESH, ADVOCATE)

¶25

THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 25.05.2016 PASSED IN ITA NO.2/BANG/2014, FOR THE ASSESSMENT YEAR 2009-2010 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN IT(TP)A NO.2/BANG/2014 DATED 25.05.2016 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-1(1), BENGALURU AND ETC.

¶26

IN I.T.A No.327 OF 2017

¶27

BETWEEN:

¶28

THE COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION 7^TH FLOOR, BMTC BUILDING 80 FEET ROAD KORMANGALA BENGALURU-560 095

¶29

THE DEPUTY DIRECTOR OF INCOME-TAX INTERNATIONAL TAXATION CIRCLE-1(1) 7^TH FLOOR, BMTC BUILDING 80 FEET ROAD KORMANGALA BENGALURU-560 095 …APPELLANTS

¶30

(BY SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)

¶31

¶32

ITA No. 341 of 2017 C/W ITA No. 327 of 2017

¶33

AND:

¶34

M/S. INFOSYS LTD ELECTRONIC CITY HOSUR ROAD BENGALURU-560 100 PAN:AAACI 4798L …RESPONDENT

¶35

(BY SHRI. T. SURYANARAYANA, SENIOR ADVOCATE FOR MS. TANMAYEE RAJKUMAR, ADVOCATE)

¶36

THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 25.05.2016 PASSED IN IT(TP)A NO.3/BANG/2014, FOR THE ASSESSMENT YEAR 2010-2011, ANNEXURE-C PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN IT(TP)A NO.3/BANG/2014 DATED 25.05.2016, ANNEXURE-C AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-1(1), BENGALURU AND ETC.

¶37

THESE ITAs, COMING ON FOR HEARING , THIS DAY, P.S.DINESH KUMAR, J. , DELIVERED THE FOLLOWING:

¶38

¶39

ITA No. 341 of 2017 C/W ITA No. 327 of 2017

¶40

JUDGMENT

¶41

These two appeals by the Revenue filed under Section 260A of the Act¹ , challenging the common order dated 25.05.2016 in ITAs No.2 & 3/Bang/2014 respectively, passed by the ITAT² , ‘B’ Bench, Bangalore, have been admitted to consider the following common question of law:

¶42

Whether in the facts and circumstances of the case, the Tribunal is right in law in Tribunal in holding that assessee is not liable to deduct tax on payments made to Infosys Technology Chine Co. Ltd (for short ITCL) on sub-contract work done by them by holding that the services are not rendered in India ignoring amendment of Finance Act, 2010 in section 9 whereby Explanation below section 9(2) has been substituted with retrospective effect from 01/06/1976 whereby pre-requisition condition of rendering services in India had been done away and not taking into account of section 195(2) of the Act especially when huge remittances to non-residents were involved with massive tax effect and also when such payments are not explicitly declared exempt by the provisions of the Act.

¶43

1 Income Tax Act, 1961

¶44

2 Income Tax Appellate Tribunal

¶45

¶46

ITA No. 341 of 2017 C/W ITA No. 327 of 2017

¶47

Heard Shri K.V.Aravind, learned Senior

¶48

Standing Counsel for the appellant-Revenue and Shri T.Suryanarayana, Senior Advocate for the

¶49

respondent-Assessee.

¶50

Brief facts of the case are, assessee is a software company. It has entered into various agreements with several entities in various parts of the globe for export of software. In this case, we are concerned with outsourcing a portion of its on-site work to its subsidiary in China. The relevant assessment years for consideration in these appeals are 2009-10 & 2010-11.

¶51

In the proceedings initiated under Section 201(1)

¶52

& 201(1A) of the Act³ , the A.O.⁴ namely, the Deputy Director of Income Tax (International taxation), Bangalore, vide order dated 31.03.2013 has held that the assessee had failed to discharge its obligation to deduct tax at source as stipulated under Section 195 of the Act and therefore, it was liable to pay tax deductable in that

¶53

3 Income Tax Act, 1961.

¶54

4 Assessing Officer

¶55

¶56

ITA No. 341 of 2017 C/W ITA No. 327 of 2017

¶57

regard along with interest under Section 201(1A) of the

¶58

Act. Accordingly, a demand of Rs.94,89,34,671/- was raised for the relevant assessment years. The appeal before the CIT(A)⁵ stood dismissed. The ITAT, by the impugned order, has allowed assessee’s appeal. Feeling aggrieved, the Revenue is before this Court.

¶59

Shri Aravind submitted that explanation to Section

¶60

9 of the Act is made effective from 01.06.1976. Therefore, the assessee was liable to deduct tax at source under Section 9(1)(vii) of the Act.

¶61

Shri Suryanarayana, placing reliance on Ishikawajma-Harima Heavy Industries ltd. Vs. Director of Income Tax⁶ , submitted that the amendment has been made effective from the A.Y.2011-12. So far as the transactions in the assessment years 2009-10 and 201011 are concerned, there was no amendment. Hence, assessee could not have been called upon to do an act which is not prescribed in the statute. He submitted that

¶62

5 Commissioner of Income Tax (Appeals)

¶63

6 [2007] 158 Taxman 259 (SC) para 79

¶64

¶65

ITA No. 341 of 2017 C/W ITA No. 327 of 2017

¶66

in Ishikawajma’s case, the Apex Court has held that for Section 9(1)(vii) to be made applicable, it is necessary that services not only be utilized within India but also be rendered in India or have such a live link within India.

¶67

Further, placing reliance on Engineering Analysis Centre of Excellence (P.) Ltd. Vs. Commissioner of Income Tax⁷ , Shri Suryanarayana submitted that issue is no more res-integra. He submitted that the Apex Court has also considered the view taken by the Bombay High Court in similar circumstances at paras 82 to 84 of the said decision. In substance, his contention is that assessee could not have been called upon to deduct tax when statute did not contain any provision requiring the assesee to cause deduction. With these submissions, he prayed for dismissal of these appeals.

¶68

In reply, Shri Aravind contended that amendment is only clarificatory or explanatory in nature. India has been following the ‘Source Rule’. Therefore, assessee

¶69

7 [2021]125 taxmann.com 42 (SC)

¶70

¶71

ITA No. 341 of 2017 C/W ITA No. 327 of 2017

¶72

was duty bound to deduct tax and prayed for allowing

¶73

these appeals.

¶74

We have carefully considered rival submissions and perused the records.

¶75

Admittedly, explanation to Section 9 of the Act has been substituted by the Finance Act, 2010. Therefore, it is applicable from and after A.Y. 2011-12. In Engineering Analysis case , it is held as follows:

¶76

“ 85. It is thus clear that the “person” mentioned in section 195 of the Income Tax Act cannot be expected to do the impossible, namely, to apply the expanded definition of “royalty” inserted by explanation 4 to section 9(1)(vi) of the Income Tax Act, for the assessment years in question, at a time when such explanation was not actually and factually in the statute. ”

¶77

Admittedly, relevant assessment years for consideration in these appeals are 2009-10 and 2010-11. The substitution has taken place in the Finance Act, 2010,

¶78

which is effective from 2011-12. In view of the authority

¶79

¶80

ITA No. 341 of 2017 C/W ITA No. 327 of 2017

¶81

in Engineering Analysis, these appeals do not merit

¶82

consideration and these appeals must fail.

¶83