Prl., Commissioner of Income Tax Vs M/S Ibm India Pvt. Ltd. — Income Tax | Karnataka HC (2025)

Prl., Commissioner of Income Tax Vs M/S Ibm India Pvt. Ltd. — Income Tax | Karnataka HC (2025)

What the court decided

AI extract

Outcome

Dismissed

Issue for consideration

Whether the Tribunal's order is perverse in holding that payments to non-resident entities for purchase of software were not royalty, gave rise to no income taxable in India, and the assessee was therefore not liable to deduct tax at source under section 195 of the Act. +4 more

Ratio / Principle

The fact matrix of this appeal is substantially similar to Engineering Analysis Centre of Excellence (P) Ltd. v. CIT, wherein the questions raised by the Revenue are answered in favour of the assessee, and the learned Panel Counsel for the Revenue is not in a position to demonstrate that this appeal is not covered by that decision.

Key takeaways

The system ordinarily operates on the principle of parity and equality: like cases should be decided alike unless there are demonstrable differences, and such differences are absent in this case.ratio¶39
In the above circumstances, the appeal is liable to be and is accordingly rejected, costs having been made easy.ratio¶40
The request that liberty be reserved to seek review of this judgment depending upon the outcome of the review in Engineering Analysis Centre of Excellence (P) Ltd. (supra) is rejected, inasmuch as the assessee's review itself has been rejected.

Detailed headnote1 paragraphs

Income Tax Appeal (ITA No. 632 of 2023, decided 04-03-2025; oral judgment per Krishna S Dixit J., Ramachandra D. Huddar J. on bench) filed by the Prl. Commissioner of Income Tax (International Taxation) and the Deputy Commissioner of Income Tax, International Taxation, Circle-1(2), Koramangala, Bangalore under S.260A of the Income Tax Act 1961 against the assessee M/s IBM India Pvt. Ltd., challenging the ITAT 'C' Bench, Bangalore order dated 08/06/2023 in ITA Nos.317 & 318/Bang/2023 (AYs 2015-16 & 2017-18) whereby the Revenue's appeals on non-deduction of TDS on software payments to non-resident entities were negatived. The five substantial questions concerned perversity of the Tribunal's findings that the payments were not royalty (S.195; Explanation 2 to S.9(1)(vii) and the DTAA; S.9(1)(vi); Copyright Act S.14(a)/14(b); Explanation 2(v) to S.9(1)(vi)). The Court held the fact matrix substantially similar to Engineering Analysis Centre of Excellence (P) Ltd. v. CIT, [2021] 125 taxmann.com 42 (SC) (also reported at 432 ITR 471), where the like questions were answered in favour of the assessee and whose review (Diary No.35475/2023 in C.A.Nos.106/2013 & 1407/2013, order dated 23.04.2024) was itself rejected; the Panel Counsel could not demonstrate any distinguishing feature. Applying the parity-and-equality principle, the appeal was rejected with costs made easy, and liberty to seek review of this judgment was refused.

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NC: 2025:KHC:9113-DB ITA No. 632 of 2023

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 4^TH DAY OF MARCH, 2025

PRESENT

THE HON'BLE MR JUSTICE KRISHNA S DIXIT AND

THE HON'BLE MR JUSTICE RAMACHANDRA D. HUDDAR

INCOME TAX APPEAL NO. 632 OF 2023

BETWEEN:

PRL., COMMISSIONER OF INCOME TAX, (INTERNATIONAL TAXATION), KORMANGALA, BANGALORE.

THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE1(2), KORMANGALA, BANGALORE.

…APPELLANTS

(BY SRI. E.I.SANMATHI, ADVOCATE)

AND:

Digitally signed by SHAKAMBARI Location: HIGH COURT OF KARNATAKA

M/S. IBM INDIA PVT. LTD., NO.2, SUBRAMANYA ARCADE, BANNERGHATTA MAIN ROAD, BANGALORE - 560 029, PAN:AACCI2917B.

(BY SMT.TANMAYEE RAJKUMAR, ADVOCATE)

…RESPONDENT

THIS ITA/INCOME TAX APPEAL IS FILED UNDER SEC.260A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 08/06/2023 PASSED IN ITA NO.318/BANG/2023, FOR THE ASSESSMENT YEAR 2017-18 PRAYING TO 1.DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED 08/06/2023 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'C' BENCH, BANGALORE, AS SOUGHT

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FOR, IN THE RESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN ITA NO.318/BANG/2023 FOR A.Y. 2017-18 (ANNEXURE - A) AND GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.

THIS APPEAL, COMING ON FOR ADMISSION, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:

CORAM: HON'BLE MR JUSTICE KRISHNA S DIXIT and

HON'BLE MR JUSTICE RAMACHANDRA D. HUDDAR

ORAL JUDGMENT

(PER: HON'BLE MR JUSTICE KRISHNA S DIXIT)

This appeal by the Revenue calls in question the ITAT order dated 08.06.2023 whereby its appeals vide ITA

Nos.317 & 318/Bang/2023 for the Assessment Years 2015-16 & 2017-18 have been negatived. The Revenue has framed the following as the substantial questions of law:

“1. Whether on the facts and in the circumstances of the case, the Tribunal’s order is perverse in nature in by holding that the payment made to non-resident entities in respect of purchase of software was not royalty and that the same did not give rise to income taxable in India and therefore, the petitioners were not liable to deduct tax at source under section 195 of the Act”?

2. Whether on the facts and in the circumstances of the case, the Tribunal’s order

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NC: 2025:KHC:9113-DB ITA No. 632 of 2023

is perverse in nature in holding that the payments made to non-resident entities were not in the nature of royalty as defined in Explanation 2 to Section 9(1)(vii) of the Act and the Double Taxation Avoidance Agreement as well?

3. Whether on the facts and in the circumstances of the case, the Tribunal’s order is perverse in nature in holding that the sale of software license did not include a right or interest in copyright, which thus did not give rise to payment of royalty and would be an income deeded to accrue in India under section 9(1)(vi) of the Act, requiring the deduction of tax at source?

4. Whether on the facts and in the circumstances of the case, the Tribunal’s order is perverse in nature in not considering the fact that the development of advanced cloud-based computer software by Section 14(a)/14(b) of the Copy Right Act?

5. Whether on the facts and in the circumstances of the case, the Tribunal’s order is perverse in nature in not appreciating that conditions for holding applying Explanation 2(v) to Section 9(1)(vi) of the Act were fully satisfied in present case as payments were made to a non-resident by way of royalty for use of or the right to use any copy right and Review Petition filed by Revenue is pending for adjudication before Supreme court in case Engineering Analysis Centre of Excellence (reported in 432 ITR page 471)?”

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Learned counsel representing the assessee submits that the fact matrix of this appeal is substantially similar to the one in ENGINEERING ANALYSIS CENTRE OF EXCELLENCE (P) LTD., VS. COMMISSIONER OF INCOME TAX¹ , wherein the questions raised by the Revenue are answered in favour of the assessee and that even the review petition in Diary No.35475/2023 in C.A.Nos.106/2013 & 1407/2013, vide order dated 23.04.2024 has been negatived. Despite vehement submissions learned Panel Counsel appearing for the Revenue is not in a position to demonstrate that this appeal is not covered by the said decision.

Our system operates ordinarily on the principle of parity and equality, in the sense that like cases should be decided alike, unless there are demonstrable differences, which are absent in this case.

In the above circumstances, this appeal is liable to be and accordingly rejected, costs having been made easy.

1 [2021] 125 taxmann.com 42 (SC)

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The request of learned panel counsel that liberty should be reserved to seek review of this judgment depending upon the outcome of the review in ENGINEERING ANALYSIS CENTRE OF EXCELLENCE (P) LTD. (SUPRA) , is liable to be rejected inasmuch as the assessee's review, as mentioned above, itself is rejected.

Sd/(KRISHNA S DIXIT) JUDGE

Sd/(RAMACHANDRA D. HUDDAR) JUDGE

RD/snb