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DDIT vs. Reliance Communication Ltd (ITAT Mumbai)
January, 05th 2018

Taxability of software payments as royalty: The fact that there is a conflict of judicial opinion on whether payments for software are assessable as royalty or not does not entitle the Dept to seek a reference to the Special Bench. The Tribunal has to follow judicial discipline. Also, if a reference is made to the Special Bench it will violate the principle in Vegetable Products 188 ITR 192 (SC) that if there are two possible views, the view favourable to the assessee must be adopted

Revenue has filed an application before the Hon’ble President for making a reference to the Special Bench. The Hon’ble President vide its order dated 12/12/2017 directed the Registry to put up the matter before Division Bench for making recommendation as the whether or not Special Bench needs to be constituted in these appeals. So far as Constitution of special Bench is concerned, a reference to constitute a Special Bench flows from the members and not from the parties to the case. Furthermore, such a reference can be made by the members when they do not agree with the view taken by the earlier order of the Tribunal. However, in the instant cases before us, it is not a situation, only after hearing, the matter afresh by the division bench in terms of direction of Hon’ble High Court dated 08.08.2017, the bench may decide the issue to agree or disagree with the view already taken by the earlier bench. Furthermore merely on the conflict view .of the decision of the High Court, a reference cannot be made to constitute Special Bench. If the present application of the Revenue is accepted, the process of reference to a Special Bench / larger Bench would never reach an end. Reference to Special Bench would continue to be moved by the parties upon every subsequent non-jurisdictional High Court decision, thus, leading to a number of cases being referred to constitute Special Bench. However, correct decision is to follow the judicial hierarchy and maintain judicial discipline.

Furthermore, if the applications of the Revenue were to be allowed, it would lead to the violation of the principle laid down by the Hon’ble Supreme Court in the case of CIT Vs. Vegetable Products (1973) (188 ITR 192) (SC) wherein it has been held that where there are two possible views, the view favourable to the assessee must be adopted. With regard to the merit of the case, it is open to the Revenue to argue before the Regular Bench, if there are favourable or unfavourable decisions other than jurisdictional High Court decision. At the time of hearing on merit, it is open to the Revenue to take and the types of contentions alongwith decision of Co-ordinate Bench of the Tribunal and non-jurisdictional High Courts. So far as reliance of Revenue on the decision of CEGAT in case of Shri Ram Rayons (supra) in support of the request for reference to Special Bench is concerned, we found that the said case law is not on the fact of reference to Special Bench. In this case law, it is only mentioned that the said matter was heard by the Larger Bench consisting of five members. Thus, the said decision is not relevant in the present case and moreover it is of a parallel appellate authority.

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