DIT vs. Autodesk Asia Pvt Ltd (Karnataka High Court)
November, 18th 2020
Interpretation of statutes & DTAAs: The substitution of a provision results in repeal of earlier provision and its replacement by new provision. 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. Though Notification dated 18.07.2005 (which substitutes paragraph 12 of Article 12 of the DTAA to provide for levy of tax on the royalties or fees for technical services at a rate not exceeding 10%) issued u/s 90 came into force with effect from 01.08.2005, it applies to the entire fiscal year
This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2006-07. The appeal was admitted by a bench of this Court vide order dated 12.08.2013 on the following substantial question of law:
(i) Whether the Tribunal was correct in holding that the assessee is liable to be taxed at 10% in view of replacement of 15% with 10% of tax in Article 12 of the DTAA without taking into consideration that the modification of rate of tax by way of notification dated 18.07.2005 was with effect from 01.08.2005 and recorded a perverse finding?
(ii) Whether the Tribunal was correct in extending the benefit of Notification to the whole of the Previous year, when the Notification was given effect from 01.08.2005 as per Article 7 of the DTAA?
2. Facts leading to filing of the appeal briefly stated are that the assessee is a company based in Singapore and is engaged in the business of marketing and sale of software. The assessee sold software licences to Indian customers and in connection with sale of software also provided certain ancillary services to the Indian customers. The assessee showed turnover on sale of software licences and ancillary services at USD 1,02,15,762/-, out of which 95% of software licences were sold to authorized distributors viz., INGRAM Micro India Pvt. Ltd. and M/s Tech Pacific India Limited. Thus, sales to the tune of 100,52,271$ was made to the authorized distributors. The assessee filed a return of income for the Assessment Year 2006-07 on 08.11.2006 by declaring the taxable income as ‘NIL’. The case was selected for scrutiny and notice under Section 143(2) of the Act was issued to the assessee, by which assessee was asked to furnish details such as agreements, invoices etc. The Assessing Officer by an order dated 26.12.2008 on examination of the agreements and documents supplied by the assessee inter alia held that software supplied is chargeable to income tax from royalty and technical services. Accordingly, the order of assessment was concluded. The aforesaid order was affirmed in appeal by an order dated 17.02.2011 by Commissioner of Income Tax (Appeals). Being aggrieved, the assessee approached the Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’ for short). The Tribunal by an order dated 26.10.2012 allowed the appeal preferred by the assessee. In the aforesaid factual background, this appeal has been filed.