INCOME TAX ACT, 19611

Section 44BB Section 44DA Section 264

Presumptive taxation under section 44BB - Extraction or production of mineral oil - Scope - royalty or FTS--Taxability whether under section 44DA

Petitioner opted to be taxed on presumptive basis under section 44BB(1). Eventually, the AO held that in accordance with terms of the contract, the nature of services provided by the Petitioner fell within the purview of Royalty/Fees for Technical Services (hereinafter, referred to as 'FTS') and was liable to be taxed under section 44DA instead of section 44BB. Petitioner neither filed any objection before the Dispute Resolution Panel against the Draft assessment order, nor did it file an appeal before the Commissioner (Appeals). Instead, it chose to exercise the alternate remedy by filing a Revision Petition under section 264 before CIT (International Taxation). CIT declined to interfere with the final assessment order and rejected Petitioner's revision petition, primarily on the ground of maintainability, without dealing with the merits of the case. Writ petition (W.P.(C) No. 6052/2017) impugning the said order was allowed, order of the CIT was thus, quashed and the matter was remanded to the respondent with a direction to examine the case on merits. Subsequently, the case was decided on merits and petitioner's claim of taxation on presumptive basis under section 44BB was rejected. The petitioner had filed the present writ petition. Held: Assessee had not segregated its activities into supply of software and maintenance/support services. The entire income derived under the contracts was offered for taxation under section 44BB. Revenue in its note of arguments had contended that 'supply of software' is 'royalty' and 'other services' are 'FTS' and accordingly petitioner was liable to pay tax under section 44DA. Whether the services of updating the software/renewal of license or warranty services or maintenance of software were inextricably and essentially linked to the supply of the software and were ancillary services was a question of fact that would require determination after examining the dominant purpose of such contracts. There is no factual clarity on this aspect. This count does not find any such distinction/segregation that can be inferred with respect to the receipts in the hands of the assessee under the contracts executed by it. the impugned order was therefore, set aside and the matter was remanded to the file of the. Commissioner to assess the petitioner's income and tax payable thereon by first determining the nature of the income/receipts in the hands of the assessee in light of the observations made in this judgment. The CIT, would be required to give a finding of fact on the following aspect: Whether the income from services provided by the assessee including the supply of software as well as ancillary services such as maintenance and installation would be covered under the definition of Royalty under the Explanation 2 to section 9(vi)? If the answer to the above question is in the affirmative, the income would be taxable under section 44DA. On the contrary, if the answer is in the negative, the income of the assessee would not be taxable under section 44DA but section 44BB.

Relied:DIT-II v. OHM Ltd. (2012) 28 Taxmann.com 120 (Del), CIT v. Synopsis International Old Ltd. (2001) 28 Taxmann.com 162 (Karn), Shahdara (Delhi) Saharanpur Light Railway Co. Ltd. v. Upper Doab Sugar Mills Ltd. & Anr. AIR 1960 695 (SC), Anusua Vithal & Ors. v J.H. Mehata Additional Authroity under Payment of Wages Act, Bombay & Anr. AIR 1960 201 (Bom), CIT v. Chunilal Rameshwar Lal AIR 1968 64 (Pat). Applied:PGS Exploration (Norway) AS v. Addl. DIT (2016) 383 ITR 178 (Del). Distinguished:Oil & Natural Gas Corporation Ltd. (ONGC) v. CIT (2015) 376 ITR 306 (SC), Geofizyka Torun sp Z.O.O, In re : (2010) 320 ITR 268 (AAR) and CIT & Anr. v. Synopsis International Old Ltd. (2012) 208 Taxmann.com 162 (Karn). Dissented:CIT v. Alcatel Lucent Canada (2015) 372 ITR 476 (Del), CIT v. ZTE Corporation (2017) 392 ITR 80 (Del); Income Tax v. Ericsson A.B. 343 ITR 470 (Del) and DIT v. Intrasoft Ltd. (2014) 220 Taxman 273 (Del).

REFERRED : J.K. Cotton Spinning & Weaving v. State of Uttar Pradesh & Ors. (1961 AIR 1170 SC), CIT v. Ajax Products Ltd. 55 ITR 741 (SC), CWT v. Kripashankar Dayashankar Worah (1971) 81 ITR 763 and Sole Trustee, Loka Shikshana Trust v. CIT (1975) 101 ITR 234 (SC)L and DIT v. Jindal Drilling & Industries Ltd. (2010) 320 ITR 104 (Del).

FAVOUR : Matter remanded.

A.Y. : 2012-13

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