Income Tax Appellate Tribunal Bangalore Samsung Electronics Company Ltd. vs Income Tax Officer on 18 February, 2005 Equivalent citations: [2005]94ITD91(BANG), [2005]276ITR1(BANG), (2005)93TTJ(BANG)658 ORDER Gopal Chowdhury, J.M. 1. The assessee has filed the appeals against the common order passed by the CIT(A), for the asst. yrs. 19992000 to 200102, by which the learned CIT(A) has confirmed the orders passed under Section 201(1) of the Act and consequent levy of interest under Section 201(1A) of the Act. 2. The fact involved in the present case is that the assessee is a branch of Samsung Electronics Company Ltd., Korea, engaged in the development, manufacture and export of software for use by its parent company, i.e., Samsung Electronics Co. Ltd., Korea. The assessee develops various kinds of software for telecommunication system, for office appliances, for computer systems and for mobile devices, etc. The software developed by the assessee is for inhouse use by the parent company. In the asst. yr. 19992000, the assessee imported software products of Rs. 2,28,960 from Tektronix inc., USA. Similarly, during the other two years, it imported software products from USA, France and Sweden. According to the assessee, the imported software product, namely, Telelogic Tau TTCN Suite, are readily available software in the market. Hence, payment made to the foreign companies cannot be treated as royalty, as per the provision of Section 9(1)(vi) r/w Double Taxation Avoidance Agreements (DTAA for short) between India and USA, India and France respectively. The contention of the assessee was not accepted by the ITO (TDS). It was held by the AO that the assessee was a defaulter by not deducting tax from the remittance made by the assessee for purchase of these softwares. The reply of the assessee was not accepted by the AO and it was held that as per the provision of Section 9(1)(vi) of the Act, the payment made by the assessee is royalty. Hence, the assessee was bound to deduct the tax. The ITO also placed reliance on the definition of the term 'Royalty', as mentioned in DTAA (supra). Accordingly, it was held by the ITO that the assessee was a defaulter within the meaning of Section 201(1) of the Act, for nondeduction of tax. Further, the interest under Section 201(1A) was also levied for the three years, as follows : Asst years 201(1) 201(1A) 19992000 Rs. 25,440 Rs. 12,211 200001 Rs. 1,202 Rs. 216 200102 Rs. 16,87,270 Rs. 58,447 Total Rs. 17,13,912 Rs. 70,874 Against the said orders, the assessee moved appeals before the CIT(A). However, by the impugned common order dt. 29th Nov., 2001, the appeals were dismissed by the CIT(A). Against the said finding, the assessee is in appeal before the Tribunal. Submission of assessee : 3. The learned counsel appearing on behalf of the assessee, has raised some technical objection with regard to the proceedings under Section 201(1) of the Act. It was submitted that the proceedings is without jurisdiction and bad in law because on the date of issue of summons under Section 131, no proceeding was pending in the case of the assessee. It was submitted that the power under Section 131 could be exercised if any proceeding is pending before the authorities concerned under the IT Act. In this regard, he placed reliance on the following decisions : (i) Jamnadas Madhavji & Co. and Anr. v. J.B. Panchal, ITO and Anr. (1986) 162 ITR 331 (Bom); (ii) ITO and Ors. v. James Joseph O'Gorman (1993) 204 ITR 454 (Cal); (iii) Rina Sen v. CIT and Ors. (1999) 235 ITR 219 (Pat); (iv) G.M. Breweries Ltd and Anr. v. Union of India and Ors. Further objection was raised that the summons were issued to Mr. A.S. Rajendra, finance manager of the assesseecompany. Under Section 282(2)(b) of the Act, wherever a notice is issued to a company, it should be issued to its principal officer and hence, the summon is invalid in the eyes of law. Reliance was placed on the decision of the Bangalore Bench of the Tribunal in the case of Indo Nissin Foods v. Jt. CIT (ITA Nos. 240 to 246/B/2002) [reported at (2004) 83 TTJ (Bang) 440Ed.]. It was submitted that on account of the aforesaid defect, the entire proceedings were void ab initio, as held by the different High Courts in the following decisions : (i) P.N. Sasikumar and Ors. v. CIT (1988) 170 ITR 80 (Ker); (ii) V.V.S. Alloys Ltd. v. Asstt. CIT (2000) 68 TTJ (All) 516; (iii) Dy. CIT v. Tollygunz Club (1995) 52 ITD 166 (Cal). 4. The learned counsel further submitted on merits of the case and also filed a written submission in this regard. We shall first deal with the matter on merit. It was submitted that the assessee had imported branded offtheshelf software packages from different suppliers in the USA, Sweden and France. The relevant documents are placed at pp. 4 to 54 of the paper book. The AO held that the payments made by the assessee for the impart