The law for setting up National Tax Tribunals (NTT) was promulgated recently to dispose of tax cases faster. NTT will hear appeals against orders of the second level appellate authorities, previously heard by High Courts. Appeals against NTT's orders can be made to the Supreme Court of India.
From the appointed date, all cases pending before the High Court relating to direct and specified indirect taxes, shall be transferred to NTT. Thus, even cases that have been partially heard or for which hearings have been completed will be dealt with by the tribunal.
An appeal will be admitted by the NTT only if it is satisfied that the case involves a substantial question of law.
The aggrieved person shall not be allowed to prefer an appeal before the NTT unless at least 25% of the tax demanded is paid up. But where deposit of such tax or duty would cause undue hardship to the appellant, the NTT may dispense with the requirement subject to conditions as it deems fit, having regard to the interest of revenue. It is not clear whether the term tax or duties includes interest and penalties.
The tribunal shall have the same powers as those vested in a civil court while trying a suit.
Where a question of law already decided by a bench of NTT comes up for hearing in another case, the question will be decided by a special bench.
No time limit has been prescribed for hearing and disposal of cases before the NTT.
The Calcutta High Court has stayed the Union government's move to set up NTT, after a public interest litigation challenging the legality of the ordinance.
Import of software not royalty
The Bangalore tribunal recently held in Lucent Technologies Hindustan Limited v ITO that payment for imported software, being a copyrighted article, is not royalty.
In this case an Indian company was engaged in the business of making and selling electronic switching systems for the telecom industry. The company purchased hardware and software from Lucent US for supply of integrated equipment to Indian customers. Lucent US invoiced the Indian company separately for the supply of hardware and software. Payments were made by the company to Lucent US without withholding any tax, on the basis that acquisition of software is inextricably linked to acquisition of hardware. But the assessing officer was of the view that the software was separately imported and the payment was in the nature of royalty, subject to withholding tax under the India-US Treaty.
The Indian company contended that the transaction with Lucent US was a transaction for purchase of equipment, the software being an integral part of the same. The tribunal accepted the distinction between payment for use of copyrighted articles and use of copyright rights. Because the Indian company had no right to duplicate the software or use it for any other purpose, it was held that it had only acquired a copyrighted article, the payment for which cannot be construed as royalty under the India-US Treaty.
R S Kadakia (rajesh.kadakia@in.ey.com) , Mumbai and
Vidya Nagarajan (vidya.nagarajan@in.ey.com), Chennai
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