Synamedia Limited Vs CIT (ITAT Bangalore)
The Copyright Clock Ran Out: Time-Barred Revision u/s 263 Fails Against Non-Royalty Assessment
Summary:
Relevant Facts
In Synamedia Ltd. v. CIT (International Taxation), the Bangalore ITAT examined the validity of a revisionary order u/s 263 for AY 2020–21. Synamedia Ltd., a company domiciled in the United Kingdom, had no permanent establishment or liaison office in India. It supplied open digital technology & services to digital pay-television operators & content providers, including integrated hardware systems containing embedded software.
The assessee filed its return declaring Nil income & claimed treaty protection u/s 90(2) under the India–UK DTAA. During scrutiny, the AO examined whether Indian receipts constituted royalty under domestic law or Article 12. The assessee furnished contractual provisions, customer agreements & Copyright Act submissions explaining that no copyright was transferred. Relying on Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT, the AO completed assessment u/s 143(3) on 6 June 2022 at returned income.
The CIT subsequently invoked section 263, reasoning that the assessee had not produced the end-user licence agreement during assessment. According to the CIT, the AO had failed to verify whether copyright had been fully transferred to Indian purchasers, rendering the assessment erroneous & prejudicial to Revenue’s interests. By order dated 9 October 2025, the CIT set aside the assessment & directed fresh examination.
Issues Before the Tribunal
The first issue was whether the revisionary order was barred by the two-year limitation u/s 263(2). The second was whether the original assessment was genuinely erroneous or whether the CIT was merely seeking another enquiry into a royalty issue already examined & settled by binding precedent.
Assessee’s Submissions
The assessee argued that the assessment order was passed during FY 2022–23; consequently, the two-year period calculated from the end of that financial year expired on 31 March 2025. Since even the first revision notice was issued only on 3 September 2025, followed by hearing on 22 September 2025 & the order on 9 October 2025, the entire proceeding was patently time-barred.
On merits, the assessee submitted that the AO had examined software receipts, licensing conditions, the “right to use”, copyright law, Article 12, section 195 & Engineering Analysis. The assessment embodied a conscious & legally permissible view. Alleged inadequacy of enquiry or the Commissioner’s preference for another investigation could not justify revision.
Identical disputes for AYs 2006–07 to 2021–22 had repeatedly been decided in its favour by the ITAT, AO & DRP. For AY 2006–07, the Tribunal specifically examined the end-user licence agreement. Following jurisdictional decisions & Supreme Court law could not make the assessment erroneous. The CIT had identified neither definite error nor actual prejudice.
Revenue’s Contentions
The CIT-DR supported revision. Without the end-user licence agreement, the AO allegedly could not determine whether customers obtained copyright rights or merely a copyrighted product. Revenue treated this as lack of enquiry attracting Explanation 2 to section 263, justifying fresh assessment.
ITAT’s Findings on Limitation
The Tribunal first applied the plain language of section 263(2). A revisionary order must be passed within two years from the end of the financial year in which the order sought to be revised was made. Since the assessment order dated 6 June 2022 fell in FY 2022–23, limitation began from 31 March 2023 & ended on 31 March 2025.
The notice dated 3 September 2025 & revision order dated 9 October 2025 were both issued after expiry of that period. The ITAT therefore held that the CIT had no surviving jurisdiction to revise the assessment. The revisionary order was quashed as barred by limitation.
Findings on Merits & Legal Reasoning
The Tribunal also examined merits. The assessee had submitted explanations concerning agreements, embedded software, copyright law, treaty protection & Engineering Analysis. The AO considered them before concluding that receipts were not taxable as royalty. It was not a case of no enquiry.
The conclusion was also consistent with decisions in the assessee’s own cases. For AY 2015–16, the AO had accepted the same treatment, while for AY 2016–17, the DRP had held that no income was taxable following Engineering Analysis. Earlier coordinate-bench orders had examined substantially identical arrangements, including the licence terms. Hence, the assessment reflected settled law rather than an unsustainable view.
Section 263 requires both error & prejudice. The Commissioner cannot reopen a concluded assessment merely because another enquiry appears desirable when the AO’s view is supported by evidence & binding authority. Accordingly, the ITAT held that the assessment contained no error warranting revision. Grounds challenging limitation & jurisdiction were allowed; other grounds became infructuous & the assessee’s appeal was allowed.
Practical Implications
The decision delivers a double safeguard against revision: limitation is absolute, while merits independently require an identifiable error causing Revenue prejudice. A notice issued after limitation cannot revive extinguished jurisdiction. Foreign software suppliers should preserve customer agreements, licence terms, assessment submissions & prior favourable orders to demonstrate proper enquiry. Equally, Commissioners must verify the statutory deadline before initiating revision & cannot use Explanation 2 as a routine device for repeated investigation of a royalty question already examined in assessment.
Cases Discussed
- Engineering Analysis Centre of Excellence Private Limited v. CIT (Supreme Court)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, BANGALORE BENCH
1. Synamedia Ltd. (the assessee/appellant) has filed this appeal in ITA No. 3009/Bang/2025 against the revisionary order dated 9 October 2025 passed under section 263 of the Income-tax Act, 1961 (the Act), by the Commissioner of Income Tax (International Taxation), Bangalore (the learned CIT), for assessment year 2020-21. By that order, the learned CIT held that the assessment order dated 6 June 2022, passed by the Assistant Commissioner of Income Tax, International Taxation, Circle-1(2), Bangalore (the learned AO), under section 143(3) of the Act, was erroneous and prejudicial to the interests of the Revenue. The learned CIT accordingly set aside the assessment order and directed the AO to pass a fresh assessment order. The learned CIT observed that, during the assessment proceedings, the assessee had not produced copies of the end-user licence agreement to establish whether copyright had been fully transferred to the Indian purchaser. On that basis, the assessment order was held to have been passed without the necessary enquiries and verification and was therefore considered erroneous and prejudicial to the interests of the Revenue.
2. The Assessee has raised the following grounds of appeal:
1. The Order under section 263 of the Indian Income Tax Act issued by the Learned Commissioner of Income Tax (International Taxation) [CIT (IT)], in so far as it is prejudicial to the interest of the Appellant is not justified under the facts and circumstances of the case and in law and prayed to be quashed.
2. The learned CIT (IT) has erred in issuing the order under section 263, beyond the limitation period under section 263(2). Hence, the order is bad in law, void ab initio and prayed to be quashed. The original assessment order under section 143(3) was passed on 6th June 2022 (FY 2022-23), and therefore the limitation expired on 31 March 2025. The impugned order under section 263, dated 9th October 2025 is patently time-barred and without authority of law.
3. The learned CIT(IT) has erred in invoking the provisions of section 263 of the Act without satisfying the twin statutory preconditions viz. the order being erroneous and the order being prejudicial to the interests of the revenue, and is therefore without jurisdiction and thus, prayed to be quashed.
4. The learned CIT (IT) is not justified in law in holding that the assessment order u/s 143(3) passed by the learned Assessing Officer is erroneous, without appreciating the assessment order u/s 143(3) is neither erroneous nor prejudicial to the interest of the revenue and none of the conditions mentioned in explanation 2 of section 263 of the Act are attracted. Accordingly, the order u/s 263 is bad in law and prayed to be quashed.
5. The learned CIT (IT) has failed to demonstrate any real or tangible prejudice to the interests of the revenue arising from the assessment order, and in the absence of such demonstrated prejudice, the invocation of section 263 is unsustainable in law.
6. The CIT(IT) failed to appreciate that the Appellant had not transferred any copyright to customers. and that the learned AO, after thorough examination of the facts on record and after making all possible enquiries and exercising the quasi-judicial power as conferred by the Act, passed the assessment order, accepting the claims of the Appellant.
7. The learned CIT(IT) has failed to appreciate that the assessment order u/s 143(3) passed by the learned assessing officer is a reasoned order and revisionary powers cannot be exercised merely if the learned CIT(IT) is of the opinion that there was inadequacy of enquiry, without appreciating that the issue of software payments, licensing terms, and copyright rights was examined during assessment proceedings. The learned AO had taken a plausible view based on facts and circumstances of the case and judicial precedents. Hence, embarking on the concluded assessment and directing the learned AO to re-examine the proceedings afresh, directing to hold further enquiries is unsustainable under the facts and circumstances of the case.
8. The learned CIT (IT) has erred in law in invoking section 263 on a mere change of opinion. The issues forming the basis of revision were already examined by the learned Assessing Officer during the assessment proceedings, and the impugned revision seeks to substitute the subjective opinion of the Commissioner for that of the Assessing Officer, which is impermissible in law.
9. The learned CIT (IT) failed to appreciate that if the assessment order u/s 143(3) is in accordance with the law and has been passed after conducting the necessary enquiries and verification, the same cannot be held to be ‘erroneous in so far as it is prejudicial to the interests of the revenue’ as given under Explanation 2 to section 263 of the Act.
10. The learned CIT(IT) erred in appreciating that the Appellant has duly submitted the details sought vide notice issued by the learned CIT(IT) and thereafter failed to form an opinion as to whether there is an error in the assessment order u/s 143(3) passed by the learned AO. The learned CIT(IT) erred in invoking section 263, Explanation 2, Clause (a) arbitrarily, without any cogent material, due to change of opinion, by way of rowing enquiries of the revenue. The Ld. Commissioner erred in directing to re-examine the issues without even making a clear direction.
11. The learned CIT (IT) has failed to appreciate that the learned Assessing Officer was bound by the decisions of the jurisdictional ITAT and quasi-judicial authorities in the Appellant’s own case on identical facts, and such adherence to binding precedents cannot render the assessment order erroneous.
12. The learned CIT (IT) has failed to record any specific, definite or sustainable finding as to how the assessment order passed under section 143(3) is erroneous in law or on facts, and has merely proceeded on vague and general observations, rendering the assumption of jurisdiction under section 263 invalid.
13. The learned CIT (IT) has erred in mechanically invoking Explanation 2 to section 263 without demonstrating how the conditions therein are satisfied in the present case. Explanation 2 cannot be applied in a routine or automatic manner, especially where the Assessing Officer has conducted enquiries and taken a conscious view.
14. The impugned order is contrary to the principles of natural justice, facts of the case, and settled judicial principles, and is therefore prayed to be quashed.
15. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of objection at any time before or at the time of hearing before the Honourable Income Tax Appellate Tribunal (‘Tribunal’), so as to enable the Hon’ble Tribunal to decide on the appeal in accordance with the law.
16. For these and other grounds that may be urged at the time of hearing of appeal, the Appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.
3. Briefly, the assessee is a company domiciled in the United Kingdom and has no permanent establishment or liaison office in India. It is engaged in supplying open digital technology and services to digital pay television platform operators and content providers. Under agreements with its customers, the assessee supplies integrated hardware systems with embedded software.
4. The assessee filed its return of income on 12 February 2021 declaring Nil income and claimed exemption under section 90(2) of the Income-tax Act by applying the Double Taxation Avoidance Agreement between India and the United Kingdom. The return was selected for scrutiny, and the learned Assessing Officer examined whether the revenue earned by the assessee was taxable as royalty under Article 12 of the Double Taxation Avoidance Agreement and under the Income-tax Act. The assessee placed before the learned Assessing Officer the relevant contractual provisions, agreements with customers, and provisions of the Copyright Act. It was submitted that the issue was squarely covered in favour of the assessee by the decision of the Hon’ble Supreme Court in Engineering Analysis Centre of Excellence. The learned Assessing Officer accepted the assessee’s contention and assessed the total income as returned.
5. The learned CIT thereafter revised the assessment order, holding that the learned Assessing Officer had not examined the end-user licence agreement between the assessee and its customers to verify whether the income was taxable as royalty under the Income-tax Act or the Double Taxation Avoidance Agreement.
6. In ground No. 2, the assessee challenges the revisionary order on the ground that it is barred by limitation. It submits that the assessment order was passed on 6 June 2022 and, under section 263(2), the learned CIT could revise that order only up to 31 March 2025. Since the revisionary order was passed on 9 October 2025, the assessee contends that it is time-barred.
7. The assessee is also aggrieved that, in its own cases from assessment years 2006-07 to 2021-22, the issue has consistently been decided in its favour, including after examination of the end-user licence agreement. Despite this, the learned PCIT invoked the revisionary powers under section 263 of the Act. The assessee submits that, once the issue had already been decided in its favour, the learned PCIT could not revise the assessment order by invoking section 263. It was further submitted that, in ITA No. 363/Bang/2017 for assessment year 2006-07, the Tribunal, by order dated 12 November 2021, extensively considered the end-user licence agreement between the assessee and its customer in paragraph No. 21. Therefore, even otherwise, there was no error in the order passed by the learned Assessing Officer, who had considered the decision of the Hon’ble Supreme Court in Engineering Analysis Centre of Excellence Private Limited v. CIT. At various stages across these assessment years, the ITAT, the learned Assessing Officer, and the learned Dispute Resolution Panel have all taken a view in favour of the assessee. The assessment order, therefore, cannot be said to be erroneous.
8. Thus, the order was challenged both as time-barred and on the ground that the assessment order contained no error warranting revision.
9. The learned authorised representative filed a 98-page paper book and relied on several judicial precedents in the assessee’s own cases. He further submitted that, as raised in ground No. 2, the issue is clear: the revisionary order passed by the learned CIT is beyond the prescribed time limit.
10. Dr. Divya K.J., the learned Commissioner of Income Tax, strongly supported the order passed by the learned CIT.
11. We have carefully considered the rival contentions and perused the order dated 9 October 2025 passed by the learned CIT under section 263 of the Income-tax Act. By that order, the learned CIT held that the assessment order dated 6 June 2022 passed under section 143(3) by the Assessing Officer was erroneous and prejudicial to the interests of the Revenue. Under section 263(2), the CIT may revise an assessment order only within two years from the end of the financial year in which that order was passed. Since the assessment order was passed on 6 June 2022, the limitation period commenced from 31 March 2023 and expired on 31 March 2025. In the present case, the first notice itself was issued only on 3 September 2025, personal hearing was granted on 22 September 2025, and the revisionary order was passed on 9 October 2025. The revisionary order is therefore barred by limitation and is liable to be quashed.
12. The facts show that the assessee is domiciled in the United Kingdom and has no permanent establishment or liaison office in India. The assessee is engaged in supplying open digital technology and services to digital pay television platform operators and content providers. Under agreements with its customers, it supplies integrated hardware systems with embedded software. The assessee filed its return of income on 12 February 2021 declaring Nil income, which the learned Assessing Officer accepted, holding that the assessee was entitled to exemption under section 90(2) by applying the India-United Kingdom Double Taxation Avoidance Agreement. In its written submissions, the assessee explained that its income was not chargeable to tax in India because, under Article 12 of the Double Taxation Avoidance Agreement, the consideration received by it did not constitute royalty. The assessee also explained the concept of the “right to use,” the relevant provisions of the Copyright Act, the customer agreements, the nature of the software supplied and services rendered, the applicability of the decision of the Hon’ble Supreme Court, Article 12 of the Double Taxation Avoidance Agreement, and section 195 of the Income-tax Act. On that basis, the learned Assessing Officer accepted the assessee’s contention that the income in question was not taxable in India as royalty under Article 12 of the Double Taxation Avoidance Agreement and in view of the decision of the Hon’ble Supreme Court.
13. Even otherwise, the issue is covered in favour of the assessee by several decisions of the co-ordinate Benches in the assessee’s own cases for earlier assessment years. For assessment year 2015-16, the learned Assessing Officer himself accepted the assessee’s claim. Further, for assessment year 2016-17, the learned Dispute Resolution Panel also held that no income was chargeable to tax in the hands of the assessee in view of the decision of the Hon’ble Supreme Court in Engineering Analysis Centre of Excellence Private Limited (supra).
14. In view of the above, we hold that the order passed by the learned CIT under section 263 of the Income-tax Act is barred by limitation and, in any event, is unsustainable as the assessment order passed by the learned Assessing Officer contains no error.
15. Accordingly, ground No. 2 is allowed as the order passed by the learned CIT is barred by limitation. Ground No. 3 is also allowed as the assessment order is not erroneous.
16. All other grounds of appeal are rendered infructuous and are dismissed.
17. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 31st August, 2026.
