9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2007 (8) TMI 717 - AT - Income TaxIncome deemed to accrue or arise in India - Non-deduction of tax at source u/s 195 r/w s. 9(1)(vi) and (vii) - Payment in foreign currency made to IGTL and TDT - connectivity facility and maintenance services - facilitate call centers in India (run by assessee) to establish outbound calls to clients/people in United States of America (USA) - Assessee in default - Non-resident - DTAA between India and USA - HELD THAT - After insertion of cl. (iva) to Expln. 2 in s. 9(1)(vi) w.e.f. 1st April, 2002 meaning of 'royalty' is very wide. There are two basic conditions for application of that definition, first is that equipment should be any industrial, commercial or scientific equipment and second is that 'use or right to use' of those equipments. In the case under consideration MUX and ancillary equipments are undoubtedly commercial equipments. The same are scientific equipment also. Thus this first condition is satisfied. In respect of second condition, we find that IGTL allowed assessee to use or gave right to use MUX and ancillary equipments in USA so that the assessee gets connectivity facility, which facilitates assessee to establish outbound calls to clients/people in USA. Thus, the second condition is also satisfied. We, therefore, find that payment made by the assessee to the IGTL, USA party is royalty within the meaning given in cl. (iva) of Expln. 2 of s. 9(1)(vi) of the Act. We find that impugned payment is 'royalty' in accordance with cl. (iva) to Expln. 2 of s. 9(1)(vi) which is deemed to accrue or arise in India. All income accrues or arises or is deemed to accrue or arise in India is chargeable under the provisions of this Act. Sec. 195 provides that any person responsible for paying to non-resident any other sum chargeable under the provisions of this Act shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. We find that the impugned transaction under consideration satisfied all the conditions stipulated in section, therefore, the assessee is liable to deduct tax at source from both types of payments for availing connectivity facility and for availing maintenance services as both payments are in the nature of 'royalty'. We confirm the order of CIT(A) though on different reasons and grounds. Deduction of tax at source from payments made to TDT - Royalty is the transfer of the 'right in respect of the property'. The two transfers are distinct and have different legal effects. In one, rights are purchased which enables use of those rights, while in the other the purchase is involved, only the right to use has been granted. Ownership denotes the relationship between a person and an object forming the subject-matter of his ownership. It consists of a complex of rights all of which rights are rights in property, being good against all the world and not merely against a specific person and such rights are indeterminate in duration and residuary in character. That sum may be agreed for the transfer of one right, two rights and so on but not the ownership. Thus, the definition in respect of software, etc. does not extend to the outright purchase of the right to use an asset. A payment for the absolute assignment and ownership of rights transferred is not a payment for the use of something belonging to another party and therefore, not royalty. In an outright transfer to be treated as sale/purchase of property as opposed to licence, alienation of all rights in the property is necessary. Thus, we find that the said payment was not for transfer of absolute assignment and ownership of 'True Dial Software'. The transaction clearly falls under the definition of 'royalty' as defined in s. 9(1)(vi) Expln. 2(iva). The assessee acquired only right to use of 'True Dial Software'. It is 'royalty' and royalty payment to NRI is deemed to accrue and arise in India and therefore, payment is subject to TDS. We, therefore, confirm the orders of the lower authorities. In the result, appeals of the assessee are dismissed.
Issues Involved:
1. Deduction of tax at source from payments made to IGTL. 2. Deduction of tax at source from payments made to True Dial Technologies. Analysis of Judgment: Issue 1: Deduction of tax at source from payments made to IGTL Facts and Arguments: - The assessee company, engaged in software development and running a call center, made payments to IGTL Solutions (USA) for connectivity facilities and maintenance services without deducting tax at source under Section 195 read with Section 9(1)(vi) & (vii) of the Income-tax Act, 1961. - The Assessing Officer (AO) considered these payments as royalty for the use of industrial, commercial, or scientific equipment under Section 9(1)(vi) and fees for technical services under Section 9(1)(vii), thus liable for tax deduction at source. - The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the AO's decision, treating the payments as royalty and fees for technical services, citing the Asia Satellite Telecommunications Co. Ltd. case. Tribunal's Findings: - The Tribunal examined the definition of 'royalty' under Explanation 2 to Section 9(1)(vi), which includes consideration for the use of or right to use any industrial, commercial, or scientific equipment. - It was determined that IGTL provided the assessee with the right to use MUX and ancillary equipment in the USA, satisfying the conditions for 'royalty' under Clause (iva) of Explanation 2 to Section 9(1)(vi). - The Tribunal referred to the Double Taxation Avoidance Agreement (DTAA) between India and the USA, which allows for taxation of royalties in the contracting state where they arise. - The Tribunal concluded that the payments made to IGTL were 'royalty' and thus subject to tax deduction at source under Section 195. Conclusion: - The Tribunal confirmed the CIT(A)'s order, holding that the payments made to IGTL for connectivity facilities and maintenance services were indeed 'royalty' and subject to tax deduction at source under Section 195. Issue 2: Deduction of tax at source from payments made to True Dial Technologies Facts and Arguments: - The assessee made payments to True Dial Technologies (TDT), Florida, for the use of True Dial Software, claiming it as a purchase of software. - The AO treated these payments as 'royalty' under Section 9(1)(vi) and Article 12 of the DTAA between India and the USA, thus liable for tax deduction at source. - The CIT(A) upheld the AO's decision. Tribunal's Findings: - The Tribunal examined the nature of the payments and the terms of the agreement, which indicated that the payments were for the right to use the software, not an outright purchase. - The Tribunal referred to judicial pronouncements and the OECD commentary, which distinguish between payments for the use of software and outright purchases. - The Tribunal concluded that the payments made to TDT were for the right to use the software, thus falling under the definition of 'royalty' as per Section 9(1)(vi) Explanation 2 (iva). - The Tribunal held that these payments were 'royalty' and subject to tax deduction at source under Section 195. Conclusion: - The Tribunal confirmed the CIT(A)'s order, holding that the payments made to TDT for the use of True Dial Software were 'royalty' and subject to tax deduction at source under Section 195. Final Decision: - The appeals of the assessee were dismissed, and the orders of the lower authorities were confirmed, holding that the payments made to IGTL and TDT were 'royalty' and subject to tax deduction at source under Section 195.
|
