2010 (2) TMI 1201 - AT - Income Tax

Summary

Issues Involved:
The judgment involves the assessment years 2004-05 and 2005-06, focusing on the disallowance of payments made for software licenses under section 40(a)(1) of the Income-tax Act, specifically addressing whether the payments constituted 'royalty' under section 9(1)(vi) of the Act and attracted TDS provisions u/s 195.

Assessment Year 2004-05:
The assessee purchased software license from a foreign company, debiting an amount of Rs. 5,26,159. The assessing officer considered the payment as 'royalty' under section 9(1)(vi) of the Act, attracting TDS provisions u/s 195 due to the right to apply the software for developing software for sale in India. The CIT (A) confirmed the disallowance under section 40(a)(1) of the IT Act, leading to the appeal before the ITAT Hyderabad.

Assessment Year 2005-06:
The assessee claimed to have purchased software from associated Enterprises, debiting Rs. 1,02,72,907 to P & L account. The assessing officer disallowed the amount under section 40(a)(1) of the IT Act, treating it as 'royalty' under section 9(1)(vi) due to the right to apply the software for developing software for sale in India. The CIT (A) upheld the disallowance, prompting the appeal before the ITAT Hyderabad.

Judgment:
The ITAT Hyderabad, after considering the submissions, agreed to send back the matters to the assessing officer for reconsideration. Both parties consented to this decision, emphasizing the need for a fresh assessment in accordance with the law. Consequently, the appeals by the assessee were treated as allowed for statistical purposes, with the issues, including additional grounds, to be decided after hearing all contentions of the assessee.