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2012 (3) TMI 538 - AT - Income TaxTds u/s 195 - whether the payment of USD 58,000 payable to Verisity Design Inc, USA, for purchase of software was in the nature of royalty and the assessee was required to deduct tax at source and pay the same to the Government? - Held that - Payment made by the assessee to non-resident companies would amount to royalty within the meaning of Article 12 of the DTAA with the respective countries and there was obligation on the part of the assessee to deduct tax at source u/s. 195 of the I.T. Act. We therefore do not see any infirmity in the order of the ld. CIT(A), as such we do not find any merit in this appeal of the assessee.
Issues Involved:
1. Whether the payment made by the assessee to Verisity Design Inc., USA, for the purchase of software constitutes "royalty." 2. Whether the assessee was required to deduct tax at source under Section 195 of the Income-tax Act, 1961. 3. Whether the assessee is entitled to a refund of the tax deposited. Issue-wise Detailed Analysis: 1. Nature of Payment as Royalty: The primary issue addressed in the judgment is whether the payment of USD 58,000 made by the assessee to Verisity Design Inc. for the purchase of software is to be treated as "royalty." The CIT(A) upheld the view of the Assessing Officer, holding that such payments are in the nature of royalty. This was based on the precedent set by the jurisdictional High Court in the case of M/s. Samsung, which held that payments for "shrink-wrapped software" constitute royalty. The judgment referenced the Supreme Court's decision in GE India Technology Centre Vs. CIT, emphasizing that the chargeability of the sum paid to the non-resident must be determined before applying Section 195. The High Court's interpretation that such payments are considered royalty unless reversed by a higher court was crucial in this determination. 2. Requirement to Deduct Tax at Source: The judgment further analyzed the obligation of the assessee to deduct tax at source under Section 195 of the Income-tax Act. The CIT(A) and the tribunal relied on the jurisdictional High Court's decision, which mandated tax deduction at source for payments made to non-residents for software purchases, classifying them as royalty under Section 9(1)(vi) of the Act. The tribunal noted that the assessee's own case had been decided against them by the jurisdictional High Court, which confirmed the necessity of tax deduction at source for such payments. 3. Entitlement to Refund of Tax Deposited: The assessee sought a refund of the tax deposited, arguing that the payment did not constitute royalty and hence, no tax was deductible. However, the tribunal upheld the CIT(A)'s decision, which denied the refund. The tribunal emphasized that as long as the jurisdictional High Court's ruling stands, the payment is considered royalty, and the tax deducted at source was correctly done. The tribunal also noted that the assessee had appealed to the Supreme Court against the High Court's decision, but until any reversal, the current legal position must be followed. Conclusion: The tribunal dismissed the appeal, affirming that the payment made by the assessee to Verisity Design Inc. for the purchase of software is indeed royalty, requiring tax deduction at source under Section 195. Consequently, the assessee's request for a refund of the tax deposited was denied. The judgment was pronounced in the open court on March 22, 2012.
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