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2010 (6) TMI 487 - AT - Income TaxDTAA - TDS - Royalty - Singapore company vide their sales order dated 18th December 2001 has supplied the licensed software to the assessee for a consideration of USD 43, 000 - Delhi Special Bench of the Tribunal in the case of Motorola Inc. Vs. DCIT reported has Held that one cannot have the copyright right without the copyrighted article but at the same time just because one has the copyrighted article it does not follow that one has also the copyright in it - a computer software when put into a media and sold it becomes goods like any other audio cassette or painting on canvass or book - Held that the amount paid by the assessee towards purchase of IXOS-eCON for R/3 50 users cannot be treated as payment of royalty taxable in India under Article 12 of DTAA between India and Singapore - Decided in the favour of the assessee
Issues Involved:
1. Taxability of payments for computer software as "royalty" under Article 12 of the India-Singapore DTAA. 2. Requirement for the appellant to deduct tax at source. 3. Applicability of exemption under section 10(6A) of the Income-tax Act. Detailed Analysis: 1. Taxability of Payments for Computer Software as "Royalty" under Article 12 of the India-Singapore DTAA: The primary issue was whether the payments made by the assessee to M/s. IXOS Software Asia Pte. Ltd., Singapore, for computer software should be classified as "royalty" under Article 12 of the DTAA between India and Singapore. The assessee argued that the payment was for the outright purchase of software, thus not liable to tax in India. However, the Assessing Officer and CIT(A) contended that the payment constituted "royalty" as it was for the use of or the right to use a copyright, which is taxable under Article 12. The CIT(A) analyzed the licensing agreement and concluded that the payment was for a non-exclusive, non-transferable license to use the software, which constitutes royalty. He referenced sections of the Copyright Act, 1957, and the DTAA, emphasizing that the payment was for the right to copy and use the software, thus fitting the definition of royalty. The Tribunal, however, disagreed, citing the Supreme Court's decision in Tata Consultancy Services vs. State of Andhra Pradesh, which held that software, once put on a media and sold, becomes "goods." The Tribunal also referenced the Bangalore Bench's decision in Samsung Electronics Co. Ltd. v. ITO, which distinguished between acquiring a copyrighted article and acquiring the copyright itself. The Tribunal concluded that the payment for the software was not for the use of copyright but for the purchase of goods, thus not taxable as royalty under the DTAA. 2. Requirement for the Appellant to Deduct Tax at Source: Given the Tribunal's conclusion that the payment for the software did not constitute royalty, it followed that the assessee was not required to deduct tax at source under section 195 of the Income-tax Act. The Tribunal emphasized that the payment was for the purchase of goods, not for the use of a copyright, thus no tax deduction was necessary. 3. Applicability of Exemption under Section 10(6A) of the Income-tax Act: The CIT(A) rejected the assessee's claim for exemption under section 10(6A) on the grounds that the assessee did not provide sufficient documentary evidence. However, since the Tribunal ruled that the payment was not taxable as royalty, the question of exemption under section 10(6A) became moot. Conclusion: The Tribunal allowed the appeal, ruling that the payment for the software was not taxable as royalty under Article 12 of the DTAA between India and Singapore. Consequently, the assessee was not required to deduct tax at source. The Tribunal's decision was based on the interpretation that the payment was for the purchase of goods, not for the use of a copyright.
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