9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2011 (9) TMI 86 - AAR - Income TaxDTAA with Sri Lanka - Implementation fee and ‗Licence and Maintenance fee - No PE - TDS u/s 195 - it is clear that the license to use computer Program means right to use the intellectual property that is the copyright in the computer program in a particular way - Since a license gives a right to do something which would otherwise be unlawful, let us examine whether the ICEL would be liable for copyright infringement if it uses the Computer Programme without entering into the SLMA - If it was to be in the nature of business income then the SLMA would have been sale and service of Licensed Program and the fee paid would have been taxable as business income under Article 7 of the DTAA, depending on whether the applicant has a PE in India or not under Article 5 of the DTAA - since without the SLMA being in place, any usage of the computer programme by the customers would have amounted to copyright infringement, the payment made under the SLMA was for obtaining the right to use the copyright in the software and taxable as royalty under the DTAA and the Act The definition of royalty contained in this Treaty in Article 12.3 shows that it is a payment of any kind received as consideration for the use of or the right to any copyright - In the present case, not merely the use is licensed but the licensee is given the right to copy it and use it wherever it is needed by it for its business - Held that the right given to ICEL to copy the software for its purposes, is a right to use the copyright. In any event, the use of a copyright has been given to ICEL for consideration and that would be royalty in terms of the DTAA - Ruling is given
Issues Involved:
1. Taxability of Implementation and License & Maintenance Fees under the Income-tax Act, 1961. 2. Taxability under the Double Taxation Avoidance Agreement (DTAA) between India and Sri Lanka. 3. Existence of a Permanent Establishment (PE) in India. 4. Requirement for ICEL to withhold tax under Section 195 of the Income Tax Act, 1961. 5. Obligation of the applicant to file a tax return in India. Analysis of the Judgment: 1. Taxability of Implementation and License & Maintenance Fees: The applicant entered into a Software License and Maintenance Agreement (SLMA) with ICEL, allowing ICEL to use a licensed software program. The applicant argued that the fees paid under the SLMA are not taxable under the Income-tax Act, 1961, or the DTAA with Sri Lanka. However, the Revenue contended that the payments are taxable as 'royalties' under the Act and the DTAA. The Authority held that the fees paid by ICEL to the applicant are taxable as royalty under clause (v) of Explanation 2 to Section 9(1)(vi) of the Act. 2. Taxability under the DTAA between India and Sri Lanka: The applicant claimed that the payments are not taxable under the DTAA. The Revenue argued that the payments are royalties as defined in the DTAA. The Authority concluded that the fees payable by ICEL to the applicant arise in India and are taxable under Article 12.2 of the DTAA. 3. Existence of a Permanent Establishment (PE) in India: The applicant contended that providing maintenance services would not create a PE in India. The Revenue argued that the applicant's activities in India, including customization and training, could constitute a PE. The Authority, however, determined that the applicant does not have a PE in terms of Article 5 of the DTAA, as the activities did not exceed the stipulated period of 275 days. 4. Requirement for ICEL to Withhold Tax under Section 195: The applicant argued that ICEL is not required to withhold tax under Section 195 of the Act. The Revenue maintained that ICEL must withhold tax as the payments are taxable in India. The Authority ruled that the applicant is taxable on the fees paid by ICEL, and the provision of withholding tax under Section 195 would apply. 5. Obligation to File a Tax Return in India: The applicant sought clarification on whether it needs to file a tax return in India. The Revenue asserted that the applicant must file a return as it is liable to tax in India. The Authority held that since the applicant is liable to tax in India, it is required to file a return of income under the provisions of the Act. Conclusion: The Authority for Advance Rulings concluded that the fees paid by ICEL to the applicant are taxable as royalties under both the Income-tax Act, 1961, and the DTAA with Sri Lanka. The applicant does not have a Permanent Establishment in India. However, ICEL is required to withhold tax under Section 195, and the applicant must file a tax return in India.
|
