2012 (8) TMI 217 - AT - Income Tax

Purchase of software product - Indo-Singapore Treaty - assisting in modification and implementation of software purchased treated as a royalty payment Held that - Taxability of amount u/s 9(1)(vi) of the Act has not decided - if taxability is not attracted as per section 9 of the Act, then notwithstanding any positive provision in the DTAA including such payment within the ambit of Royalty or Fees for technical services , no tax can be charged on the total income of the non-resident - if the charge is not attracted, there can be no question of any deduction of tax at source or treating the assessee as in default - matter is restored to the file of the CIT for examining - appeals are allowed for statistical purposes

Summary

Issues:
Taxability of payments made to a non-resident company under sections 195(1), 195(2), and 201 read with section 201(1A) of the Income-tax Act, 1961 for the assessment year 2004-2005.

Analysis:
The appellant challenged the orders passed by the Commissioner of Income-tax (Appeals) regarding payments made to a non-resident company, Apex Systems Pte. Ltd., Singapore. The first issue raised was related to payments made for the purchase of software products and consultancy services, treated as royalty payments requiring tax deduction at source. The appellant argued that the payments were for the acquisition of a license to use software for business purposes, not for copyright, and should be considered business profits, not royalty. The appellant contended that the payments were not covered under section 9(1)(vi) of the Income-tax Act, 1961 or Article 12 of the Indo-Singapore Treaty. The Tribunal noted the absence of a decision on the taxability under section 9(1)(vi) in the impugned order and remanded the matter to the CIT(A) for further examination.

The second issue involved payments for Annual Maintenance Charges (AMC) for software users, treated as Fees for Technical Services under the Indo-Singapore Treaty, requiring tax deduction at source. The appellant argued that the payments were for maintenance charges related to software products and constituted business profits, not fees for technical services. The Tribunal observed that the taxability under section 9(1)(vi) was not decided in the impugned order, leading to a remand for the CIT(A) to determine the taxability of the payments under the Act before considering the applicability of the treaty provisions.

The Tribunal allowed all appeals for statistical purposes, emphasizing the need for a clear decision on the taxability of the payments under the Income-tax Act before applying provisions of the Double Taxation Avoidance Agreement (DTAA). The Tribunal directed the CIT(A) to provide a reasoned decision on the taxability of the payments, ensuring a comprehensive examination of the issues raised by the appellant. The decision highlighted the importance of establishing taxability under the Act as a prerequisite for considering tax liability under the DTAA, underscoring the significance of a thorough analysis in tax matters involving international transactions.