2021 (3) TMI 1215 - HC - Income Tax

TDS u/s 195 - payments made by the appellant for purchase of computer software by holding that the said payments are in the nature of royalty - income chargeable to tax in India or not? - disallowance made under Section 40(a)(i) - HELD THAT - As decided in the case of ENGINEERING ANALYSIS CENTRE FOR EXCELLENCE PRIVATE LIMITED 2021 (3) TMI 138 - SUPREME COURT amounts paid by resident Indian end-users/distributors to non-resident computer software manufacture/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in Section 195 of the Income Tax Act were not liable to deduct any TDS under Section 195 - Decided in favour of assessee.

Summary

Issues:
Appeal under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal for the assessment year 2010-2011. Substantial questions of law regarding reliance on a previous judgment and the classification of payments as 'royalty' under Section 9(1)(vi) of the Income Tax Act.

Analysis:
The appeal was filed by the Revenue against the order of the Income Tax Appellate Tribunal for the assessment year 2010-2011. The substantial questions of law raised in the appeal pertained to the reliance placed by the Tribunal on a judgment of the High Court in a previous case, which had not been accepted and was pending before the Supreme Court. The second question revolved around the classification of payments made by the appellant as 'royalty' under Explanation 2 to Section 9(1)(vi) of the Income Tax Act, 1961, and the Double Taxation Avoidance Agreements (DTAAs), leading to an income chargeable to tax in India and requiring deduction of tax under Section 195 of the Act.

During the hearing, the counsel for the assessee pointed out that the issue in the present appeal had been settled by a recent decision of the Supreme Court in a different case. The Supreme Court's decision in Civil Appeal Nos. 8733-8734/2018 dated 02.03.2021 was cited, where the issue was resolved in favor of the assessee. The counsel for the Revenue did not contest this submission.

Based on the precedent set by the Supreme Court's judgment in Civil Appeal Nos. 8733-8734/2018, the High Court ruled in favor of the assessee and against the Revenue. Consequently, the order of the Income Tax Appellate Tribunal dated 17.04.2015 was quashed, and the appeal was allowed in favor of the assessee. The judgment provided clarity on the issues raised and established the legal position in line with the Supreme Court's decision.