2021 (3) TMI 1408 - AT - Income Tax

Withholding obligation u/s 195 from payments made on account of software - whether learned CIT(A) was justified in holding that no tax is deductible on the payment/credit made by the appellant to SDL for software ? - HELD THAT - The issue is, however, no longer res integra. In the recent case of Engineering Analysis Centre of Excellence Pvt Ltd 2021 (3) TMI 138 - SUPREME COURT Hon ble Supreme Court has finally resolved this issue in favour of the assessee and held that the assessee does not have any tax withholding obligation under section 195 from payments made on account of software. We uphold the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.

Summary

Issues Involved:
1. Correctness of tax withholding liability under section 248 of the Income Tax Act 1961 for the assessment year 2015-16.

Detailed Analysis:
1. The Assessing Officer challenged the correctness of the CIT(A)'s order concerning the ascertainment of tax withholding liability under section 248 of the Income Tax Act 1961 for the assessment year 2015-16. The main grievances raised by the appellant included whether tax deduction at source was required on payments made to SDL Multi-Lingual Solutions (Singapore) Pte Ltd. The appellant contended that the payment did not amount to income of the payee as royalty under section 9(1)(vi) of the IT Act, 1961.

2. The appellant further questioned whether the CIT(A) erred in holding that the Act had expanded the meaning of royalty by adding Explanations to section 9(1)(vi), arguing that Explanation 4 constituted new law and did not explain the existing law. Additionally, concerns were raised regarding the failure to consider Explanation 4 as a declaratory and clarificatory amendment explaining the existing law.

3. The appellant also disputed the CIT(A)'s decision that the payment was not royalty in the hands of the recipient due to the lack of amendments to the DTAA with Singapore by Parliament. Moreover, issues were raised regarding the absence of a definition of terms related to royalty in the India-Singapore DTAA, and the failure to consider the meaning contained in the Indian Copyright Act and Explanations to section 9(1)(vi) mandated by Article 3(2) of the DTAA.

4. The appellant contested the reliance placed by the CIT(A) on certain decisions of the Hon'ble Supreme Court, arguing that those cases were not directly relevant to the issues at hand. Furthermore, questions were raised about the relevance of distinguishing between 'copyright in an article' and 'copyrighted article' in the context of software royalty.

5. The Tribunal referred to a recent case where the Hon'ble Supreme Court resolved the issue in favor of the assessee, stating that no tax withholding obligation existed under section 195 for payments made for software. Consequently, the Tribunal upheld the conclusions of the CIT(A) and dismissed the appeal.

In conclusion, the Tribunal found in favor of the assessee, upholding the CIT(A)'s decision regarding the tax withholding liability for payments made to SDL Multi-Lingual Solutions (Singapore) Pte Ltd.