9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (5) TMI 916 - AT - Income TaxTDS u/s 195 - payment made to M/s. Minitab Inc., USA for acquisition of software by treating the same as royalty - DTAA between India and USA. - whether purchase of computer software does not amount to business receipts? - Held that - There is a direct Hon ble Delhi High Court decision in the case of DIT vs Ericsson 2011 (12) TMI 91 - Delhi High Court which is in favour of the assessee. From the above case laws it is amply clear that it has been held that the software sold by M/s. Minitab Inc USA to the assessee fell into the category of copyrighted article against acquisition of copyright which qualified as royalty payment. Furthermore Hon ble Delhi High Court had held that even if the item was regarded as royalty payment as defined in explanation to Section 9(1)(vi) nevertheless the DTAA would prevail where royalty is dependent upon the use of the copyrights and not a lump sum as was in the present case. That once the payment in question was not royalty which would, within the mischief of clause (vi) the explanation to section 9 (1) would have no application. As against this there are decisions of Hon ble Karnataka High Court which are in favour of revenue. In this regard we note that Hon ble Apex Court in the case of vegetable products 1973 (1) TMI 1 - SUPREME Court had held that if two constructions are possible one in favour of the assessee should be adopted. Accordingly respectfully following the precedent we follow the Hon ble Delhi High Court decision. Accordingly we set aside the order of authority below. We hold that the transfer / sale of software in this case is not taxable as royalty. Hence the assessee was not liable to deduct tax at source u/s 195 of the Income-tax Act, before remitting the money to the US supplier. - Decided in favour of assessee.
Issues Involved:
1. Liability to deduct tax at source under Section 195 of the Income Tax Act, 1961. 2. Classification of payment for software as 'royalty' under Section 9(1)(vi) of the Income Tax Act, 1961. 3. Applicability of Double Taxation Avoidance Agreements (DTAA) between India and USA. Issue-wise Detailed Analysis: 1. Liability to Deduct Tax at Source under Section 195 of the Income Tax Act, 1961: The primary issue was whether the appellant was liable to deduct tax at source under Section 195 of the Income Tax Act on the payment made to M/s. Minitab Inc., USA for the acquisition of software. The Assessing Officer (AO) issued a notice under Section 201(1) for non-deduction of TDS under Section 195(1). The AO held that the payment for the software was in the nature of 'royalty' and thus subject to TDS. The appellant argued that M/s. Minitab Inc. did not have a Permanent Establishment (PE) in India, and hence, under Article 7 of the DTAA between India and USA, the payment should not be subject to TDS. 2. Classification of Payment for Software as 'Royalty' under Section 9(1)(vi) of the Income Tax Act, 1961: The AO classified the payment for the software as 'royalty' under Section 9(1)(vi), asserting that the appellant was granted a license to use the software, which constitutes a royalty payment. The AO referred to the definition of 'royalty' in Article 12(3) of the Indo-USA DTAA, which includes payments for the use of or the right to use any copyright. The CIT-A upheld this view, citing international judgments and other ITAT decisions that supported the classification of software payments as 'royalty'. 3. Applicability of Double Taxation Avoidance Agreements (DTAA) between India and USA: The appellant contended that under Article 7 of the DTAA between India and USA, the payment for the software should be treated as business income and not as royalty, as M/s. Minitab Inc. had no PE in India. The appellant cited several case laws, including decisions from the Delhi High Court and ITAT, which supported their stance that payments for off-the-shelf software do not constitute 'royalty'. The Revenue, however, referred to contrary decisions from the Karnataka High Court, which held that such payments are indeed 'royalty'. Tribunal's Decision: The Tribunal considered the conflicting views from different High Courts. Notably, the Delhi High Court had ruled in favor of the appellant, holding that payments for software do not constitute 'royalty' under the DTAA. The Tribunal also noted the retrospective amendments to Section 9(1)(vi) and the differing interpretations of these amendments. Ultimately, the Tribunal followed the principle laid down by the Supreme Court in the case of Vegetable Products (88 ITR 192), which states that if two interpretations are possible, the one favoring the assessee should be adopted. Conclusion: The Tribunal set aside the order of the lower authorities, holding that the payment for the software did not constitute 'royalty' and thus, the appellant was not liable to deduct tax at source under Section 195. The appeal was allowed in favor of the assessee. Order Pronounced: The order was pronounced in the Open Court on 18th May, 2017.
|
