2009 (7) TMI 1264 - AT - Income Tax

Summary

Issues involved:
The judgment addresses the chargeability of royalty and fees for technical services, the deduction of tax at source under section 195 of the Income Tax Act, payment by way of reimbursement of expenses, and the requirement of TDS on acquisition of software and reimbursement of expenses.

Chargeability of Royalty and Fees for Technical Services:
The revenue appealed against the order of the CIT(A) regarding the chargeability of royalty for software acquisition and fees for technical services. The CIT(A) held that tax deduction was not required on the acquisition of software as it did not constitute royalty or fees for technical services. The ITAT upheld this decision, emphasizing that the payment for software acquisition was not in the nature of royalty or technical services, based on the agreement between the parties and the absence of income element in the reimbursement of expenses.

Tax Deduction at Source under Section 195:
The revenue contended that TDS should be deducted on payments for intranet fees and reimbursement of expenses. However, the CIT(A) and ITAT held that TDS was not required on these payments as they did not fall under the purview of fees for technical services. The ITAT referred to a similar case to support its decision that reimbursement of expenses without an income element does not necessitate TDS deduction under section 195(1) of the Act.

Payment by Way of Reimbursement of Expenses:
The revenue argued that payments made as reimbursement of expenses should not go uncharged. The CIT(A) concluded that such payments should not be allowed to go uncharged only if the chargeability of the payments is in question. The ITAT further clarified that reimbursement of expenses without an income element does not constitute fees for technical services, hence no tax deduction is required.

Requirement of TDS on Acquisition of Software and Reimbursement of Expenses:
The ITAT consistently held that no TDS was required to be deducted on the acquisition of software and reimbursement of expenses. The decision was supported by previous cases and the absence of a profit element in the expenses reimbursed. The ITAT dismissed the revenue's appeal, stating that no TDS was necessary for these transactions.