9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (4) TMI 514 - AT - Income TaxTDS - Import of software Royalty - Revenue came to the conclusion that the payments made by the assessee was for procurement of the software and is thus royalty and the assessee was liable to deduct tax at source u/s 195 of the IT Act 1961. He, therefore, made disallowance u/s 40a(i) and 40a(ia) of the IT Act 1961. The assessee submitted that the assessee was not required to deduct tax at source as the assessee was only purchasing software on behalf of its client customers who are ultimately given the license to operate the software and the assessee was not the end user. Held that - The learned counsel for the assessee s placeing reliance on the decision of the Tribunal in the case of M/s Bodhi Professional Solutions Pvt. Ltd., 2013 (4) TMI 513 - ITAT BANGALORE is misplaced. In the case of M/s Bodhi Professional Solutions Pvt. Ltd., this Bench (both of us are signatory to the said order) while upholding the findings that payments for the purchase of Shrink wrap or off the shelf software would amount to royalty, has remanded the issue to the file of the AO with a direction to reconsider and verify the issue as to whether the payment for hardware and services would be regarded as royalty because in the case, along with purchase of software, the assessee had also imported hardware and payments were also made for services which were also considered as royalty. Further, in the said case, neither the AO nor the CIT(A) had considered the definition of royalty in terms of the DTAA and, therefore, the Tribunal deemed it fit and proper to remand the issue for fresh consideration. However, in the case before us, the AO has already considered the definition of royalty in DTAA as well as in the IT Act 1961 and has found that the meaning given in the DTAA as well as in the IT Act 1961 is one and the same. In view of the same, the decision of the Tribunal in the case of M/s Bodhi Professional Solutions Pvt. Ltd., 2013 (4) TMI 513 - ITAT BANGALORE is not applicable to the facts of the case of the assessee. Respectfully following the decision of the Hon ble Jurisdictional High Court in the case of Samsung Electronics (2011 (10) TMI 195 - KARNATAKA HIGH COURT), we dismiss the appeal of the assessee. - Decided in favor of revenue.
Issues Involved:
1. Treatment of payment towards the purchase of software as 'royalty'. 2. Disallowance of payment under Section 40(a)(ia) of the Income-tax Act for non-deduction of tax at source. Issue-wise Detailed Analysis: 1. Treatment of Payment Towards Purchase of Software as 'Royalty': The primary issue in this case was whether the payments made by the assessee for the procurement of software should be treated as 'royalty'. The Assessing Officer (AO) observed that the software purchased by the assessee, whether in shrink wrap or download version, was modified by the end user according to their requirements. The AO concluded that the payments were for the usage of the software license, not for the ownership of the product. The definition of 'royalty' as per Article 12 of the Double Taxation Avoidance Agreement (DTAA) and the Income-tax Act, 1961 was considered, and it was determined that the payments constituted 'royalty'. Consequently, the AO made disallowances under Sections 40a(i) and 40a(ia) of the Income-tax Act, 1961 for non-deduction of tax at source. The CIT(A) confirmed the AO's order, and the assessee appealed to the ITAT. The assessee argued that the procurement of software in shrink wrap or download version did not amount to the import of software and that the payment made for such procurement was not 'royalty'. However, the learned Departmental Representative (DR) supported the orders of the AO and CIT(A) and cited the Karnataka High Court's decision in the case of M/s Samsung Electronics, which held that payments for software licenses constituted 'royalty'. The Tribunal reviewed the rival contentions and found that the issue was settled in favor of the Revenue by the Karnataka High Court in the case of M/s Samsung Electronics. The High Court had held that the payment for software licenses, whether for shrink-wrapped or off-the-shelf software, constituted 'royalty' as per the DTAA and the Income-tax Act, 1961. The Tribunal noted that the license agreement granted the end user a non-transferable and non-exclusive license to use the software, and the copyright remained with the non-resident supplier. The right to use the software and make copies for internal business purposes was considered a transfer of part of the copyright, thus constituting 'royalty'. 2. Disallowance of Payment Under Section 40(a)(ia) for Non-Deduction of Tax at Source: The AO observed that the assessee had not deducted Tax Deducted at Source (TDS) under Section 195 of the Income-tax Act, 1961, for payments made in respect of the import of software, and under Section 194J for payments made after 13-07-2006 for the purchase of software from the Indian market. The AO concluded that the payments were 'royalty' and, therefore, subject to TDS. Consequently, the AO disallowed the payments under Sections 40a(i) and 40a(ia) of the Income-tax Act, 1961. The CIT(A) upheld the AO's decision, and the assessee appealed to the ITAT. The assessee argued that the payments were not 'royalty' and, therefore, not subject to TDS. However, the Tribunal found that the issue was already settled in favor of the Revenue by the Karnataka High Court in the case of M/s Samsung Electronics. The High Court had held that payments for software licenses constituted 'royalty' and were subject to TDS under Section 195 of the Income-tax Act, 1961. The Tribunal noted that the AO had already considered the definition of 'royalty' in the DTAA and the Income-tax Act, 1961, and found them to be the same. The Tribunal also addressed the assessee's reliance on the decision of the Tribunal in the case of M/s Bodhi Professional Solutions Pvt. Ltd., where the issue was remanded to the AO for reconsideration. However, the Tribunal distinguished the present case, noting that the AO had already considered the definition of 'royalty' in the DTAA and the Income-tax Act, 1961. Therefore, the decision in the case of M/s Bodhi Professional Solutions Pvt. Ltd. was not applicable. Conclusion: The Tribunal dismissed the assessee's appeal, upholding the AO's and CIT(A)'s decisions that the payments for the procurement of software constituted 'royalty' and were subject to TDS under Section 195 of the Income-tax Act, 1961. Consequently, the disallowance of payments under Sections 40a(i) and 40a(ia) for non-deduction of tax at source was confirmed.
|
