2011 (10) TMI 744 - HC - Income Tax

Summary

Issues Involved:
The judgment involves the determination of whether the payment made towards the purchase of 'shrink wrap' cassettes/CDs by the respondent from a non-resident company based in Singapore amounts to royalty and gives rise to taxable income in India, thus requiring the appellant to deduct tax at source.

Issue 1 - Payment for 'Shrink Wrap' Cassettes/CDs:
The High Court considered the appeal filed by the revenue challenging the order of the Income Tax Appellate Tribunal (ITAT) which held that the payment made by the respondent to the non-resident company for 'shrink wrap' cassettes/CDs did not constitute royalty. The substantial question of law was whether the ITAT was justified in its decision regarding the tax liability on the amount paid to the foreign software suppliers.

The Court heard arguments from both the appellant and the respondent's counsels. It was noted that in a similar case involving payment for the supply of shrink wrap cassettes/CDs, the payment was considered royalty. Relying on this precedent, the Court held that the ITAT's order was incorrect, setting it aside in favor of the revenue and against the assessee.

Conclusion:
In conclusion, the High Court allowed the appeal, setting aside the ITAT's order and restoring the order passed by the appellate authority confirming the assessing officer's decision.