9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (1) TMI 767 - AT - Income TaxTDS u/s 195 - non deduction of TDS for purchase of copyrighted software - Held that - The software allegedly purchased by the assessee are the end user software license packages and the remittances are to companies in various countries, such as USA, UK, Germany, Japan, Singapore etc. The copies of the invoices are produced in the form of a paper book and a glance through them shows that the payments are for purchase of End User License packages. The assessee gets the right to use the product. Thus, it can be seen that what the assessee has been granted is the license to use the software to test whether the wireless equipments are working according to the desired specifications. Thus, it can be see that the software is for assisting the assessee in rendering its services of software development and testing services to its group companies. Thus, these softwares are, in a way, the tools used the assessee. By the issuance of license to use the software, it cannot be said that the assessee has been granted a right to utilize the copyright embedded in the software, but it is seen that the assessee has been granted only a right to use the software product. We agree with the assessee s contention that the software purchased by the assessee is the copyrighted articles and cannot be construed as the license to use the copyright itself. In view of the same, we find that this issue is covered in favour of the assessee by the decision of the Hon ble Delhi High Court in the case of M.Tech India (P) Ltd (2016 (1) TMI 812 - DELHI HIGH COURT ) wherein held that what was transferred was not copyright or the right to use a copyright but a limited right to use the copyrighted material and that did not give rise to any royalty income. - Decided in favour of assessee. Payments made to Verizon Business USA for providing internet and bandwidth services and also providing CPE to the assessee is not in the nature of royalty and therefore, TDS provisions are not applicable.
Issues Involved:
1. Non-deduction of TDS for purchase of copyrighted software. 2. Levy of interest under Section 201(1A) of the Income Tax Act. 3. Tax treatment of payments made to Verizon Business, USA for leased circuit line services. 4. Tax treatment of payments for software support services. Detailed Analysis: Issue 1: Non-deduction of TDS for Purchase of Copyrighted Software The assessee argued that payments for software licenses were for the purchase of copyrighted articles, not for the use of copyright, thus not liable for TDS under Section 195. The Assessing Officer (AO) and CIT (A) classified these payments as 'royalty' under Section 9(1)(vi) and relevant DTAAs, requiring TDS. The Tribunal found that the software was used for testing wireless equipment, granting only a right to use the product, not the copyright. Citing the Delhi High Court's decision in Pr. CIT-6 vs. M. Tech India P Ltd, it was determined that payments for copyrighted products are not 'royalty'. The Tribunal concluded that the payments were for copyrighted articles, not for the use of copyright, thus no TDS was required. Issue 2: Levy of Interest under Section 201(1A) The AO levied interest under Section 201(1A) for non-deduction of TDS on software payments. The Tribunal, having established that these payments were not 'royalty', ruled that the interest levy under Section 201(1A) was unjustified. The Tribunal allowed the assessee's appeal, negating the interest levy. Issue 3: Tax Treatment of Payments to Verizon Business, USA for Leased Circuit Line Services The AO deemed payments to Verizon for leased circuit line services as 'royalty' under Section 9(1)(vi) and the India-USA DTAA, due to the use of scientific or commercial equipment. The Tribunal found that Verizon provided bandwidth services, not the right to use scientific equipment. Citing judgments in Asia Satellite Telecommunications Co. Ltd and Estel Communications (P) Ltd, the Tribunal ruled that payments for bandwidth services are not 'royalty'. It was concluded that the payments to Verizon were for internet and bandwidth services, not for the use of equipment, thus not subject to TDS. Issue 4: Tax Treatment of Payments for Software Support Services The AO treated payments for software support services as 'Fees for Technical Services' (FTS) under Section 9(1)(vii) and relevant DTAAs. The Tribunal, referencing its decision on software payments, ruled that if software payments are not 'royalty', support services payments cannot be FTS. The Tribunal held that these payments were not 'royalty' or FTS, thus not subject to TDS. Additional Ground: Retrospective Amendments The assessee argued that TDS could not be deducted in anticipation of retrospective amendments to the Income Tax Act. The Tribunal noted that the lower authorities did not apply the amended provisions, deeming the additional ground misconstrued and not admitting it. Conclusion: The Tribunal allowed the assessee's appeals, ruling that payments for software and support services were not 'royalty', and payments to Verizon for bandwidth services were not 'royalty'. Consequently, no TDS was required, and the interest levy under Section 201(1A) was unjustified.
|
