2019 (1) TMI 468 - AT - Income Tax

TDS u/s 195 - payments made by the assessee in respect of travel expenses, research expenses, seminar, training and conference expenses - tds liability - Held that - Since, facts on record alongwith the relevant documentary evidence clearly show that the payments are just reimbursements made by the assessee which do not contain any profit element the same cannot be treated as FTS as nothing has been made available to the assessee. No hesitation in holding that the payments made by the assessee in respect of travel expenses, research expenses, seminar, training and conference expenses are nothing but reimbursements of expenses without any profit element and therefore the assessee is not liable for withholding tax u/s 195.- Decided in favour of Assessee. Reimbursement of software and licenses renewal - payments for software and license renewal as royalty - Held that - On perusal of the invoices supported by the certificate from a Chartered Accountant show that amount paid are either annual maintenance charges or for the use of software or for software maintenance or the payments were made for antivirus software, anti spam software etc. The invoices clearly show that the payments have been made for the use of copy righted article. In the case of Infrasoft Limited 2013 (11) TMI 1382 - DELHI HIGH COURT has held that amount received by the assessee a non-resident company for granting license to use its copyrighted software for licensee own business purpose only could not be brought to tax as royalty under article 12 (3) OF India-US DTAA. Payments for software and license renewal is not royalty. Thus we hold that the payments for software and license renewal is not royalty. - Decided in favour of Assessee.

Summary

Issues Involved:
1. Taxability of reimbursements in the nature of meeting, travel, consultancy, research, legal, and seminar expenses.
2. Taxability of reimbursements in the nature of software license and renewal payments.

Issue-wise Detailed Analysis:

1. Taxability of reimbursements in the nature of meeting, travel, consultancy, research, legal, and seminar expenses:

The primary issue revolves around whether the payments made by the assessee to non-residents, which were not subjected to withholding tax, are taxable in India. The Assessing Officer (AO) concluded that these payments attracted withholding tax provisions under section 195 of the Income Tax Act, 1961, and treated the assessee as “assessee in default” under section 201(1), levying tax demand and interest.

The assessee contended that all payments were mere reimbursements of travel, research, seminar, training, and conference expenses, supported by invoices and a Chartered Accountant's certificate. The assessee relied on the judgments of the Hon’ble High Court of Bombay in Krupp Udhe GmbH and the Hon’ble High Court of Delhi in Industrial Engineering Projects Private Limited, which supported the view that reimbursements without profit elements are not taxable.

The Tribunal examined the facts and documentary evidence, including agreements and invoices, which confirmed that the payments were reimbursements without any profit element. The Tribunal referred to the Bombay High Court’s decision in Krupp Udhe GmbH, which held that reimbursements of expenses cannot be regarded as taxable income. The Tribunal also noted the Delhi High Court’s view in Siemens Aktiorigesellschaft, which supported the non-taxability of reimbursements.

The Tribunal concluded that the payments for travel, research, seminar, training, and conference expenses were merely reimbursements and not fees for technical services (FTS). Therefore, the assessee was not liable for withholding tax under section 195. The Tribunal allowed grounds 4 to 7 in favor of the assessee.

2. Taxability of reimbursements in the nature of software license and renewal payments:

The second issue pertains to whether the reimbursements for software and license renewal payments qualify as royalty payments and are thus taxable. The AO treated these payments as royalty under section 9 of the Income Tax Act, asserting that they were for the use of copyright itself.

The Tribunal examined the invoices and Chartered Accountant’s certificates, which indicated that the payments were for annual maintenance charges, use of software, software maintenance, antivirus software, and anti-spam software. The Tribunal referred to the Delhi High Court’s decision in Infrasoft Limited, which held that payments for granting a license to use copyrighted software for the licensee’s business purposes do not constitute royalty under Article 12(3) of the India-US Double Taxation Avoidance Agreement (DTAA).

The Tribunal emphasized the distinction between payments for the use of copyrighted articles and royalty for copyright rights. It noted that the payments were for the use of copyrighted software and not for acquiring any copyright rights. Consequently, these payments could not be treated as royalty.

Respectfully following the Delhi High Court’s decision in Infrasoft Limited, the Tribunal held that the payments for software and license renewal were not royalty. Grounds 8 to 10 were allowed in favor of the assessee.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, concluding that the reimbursements for meeting, travel, consultancy, research, legal, seminar expenses, and software license renewals were not subject to withholding tax under section 195. The decision was pronounced in the open court on 08.01.2019.