2020 (4) TMI 649 - AT - Income Tax

Additions u/s. 9(1)(vi) - transfer of technology fee as royalty or technical fee - Software license purchased by the assessee- royalty u/s. 9(1)(vi) - Non deduction of TDS u/s 195 - HELD THAT - As assessee is engaged in the business of development and export of software, providing CTI (Computer Telephonic Integration), system integration, IT consulting services to customers. The assessee has purchased the copyrighted software license from Acqueon Technologies Inc. USA of Acqueon AiQ and IVR connector as off-the-shelf software and used them to develop application as per the requirements of the customers. Therefore, as held by the M/S. VINZAS SOLUTIONS INDIA PRIVATE LIMITED 2017 (1) TMI 1102 - MADRAS HIGH COURT purchase of copyrighted articles, does not fall within this scope of section 9(1)(vi) of the Act. The assessee has also consumed them to develop the application and sold them. In the absence of any findings from the Revenue that the Acqueon Technologies Ltd Inc. USA was paid over and above the purchase price, its treatment that the impugned transaction falls u/s. 9(1)(vi) is not valid and hence, the corresponding grounds of the assessee are allowed. Disallowance of payments of contribution towards PF - sums received by the assessee from its employees towards contribution to PF were made beyond the due date as per PF Act - HELD THAT - Since the AO has not examined as to whether they were remitted within the due date of filing the return of income u/s. 139(1) of the Act, this issue is remitted back to the AO for examination. If the assessee has remitted the sum before the due date of filing the return u/s. 139(1), the AO shall allow the deduction claimed by the assessee in accordance with the Jurisdictional High Court decision in AIMIL LIMITED 2009 (12) TMI 38 - DELHI HIGH COURT and M/S. ALOM EXTRUSIONS LIMITED 2009 (11) TMI 27 - SUPREME COURT .

Summary

Issues:
1. Disallowance of software license purchase treated as royalty under section 9(1)(vi) for non-deduction of TDS.
2. Disallowance of employees' PF contribution for late payment.

Analysis:

Issue 1: Disallowance of software license purchase treated as royalty under section 9(1)(vi) for non-deduction of TDS:
The assessee, engaged in software development and export, purchased software licenses which the Assessing Officer treated as royalty under section 9(1)(vi) due to non-deduction of TDS. The CIT(A) upheld this disallowance. However, the assessee argued that the software purchase was akin to goods under Sales Tax/VAT Act, not royalty. Citing relevant case law, the assessee contended that section 9(1)(vi) does not apply to outright purchase and sale of a product. The Tribunal agreed, emphasizing that the purchase of copyrighted articles did not fall under section 9(1)(vi) as there was no evidence of additional payments beyond the purchase price. Consequently, the disallowance was overturned.

Issue 2: Disallowance of employees' PF contribution for late payment:
The CIT(A) directed the AO to allow deduction under section 36(1)(va) for employees' PF contribution if paid within the grace period allowed by the PF Act. The assessee argued that the Finance Act, 2003 amendment allowed PF contributions as expenditure if paid before the due date for filing income tax return. Citing relevant case law, the assessee contended that payments made before the due date of filing the return cannot be disallowed. The Tribunal remitted this issue back to the AO for examination, instructing to allow the deduction if payments were made before the due date of filing the return. The appeal was partly allowed on this ground.

In conclusion, the Tribunal ruled in favor of the assessee on both issues, overturning the disallowance of software license purchase treated as royalty and remitting the employees' PF contribution issue back to the AO for further examination.