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2021 (4) TMI 61 - AT - Income TaxTDS u/s 195 - Disallowance u/s 40(A)(ia) - payment made by the appellant to M/s. Ansys Inc. U.S.A. towards the purchase of goods as Royalty for having not done TDS on such payments made - HELD THAT - Admittedly the issue involved in these appeals has been set at rest by the decision of Hon ble Supreme Court in a recent case of Engineering Analysis Centre of Excellence Pvt.Ltd. 2021 (3) TMI 138 - SUPREME COURT while considering the issue of royalty on sale of software, have also considered the decision of Hon ble Karnataka High Court in case of CIT vs Samsung Electronics Co.Ltd 2011 (10) TMI 195 - KARNATAKA HIGH COURT as held that the amounts paid by resident Indian end-users/distributors to nonresident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 - Decided in favour of assessee.
Issues:
Challenge to disallowance under section 40(a)(i) for non-deduction of TDS on payments made to a U.S company for software purchase as royalty. Analysis: The appellant challenged the disallowance made under section 40(a)(i) of the Act for not deducting TDS on payments to a U.S company for software purchase as royalty. The Ld.AR submitted that the only issue before the Tribunal was this disallowance. The appeals for assessment years 2007-08 to 2010-11 had common issues and identical facts. The Ld.CIT(A) confirmed the disallowance made by the Ld.AO, following previous decisions. The Ld.CIT(A) upheld the disallowance citing a decision of the Hon'ble Karnataka High Court in the assessee's own case. The appellant appealed this decision. The Ld.AO observed that the assessee had international transactions related to the import and sale of computer software. The Ld.AO called upon the assessee to explain why the payment should not be treated as royalty and why it should not be disallowed under section 40(A)(ia) due to non-deduction of tax. Despite submissions by the assessee, the Ld.AO made a disallowance. The Ld.CIT(A) upheld this disallowance based on previous court decisions. However, the issue was resolved by the Hon'ble Supreme Court in a recent case, which clarified that payments made for resale/use of computer software do not constitute royalty. Citing this decision, the Tribunal directed the disallowance to be deleted for all the assessment years in question. The Tribunal referred to the recent decision of the Hon'ble Supreme Court in Engineering Analysis Centre of Excellence Pvt.Ltd. vs CIT, which clarified that payments for resale/use of computer software do not amount to royalty. The Tribunal also noted a subsequent decision by the Hon'ble Karnataka High Court in the assessee's own case for assessment year 2006-07, which favored the assessee based on the Supreme Court's ruling. Following these judgments, the Tribunal directed the disallowance to be deleted for all the assessment years under consideration. In conclusion, the Tribunal allowed the appeals filed by the assessee for assessment years 2007-08 to 2010-11, as the disallowance under section 40(a)(i) for non-deduction of TDS on payments made to a U.S company for software purchase as royalty was found to be unjustified based on the recent legal interpretations provided by the Hon'ble Supreme Court and the Hon'ble Karnataka High Court.
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