2024 (12) TMI 104 - AT - Income Tax

TDS u/s 195 - order u/s 201(1) / 201(1A) - assessee remitted an amount towards purchase of software to a US based company without deducting TDS - AO held the view that explanation-IV to section 9(1) (vi) of the IT act as amended by finance act 2012 postulates that amounts paid for right to use computer software would tantamount to income of the deductee within the meanings of that section and therefore TDS deduction u/s 40(a)(i) was required to be done HELD THAT - We find sufficient force in the argument of the assessee that no blame can be placed upon the assessee as the impugned amendment is with retrospective effect and was not there on statute when deduction was to be made. We have also noted that in the case of AMEC foster wheeler India Pvt Ltd 2022 (8) TMI 1341 - ITAT CHENNAI . We have also noted that Hon ble Madras High Court in the cases of Saipem India PVt Ltd, 2021 (12) TMI 1447 - MADRAS HIGH COURT Dasault, 2021 (4) TMI 180 - MADRAS HIGH COURT Financial software 2021 (11) TMI 587 - MADRAS HIGH COURT have also held that in view of the apex court decision in the case of Engineering Analysis 2021 (3) TMI 138 - SUPREME COURT no TDS deduction is required in cases having facts as that of present assessee. In respectful compliance to the impugned decisions the order of lower authorities set aside and the Ld. AO is directed to delete the impugned addition. Accordingly, all the grounds of appeal raised by the assessee are allowed.

Summary

Issues:
Challenge to addition of Rs. 14,44,380 under section 201(1) / 201(1A) regarding purchase of software.

Analysis:

The appeal was filed against the order of the Commissioner of Income Tax (CIT(A)) for the assessment years 2010-11, challenging the addition of Rs. 14,44,380 made by the revenue under section 201(1) / 201(1A) for the purchase of software from a US-based company. The Assessing Officer (AO) held that the payment for the right to use computer software falls under the purview of income as per section 9(1)(vi) of the IT Act, necessitating TDS deduction under section 40(a)(i). The CIT(A) upheld this decision. The assessee contended that the retrospective amendment did not require TDS deduction at the time of payment, citing various case laws, including Supreme Court decisions. The Tribunal noted that no blame could be placed on the assessee due to the retrospective nature of the amendment. Referring to a similar case, the Tribunal held that payment for off-the-shelf software products constitutes cost-to-cost reimbursement, not royalty, and is not subject to TDS. Consequently, the impugned addition was deleted based on the Supreme Court's decision in a similar case.

The Tribunal also considered judgments of the Madras High Court in related cases, Saipem India Pvt Ltd, Dasault, and Financial Software, which aligned with the Supreme Court's decision. In compliance with these decisions, the Tribunal set aside the lower authorities' order and directed the AO to delete the addition. As a result, all grounds of appeal raised by the assessee were allowed, and the appeal was granted in favor of the assessee. The order was pronounced on 27th November 2024 in Chennai.