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TMI Blog2016 (10) TMI 984X X X X Extracts X X X X X X X X Extracts X X X X ..... e cost to its parent company - whether mere reimbursement of expenses on cost to cost basis without any mark-up does not attract TDS u/s.195? - Held that:- As decied inAsst. Director of Income-tax (International Taxation) Versus M/s Bartronics India Ltd. [2014 (4) TMI 569 - ITAT HYDERABAD] the assessee has acquired a readymade off - the shelf computer programme to be used in their business and no right was granted to the assessee to utilize the copy right of the programme and, therefore, consideration cannot be treated as royalty. As held by the CIT(A), the payments made by the assessee company cannot be held as ‘royalties’ coming into the ambit of Article 12 of DTAA or ‘fee for technical services’ u/s 9(1 )(vii) of the IT Act and accordingly no tax need to be deducted u/s 195 of the IT Act - Decided in favour of assessee Provision for bad and doubtful debts - treated as a non-operating expenses in computation of margins of comparables as confirmed by DRP - Held that:- In our opinion, if the provision for doubtful debts is the current operating expenses associated with the losses from normal credit sales, it will be treated as operating expenses and usually as a part of selling, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a dominant role. Hence, DRP directed the TPO to include ERP in ITES segment and computed the profit margin of the company accordingly. Against this, the Revenue is in appeal before us. 4. We have heard both the parties and perused the material on record. We have gone through the financials of M/s.Jeevan Scientific Technology Ltd. for the year ended on 31.03.2010. The income from ITES segment included at ₹ 17,443,276/- and bifurcation As per Schedule-7 is as follows:- Rs. BPO Operations 14,109,784 Enterprise Solution 3,333,492 1,74,43,276 In our opinion, nature of work carried on by M/s.Jeevan Scientific Technology Ltd. is IT Enabled Services, though it was called by different name. The nature of service performed by M/s.Jeevan Scientific Technology Ltd. is IT Enabled Services and when assessee itself included ERP in IT segment, TPO cannot be re-characterised without making any enquiry u/s.133(6) of the Act. In our opinion, the direction given by the DRP that ERP is nothing but ITES and to include the ERP in ITES segment so as to compute t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act on such reimbursement. Accordingly, the ld. Assessing Officer made addition of ₹ 93,62,867/-. Hence, the assessee is in appeal before us. 6. According to ld.A.R, provisions of the section 195 of the Act cannot be applied as the payment made to non-resident is not chargeable to tax under the Act and there is no question of withholding any tax. He relied on the judgement of Supreme Court in the case of GE India Technology Centre Private Ltd., Vs. CIT reported in 193 Taxman 234 wherein held that tax is liable to be deducted on payment to a non-resident only if the payment is liable to tax in India. He also relied on the judgement of Special Bench of Chennai in the case of ITAT in the case of ITO V. M/s.Prasad Production reported in 129 TTJ 641 held that any payment made to a nonresident would be subject to withholding tax, only if such payment constituted income chargeable to tax India. For the same proposition, he relied on the judgemen of Delhi High Court in the case of Van Oord ACZ India Private Ltd. V. CIT reported in 323 ITR 130. According to him, the payments made by the assessee to Atmel US towards software cost represents pure cost to cost reimbursement without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the acquisition of a copyright right and a copyrighted article . Copyright is distinct from the material object, copyrighted. Copyright is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript. Just because one has the copyrighted article, it does not follow that one has also the copyright in it. It does not amount to transfer of all or any right including licence in respect of copyright. Copyright or even right to use copyright is distinguishable from sale consideration paid for copyrighted article. This sale consideration is for purchase of goods and is not royalty. 40. The license granted by the Assessee is limited to those necessary to enable the licensee to operate the program. The rights transferred are specific to the nature of computer programs. Copying the program onto the computer s hard drive or random access memory or making an archival copy is an essential step in utilizing the program. Therefore, rights in relation to these acts of copying, where they do no more than enable the effective operation of the program by the user, should be disregarded in analyzing the character of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to do. 43. There is no transfer of any right in respect of copyright by the Assessee and it is a case of mere transfer of a copyrighted article. The payment is for a copyrighted article and represents the purchase price of an article and cannot be considered as royalty either under the Income Tax Act or under the OTAA. 44. The licensees are not allowed to exploit the computer software commercially, they have acquired under licence agreement, only the copy righted software which by itself is an article and they have not acquired any copyright in the software. In the case of the Assessee company, the licensee to whom the Assessee company has sold/licensed the software were allowed to make only one copy of the software and associated support information for backup purposes with a condition that such copyright shall include Intra Asia Trading (P) Ltd. copyright and all copies of the software shall be exclusive properties of Intra Asia Trading (P) Ltd. Licensee was allowed to use the software only for its own business as specifically identified and was not permitted to loan/rent/sale/sub-licence or transfer the copy of software to any third party without the consent of Intra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any royalty income and would be business income. 49. In view of elaborate discussion and in the light of the judgment of the Hon ble Delhi High court in the case of DIT Vs. Infrasoft Ltd. (supra), on which reliance placed by the learned AR, in the present case, the assessee has acquired a readymade off - the shelf computer programme to be used in their business and no right was granted to the assessee to utilize the copy right of the programme and, therefore, consideration cannot be treated as royalty. As held by the CIT(A), the payments made by the assessee company cannot be held as royalties coming into the ambit of Article 12 of DTAA or fee for technical services u/s 9(1 )(vii) of the IT Act and accordingly no tax need to be deducted u/s 195 of the IT Act. We, therefore, uphold the order of the CIT(A) on this count and dismiss the grounds raised by the revenue in this regard. In view of the above, we are inclined to allow the ground taken by the assessee. This ground is allowed. 9. The next ground in assessee s appeal is that the ld. Assessing Officer/TPO erred on facts and in law in treating provision for bad and doubtful debts as a non-operating expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port of the operating profit of the taxpayer. Accordingly claim of the taxpayer is accepted 107. The next item relates to balances written back. In our considered opinion, finding given in respect of provisions written back is equally applicable to balances written both more particularly when Id CIT(A) has not given any separate finding and the Transfer Pricing Officer has said nothing specifically, on this item The balances written both should also be treated as part of operating profit. We direct accordingly. 42. We are of the view that in the instant case bad debts and provision for bad and doubtful debts are part of the operating expenses and we direct the TPO to re-compute the margins of comparable companies by including bad debts and provision for bad and doubtful debts as operating expenses for the purpose of computing profit and loss of comparable companies. 9.3 On the other hand, ld.D.R relied on the orders of AO and TPO. 10. We have heard both the parties and perused the material on record. In our opinion, if the provision for doubtful debts is the current operating expenses associated with the losses from normal credit sales, it will be treated as oper ..... X X X X Extracts X X X X X X X X Extracts X X X X
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