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TMI Blog2018 (1) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... tions raised by the assessee that it is a reimbursement of expenses and therefore, no tax is required to be deducted thereon - Held that:- To test the payment made by the assessee for SAP charges it is important to note that payment of such charges are made for use of licensed software on the Internet/ intranet and payment is also contingent on the basis of number of the user license or number of sessions for which the software is used, in the present case the technical support would also be provided by SAP, a German company and not by the recipient of the expenditure. In view of this, the above software receipt is scientific equipment under the Act and India Germany Tax Treaty. Hence, such payment is correctly regarded as royalty by the lower authorities according to article 12 of the DTAA. In view of this, the above payment made by the assessee to its holding company is chargeable to tax as royalty according to the income tax act as well as according to the double taxation avoidance agreement. Therefore, on such payment assessee should have deducted tax at source under the provisions of section 195 of the income tax act at the beneficial rate of 10% provided under the double taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Income Tax Appellate tribunal New Delhi on same issue in appellant s own case for AY 2000-01, and in various decisions of High Courts and other courts cited by the appellant. 8. That the appeal is within the time as order of the ld CIT (A) was received on 19th June 2014. 3. The brief facts of the case is that the assessee is a subsidiary of a German company, engaged in the business of supply of assemblies / sub assemblies of metallurgical equipment, provisions of consultancy and technical services in design and engineering to ferrous and non-ferrous sectors. On the basis of certification of Chartered Accountant with the authorized dealers i.e. Bankers for foreign remittances, it was noticed that for FY. 2004-05 the assessee has remitted money to its parent company M/s SMS Demag AG, Germany without deduction of tax at source u/s 195 of the act and therefore, enquiry was made. It was found that certain payments were made on which tax are not deducted at source u/s 195 of the Act. Such payments are pertaining to intranet charges, payment of SAP software. The ld Assessing Officer held that above services constitute royalty u/s 9(l)(vi) of the Act and it has deemed to accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot fees for technical charges as well as the royalty as per DTAA. He therefore, submitted that according to the directions of the Id DRP in the case of the recipient when such sum is not chargeable to tax m India there cannot be any withholding tax liability on the assessee. He further submitted that the coordinate bench in case of the assessee for AY 2000-01 in SMS Demag (P.) Ltd. v. Dy. CIT[2010] 38 SOT 496 (Delhi) has held that disallowance u/s 40(a)(i) cannot be made in the hands of the assessee for non deduction of tax at source on these payments. Therefore, he submitted that assessee cannot be asked to deduct tax at source. He further submitted that actually the amount is payable as reimbursement of the expenditure to the holding company and therefore, no tax is required to be deducted. For this he relied upon the decision of Hon ble Supreme Court in Case of DIT v. AP Moller Maersk AS[2017] 78 taxmann.com 287/246 Taxman 309/392 ITR 186. He further relied upon the decision of Hon ble Andhra Pradesh High Court in Sriram Refregeration Industries v. ITO[2014] 361 ITR 119. He further submitted that as payment is made to the group concern and is in nature of reimbursement the conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) / 201 (1A) for FY 1999-2000 and 2000-01, consequent tax and interest thereon covered in the order for these two years are cancelled. 9. Now coming to the next contentions raised by the assessee that it is a reimbursement of expenses and therefore, no tax is required to be deducted thereon. It was further pleaded by the assessee that the issue is squarely covered in favour of the assessee by the order of the coordinate bench in assessee s own case for assessment year 2000 - 01 in SMS Demag (P.) Ltd s. case (supra) as well as by the order of the Ld. DRP in case of the recipient of the income. We have carefully perused the above argument. It was also raised before the Ld. CIT (A) which was rejected by him. The Ld. CIT (A) asked the appellant to file the copies of all agreement, in contracts in pursuance to which payments for SAP and intranet charges were made so that the nature of the contracts in transactions could be examined in detail, particularly with reference to the provisions of the act and the provisions of the India Germany double taxation avoidance agreement. Only from those agreements it could have been determined that whether the amount paid by the assessee is reim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stainable. The Ld. CIT appeal has given detailed reasons that coordinate bench concluded on the basis of the findings that the assessing officer would not be justified in disallowing 50% of depreciation on the ground that provisions of section 40 (a) (i) were applicable. He further held that that coordinate bench was not on the issue whether the tax is required to be deducted or not. But was on the issue of whether the depreciation disallowance made by the Ld. assessing officer by applying the provisions of section 40 (a) (i) is proper or not. The coordinate bench has also not given any finding about the deductibility of tax at source on the payment of SAP charges and intranet charges. In view of this, reliance upon the decision of the coordinate bench in assessee s own case for assessment year 2000 - 01 is not proper, hence, rejected. Further regarding the reliance placed by the assessee on the decision of the Ld. dispute resolution panel in case of the recipient of the assessee is also not correct in view of the fact that Ld. DRP has relied upon the order of the coordinate bench in assessee s own case for assessment year 2000 -01, while deciding that that royalty is not chargeabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the copyrighted software of the parent of the assessee is not given to the assessee for use of its own business. In the present case before us it is an payment made by the assessee for use of SAP software which was customised for the group concern, further more intranet charges paid are also not copyrighted article. Furthermore, the assessee has also not given any agreement that what kind of software assessee was using, hence, benefit of the above decisions cannot be given to the assessee. In view of this the reliance placed by the assessee on that decision is distinguishable on facts. To test the payment made by the assessee for SAP charges it is important to note that payment of such charges are made for use of licensed software on the Internet/ intranet and payment is also contingent on the basis of number of the user license or number of sessions for which the software is used, in the present case the technical support would also be provided by S AP, a German company and not by the recipient of the expenditure. In view of this, the above software receipt is scientific equipment under the Act and India Germany Tax Treaty. Hence, such payment is correctly regarded as royalty by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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