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TMI Blog2021 (9) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of tax on payment made towards purchase of software Rs. 23,50,466/- 2. Disallowance on account of difference of loss on non export Oriented (EOU) unit Rs. 48,54,250/- 3. Disallowance under section 36(1)(va) on account of delayed Remittance of employees' contribution to Provident Fund Rs. 6,69,035/- 4. As a result of the aforesaid disallowances, the total loss was determined at Rs. 10,55,380/-. Against the assessment order so passed, assessee preferred appeal before learned Commissioner (Appeals). While disposing of assessee's appeal, learned Commissioner (Appeals) granted partial relief by deleting the disallowance oRs,.6,69,035/- made under section 36(1)(va) of the Income Tax Act, 1961. Against the order passed by learned Commissioner (Appeals), the assessee went in further appeal before the Tribunal. The Tribunal, while deciding assessee's appeal in ITA No.3151/Mum/2013 dated 28/09/2016 restored the issues back to the assessing officer for fresh adjudication. Pursuant to the order passed by the Tribunal, the assessing officer passed a fresh assessment order repeating the additions made earlier. Though, assessee contested the additions before learned Commissioner ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Drawing our attention to the copy of the reseller agreement placed in the paper book, he submitted, the license granted by the non-resident company, viz. the owner of the software is for the limited purpose of reselling and not for internal use. He submitted, as per the terms of the agreement, neither the assessee nor any third party is permitted to translate, modify, adapt, enhance, extend, decompile, de-assemble or reverse engineer the software program. He submitted, the agreement also makes the assessee liable for any unauthorized disclosure, use or copying of the software program, as, the non-resident company, for all intent and purpose and at all time remains the owner of trademark, service mark and logos relating to the software program. Thus, he submitted, as per the terms of the agreement, the assessee is simply a distributor of a copyrighted article and not the copyright. Thus, he submitted, the payment made to the non-resident company for purchase of software is not in the nature of royalty either under the provisions of India-USA DoubleTaxation Avoidance Agreement (DTAA) or under section 9(1)(vi) of the Act. Further, he submitted, the issue is now settled in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the assessee and Savvion, USA, termed as "Reseller/VAR (value added resolution) agreement". As per the terms of the agreement, software program means, the commercially available object coded software product as specified in Exhibit "A" to the agreement. A reference to Exhibit "A" indicates the product, i.e. on "Savvion business manager". Thus, the assessee has been authorized to resale the aforesaid software product to customers in India. Further, the aforesaid agreement authorizes the assessee as a reseller to enter into end user license agreement (EULA) with end-user. The agreement specifies that the license granted under the agreement is not for internal use of the reseller. Further, clause 2.2 of the agreement restricts the reseller and any third party not to translate, modify, adapt, enhance, extend, decompile, de-assemble or reverse engineer the software program. As per clause 5(b) of the agreement, the assessee, being the reseller acknowledges and agrees that any unauthorized disclosure, use or copying of the software program may cost Savvion, USA serious financial loss; hence, in the event of any unauthorized disclosure, use or copying of the software program, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse is the price paid to the non-resident manufacturer/supplier for the computer program as goods either in a medium which store the software or in a medium by which software is embedded in hardware. Therefore, the payment made is not towards royalty for use of the copyright in the computer software. Therefore, there is no requirement for deducting tax at source under section 195 of the Act, keeping in view Article 12 of India-USA DTAA. A reading of the aforesaid judgment of the Hon'ble Supreme Court would make it clear that the view expressed by the Hon'ble Karnataka High Court in case of Samsung Electronics Co. Ltd and similar other decisions have not been accepted. If the ratio laid down in Engineering Analysis Centre of Excellence (P) Ltd vs CIT (supra) is applied to the facts of the present case, it will definitely lead to the conclusion that the assessee having paid the amount of Rs. 23,50,466/- towards purchase of a copyrighted article for distribution in India without having any right to use the copyright, the payment made is not in the nature of royalty as per Article 12 of India-USA DTAA. Therefore, there is no requirement for deduction of tax at source under section 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the auditor. He submitted, the details of staff working in EOU unit was also furnished before the departmental authorities. He submitted, salary paid to some of the common staff is allocated on turnover basis. Thus, he submitted, when the assessee has maintained separate accounts for EOU and non EOU units and furnished all the necessary details, the salary expenses could not have been apportioned on the basis of turnover. He submitted, the assessing is following the same method of accounting from the earlier years and there was never any issue regarding deduction claimed under section 10B of the Act. Thus, he submitted, the disallowance should be deleted. 16. Learned Departmental Representative relied upon the observations of the assessing officer and earned Commissioner (Appeals). 17. I have considered rival submissions and perused materials on record. It is the claim of the assessee that separate books of account are maintained for EOU and non EOU units. In fact, the assessing officer himself has stated that segmental profit and loss account along with certificate of the auditor has been furnished before him. The dispute is only with regard to the apportionment of salary paid ..... 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