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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 ..... e 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 - disallowance made by the assessing officer and sustained by the learned Commissioner (Appeals) is hereby deleted. These grounds are allowed. Deduction u/s 10B - Disallowance of loss - apportioned the employee related expenses / benefits in proportion of turnover relating to EOU and non EOU unit - claim of the assessee that separate books of account are maintained for EOU and non EOU units - HELD THAT:- Departmental authorities have not properly examined the issue factually - direct the assessing officer to verify the books of account maintained, both, for EOU and non EOU units and if the salary paid to the employees of both the EOU and non EOU units, is found to be on actual basis as per the separately maintained books of account, no disallowance can be made. Thus, the issue is restored back to the assessing officer for the limited purpose of verifying the salary expenditure as per the separately maintained bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (Appeals); however, it was unsuccessful. Being aggrieved, the assessee is again before the Tribunal. 5. Be that as it may, in grounds 1 and 2 assessee has challenged the disallowance of ₹ 23,50,466/- due to non deduction of tax at source on payment made towards purchase of software. 6. Briefly the facts are, in course of assessment proceedings, the assessing officer noticed that the assessee has claimed expenditure of ₹ 23,50,466/- towards purchase of computer software products from a non resident company, viz. Savvion, USA. Being of the view that the payment made by the assessee is in the nature of royalty, in terms of section 9(1)(vi) of the Act, the assessing officer called upon the assessee to explain as to why the expenditure claimed should not be disallowed under section 40(a)(i) of the act for non deduction of tax at source. In response to the query raised, assessee furnished detailed submission supported by judicial precedents stating that the payment made is not in the nature of royalty; hence, there is no requirement for deduction of tax at source under section 195 of the Act. The assessing officer, however, did not find merit in the submissions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled in favour of the assessee by the decision of the Hon ble Supreme Court in case of Engineering Analysis Centre of Excellence (P) Ltd vs CIT 432 ITR 471 (SC) wherein the Hon ble Supreme Court, while dealing with the identical nature of purchase of software for resale under distribution agreement has held that payment made towards purchase of a copyrighted article for resale/distribution is not in the nature of royalty under Article 12 of the Indo USA tax treaty. He submitted, the decisions relied upon by the assessing officer had been set aside by the Hon ble Supreme Court while deciding the issue in favour of the assessee. Thus, he submitted, the disallowance should be deleted. 8. Learned departmental representative strongly relying upon the observations of the assessing officer and learned Commissioner (Appeals) submitted, as per the provisions of section 195 of the Act, the assessee was required to deduct tax at source while making payment in the nature of royalty. Thus, he submitted, the addition made should be sustained. 9. I have considered rival submissions and perused materials on record. A reading of the impugned assessment order would make it clear that primarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware program, the assessee would be liable for consequential actions and remedies by Savvion, USA. Further, clause 5(c) makes it clear that the assessee has only limited right to use trademark, service mark and logos relating to Savvion, USA or the software program solely in connection with distributing the software program in terms with the agreement. Whereas, ownership of such trademark, service mark and logos relating to the software program will always remain with Savvion, USA. 11. Thus, the aforesaid terms of the agreement make it clear that the assessee is purely a distributor/reseller of a shrink-wrapped/off the shelf software having no right to make any value addition. Any unauthorized use of the software license / product would expose the assessee to legal consequences. Thus, what the facts on record reveal is, the assessee has purchased for distribution a copyrighted article. The assessee had not purchased any copyright either for its internal use, consumption or resale. It is also evident, the computer software purchased by the assessee is not a customized product for a particular customer in India. It is in the nature of a standardized product which can be sold to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax at source under section 195 of the Act. That being the case, the disallowance made by the assessing officer and sustained by the learned Commissioner (Appeals) is hereby deleted. These grounds are allowed. 13. In grounds 3 and 4, assessee has challenged the disallowance of loss of ₹ 48,54,215/-. 14. Briefly the facts are, in the return of income filed for the impugned assessment year, the assessee had claimed deduction under section 10B of the Act in respect of its export oriented unit (EOU). In course of assessment proceedings, the assessing officer, while examining assessee s claim of deduction observed that the assessee has furnished segmental profit and loss account and a certificate from the chartered accountant in form 56G. On perusal of the said document, he observed that out of the total turnover of ₹ 9,69,53,236/-, the turnover of the EOU is ₹ 8,38,77,285/- working out to 86.51% of the total turnover. In other words, the turnover of the non EOU unit is ₹ 1,30,75,950/-. On a query to the assessee, it was submitted that employee expenses have been bifurcated on actual basis. However, he alleged that the assessee did not furnish any employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him. The dispute is only with regard to the apportionment of salary paid to the staff. It is observed, before the departmental authorities, the assessee had furnished a list of employees working exclusively for the EOU unit, whereas, the assessing officer has alleged that the assessee had not provided any employeewise details of work performed and other related activities in respect of EOU and non EOU units. Further, the assessing officer has also observed that the assessee has failed to prove that the salary has been bifurcated on actual basis. In case, the assessee is maintaining separate books of account, salary paid to employees of both EOU and non EOU units can be distinctly ascertainable/identifiable from the them, hence, assessee s claim cannot be rejected. 18. After perusing the material on record, I am of the view that the departmental authorities have not properly examined the issue factually. Therefore, I direct the assessing officer to verify the books of account maintained, both, for EOU and non EOU units and if the salary paid to the employees of both the EOU and non EOU units, is found to be on actual basis as per the separately maintained books of account, no di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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