INCOME TAX ACT, 1961

Section 195

Tax deduction at source - Under section 195 - Whether receipts received by non-resident assessee on account of sale of software with support services to Indian customers would amount to royalty -

Assessee-company was situated in Netherlands. It was engaged in sale of software and tangible hardware like routers, switches, optical network etc. It was also providing necessary support services to its customers in relation to the products supplied. AO treated receipts of the assessee on account of sale of software with support services to Indian customers as royalty under section 9(1)(vi) and under DTAA between India and Netherlands on which tax at source was liable to be deducted under section 195. On appeal, CIT (A) upheld the order of the AO. Held: Since distribution agreements/EULAs (End-User Licence Agreements) between resident Indian end-user and foreign software suppliers did not create any interest or right in such distributors/end-users, which would amount to use of or right to use any copyright, as contained in definition of 'royalty' defined under section 9(1)(vi) and under DTAA between India and Netherlands; there was no obligation to withhold tax under section 195. Therefore, AO was not justified in treating receipts of non-resident assessee from sale of software with support services as royalty.

Followed:Engineering Analysis Centre of Excellence Private Limited v. The CIT & Anr. (2021) 125 Taxmann.com 42 (SC) : 2021 TaxPub(DT) 1208 (SC)

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2017-18

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