The Tax Publishers2019 TaxPub(DT) 8122 (Pune-Trib)

INCOME TAX ACT, 1961

Sections 40(a)(i),195

Since purchase of software licenses by assessee being copyrighted articles would not be covered by the term “royalty” under section 9(1)(vi), the assessee was not liable to deduct tax for payments made for purchase of software licenses and hence, the disallowance made under section 40(a)(i) would not be sustainable.

Tax deduction at source - Under section 195 - Payment for purchase of software licenses -

Assessee-company made payments to its AE situated in USA for acquiring software licenses. AO observed that the said payments were in the nature of FIS/Royalty within the meaning of section 9(I)(vi) & 9(I)(vii) and Article 12 of the DTAA entered into between India and USA. Accordingly, the AO made disallowance under section 40(a)(i) for non-deduction of TDS on the said payments made by the assessee. CIT (A) also upheld the order of the AO. Held: Purchase of software licenses by assessee being copyrighted articles would not be covered by the term “royalty” under section 9(1)(vi). Where the assessee did not acquire any copyright in the software, it would not be covered under Explanation 2 to section 9(1)(vi). Further, amended definition of “royalty” under the domestic law could not be extended to the definition of “royalty'' under DTAA, where the term “royalty” originally defined had not been amended. Moreover, since the provisions of DTAA overrides the provisions of Income Tax Act and are more beneficial and the definition of “royalty” having not undergone any amendment in DTAA, the assessee was not liable to deduct tax for payments made for purchase of software licenses. Hence, the disallowance made under section 40(a)(i) would not be sustainable.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2009-10

INCOME TAX ACT, 1961

Section 40(a)(i)

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