INCOME TAX ACT, 1961

Section 195

TDS under section 195 - Applicability of disallowance under section 40(a)(i) - Liability for deduction of tax - Whether payment made was Royalty or not

Issue arose for consideration as to whether Tribunal was justified in holding that the payments made by assessee cannot be treated as royalty and hence, there was no liability for deduction of tax under section 195 and consequently holding that provisions of section 40(a) were not applicable. Held: Substantial question of law framed by this Court in [Income Tax Appeals 205/2009 c/w 204 & 206/2009, dt. 22-6-2015]] is answered in favour of the revenue and against the assessee. However, in the event the assessee succeeds before the Apex Court, it is clear that this order also cannot come into effect. AO should therefore, pass an order under section 260(1A), based on the outcome of assessee's appeal before Apex Court. If assessee loses his battle before the Apex Court, then before giving effect to this order, the assessing authority shall consider the application of Article 24(4) of the DTAA between India and the Netherlands. Though the said question was not raised by assessee before authorities, the same being purely a question of law and the said DTAA being a beneficial piece of delegated legislation, if assessee is entitled to the benefit of the same, that cannot be denied to it.

Followed:CIT v. M/s Rational Software Corporation (India) Ltd. [Income Tax Appeals 205 c/w 204 & 206/2009, dt. 22-6-2015]

REFERRED :

FAVOUR : Against the assessee

A.Y. :

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