INCOME TAX ACT, 1961

Section 195

Tax deduction at source - Under section 195 - Software expenses paid to AE treated as royalty - Assessee being only distributor of products, though consideration fixed as a precentage of cost of software

Assessee claimed deduction of software expenses of Rs. 2 crores paid to its AE. AO treated this as purchase of software and thus disallowed deduction for want of TDS under section 195. Assessee's case was that it was only a distributor of products and enabled transaction and assessee did not purchase any software from AE directly and amount debited by assessee as purchase of software licence was just the price being payable to AE after retaining its applicable margin. Held: As per letter written by AE to assessee-company, assessee was authorised to sell the product 'Kaseya VSA' within India and it was specified that assessee would retain a margin of 15% on cost. It was the manner of fixing purchase price of assessee-company as per which, price to be paid by assessee company to its AE would be such which would result in a margin to assessee company to the extent of 15% of cost and this manner of price fixation would not alter the nature of transaction and it was still a purchase as accounted for by assessee-company and, therefore, TDS was called for against the assessee.

REFERRED :

FAVOUR : Against the assessee.

A.Y. :

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