The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that amount paid for resale of computer software through End User License Agreement doesn’t amount to deduction in Tax under Section 195 of the Income Tax Act, 1961.
The Assessing Officer was of the opinion that as per the provisions of Section 9(1)(vi) of the Income-tax Act consideration for software constitutes Royalty under the Act and such royalty is taxable in India.
Hence, the company was required to deduct TDS on payments made to Innovative Education Services PTE Ltd, Singapore.
According to the Assessing Officer, provisions of the India-Singapore Double Taxation Avoidance Agreement (DTAA) will govern the taxability of such payments.
The assessee was asked to show cause as to why expenses incurred by the assessee company for the purchase of Turnitin and Ithenticate should not be disallowed under Section 40(a)(i) of the Income Tax Act as due TDS was not deducted on such remittances even though the amount was taxable in India.
The counsel for the assessee straightaway relied upon the decision of the Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt Ltd 432 ITER 471 and stated that the impugned quarrel has now been decided by the Supreme Court in favour of the assessee and against the revenue.
The amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in Section 195 of the Income Tax Act were not liable to deduct any TDS under Section 195 of the Income Tax Act.
The two-bench member comprising of Saktijit Dey (Judicial member) and N.K Billaiya (Accountant member) followed the decision of the Supreme Court and the Assessing Officer was directed to delete the impugned addition.
Thus, the appeal of the assessee was allowed.
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