Consideration paid to Non-Resident Software Manufactures or Suppliers doesn’t give rise to Income Taxable, No TDS deductible: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore Bench held that consideration paid to non-resident software manufactures or suppliers does not give rise to income taxable in India and was not liable for deduction of tax at source under section 195 of the Income Tax Act.

The assessee, M/s.Altisource Business Solutions is a private limited company. It provides contract software development and support services and information technology (IT) enabled services including data analysis, compilation and transmission of customized software to overseas affiliates. The assessments were completed by making disallowance of software expenses paid to non- residents by invoking the provisions of section 40(a)(ia) of the Income Tax Act.

Based on the disallowance under section 40(a)(ia), in assessments completed, proceedings under section 201(1) were initiated. The assessee was to show cause why it should not be treated as an assessee in default for non-deduction of tax at source under section 195. The assessee filed detailed response to the above-said show-cause notice. However, proceedings were completed by the Assessing Officer under section 201(1) and 201(1A) by treating the assessee as an assessee in default. The view taken by the Assessing Officer was confirmed by the CIT(A).

The Departmental submitted that the matter needs to be restored to the AO for examination whether a non-resident owner continues to have proprietary rights in the software and use of software by the Indian company is limited and there is no transfer of copyright.

The coram of Chandra Poojari and George George K held that amounts paid by the assessee to the non-resident computer software manufacturers / suppliers as consideration for the resale or use of computer software, is not payment of royalty for use of copyright in the computer software.

The ITAT while allowing the appeal of the assessee ruled that the consideration paid to non-resident software manufactures or suppliers does not give rise to income taxable in India and was not liable for deduction of tax at source under section 195 of the Income Tax Act.

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