Income Tax applicable on payment made by distributor for getting Software from a Foreign Company: ITAT [Read Order]

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The Income Tax Appellate Tribunal (ITAT), Bangalore Bench held that the payment which is made by the distributor for getting software from a foreign company is taxable.

The assessee, M/s Kaseya Software India Private Limited was responsible for software distribution in India, conducting events, and other advertising expenses. The Indian entity charged a 15% margin over the cost incurred.

It was stated by the AE that the assessee is eligible for a margin of 15% on the cost and it should be retained by the assessee company and the AE will reimburse all expenses incurred by the assessee company on Salary including Directors’ Remuneration, Advertisement, Travelling and traveling related expenses, Business Promotion Expenses, Communication Expenses, Marketing Expenses, public relation cost, seminar and sponsorship expenses, etc.

The issue raised in this case was whether the sum debited to the profit and loss account by the taxpayer as software expenses was the purchase of software or mere reimbursement by the taxpayer to the foreign entity.

The company obtained the purchase order from the Indian Customers in respect of certain IT Monitoring Software Products of Kaseya International Limited, Jersey as per agreed price for which the assessee company is acting as a distributor for distributing keys of such software.

The coram consisting of Bina Pillai and Garodia opined that the arrangement of the assessee company with its AE is of purchase of computer software at an agreed price i.e. sale price to the Indian customers minus margin of the assessee company equal to 15% of the cost as specified in the letter. Also, it is 15% of the purchase price paid by the assessee company to its AE.

The ITAT held that the assessee company is a distributor does not change the nature of the transaction and it is still a purchase as accounted for by the assessee company and these judgments followed by the AO and CIT(A) are applicable and the issue is covered against the assessee.

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