The Chennai bench of Income Tax Appellate Tribunal(ITAT) has recently expressed a view that payments made to the non-residents towards the purchase of software products were not chargeable to tax under the Income Tax Act, 1961.
The assessee company is engaged in providing software and related services in the Banking and Financial Service Sector further provides services in electronic payment transactions under different modules. The assessee company renders a wide range of solutions for ATM/Point of sales and delivers services relating to driving, switching, mobile banking, internet commerce gateway etc., In the normal course of business, the assessee company made payments to ACI Worldwide Singapore (Pte) Limited and M/s. Integrated Research Pvt. Ltd being two non-resident entities towards the procurement of software products. The assessee company operates under a distribution model, were software products are procured from M/s. ACI Worldwide Singapore (Pte) Limited and M/s.Integrated Research Pvt. Ltd and in turn supplied these software products to various customers in India. The assessee company case was selected under scrutiny and assessment was completed/sec. 143(3) of the Act by disallowing payments to non-resident company towards purchase of software products u/s.40(a) (i) of the Act. The ld. Assessing Officer disallowed expenditure treated as royalty payments to non-resident companies and the ld. Commissioner of Income Tax (Appeals) has confirmed the order of the ld. Assessing Officer. On further appeal the Tribunal has deleted the addition and passed the order in the year 2014. The present proceedings arise out of order u/s.201(1) and 201(1A) of the Act. The ld. Assessing Officer found that the assessee company purchased software license from M/s. ACI Worldwide Singapore (Pte) Limited, Singapore and M/s.Integrated Research Pvt (Australia) and distributes to various banks in India and received foreign remittances of? 35.78 crores during the financial years 2002-03 to 2009-2010.
The Tribunal followed the decision of the Honorable Chennai Tribunal in the assessee’s own case for the same assessment year wherein the Honorable Tribunal has held that there was no requirement for the appellant to deduct tax at source under section 195 of the Act and hence, no disallowance is warranted under 40(a)(i) of the Income Tax Act. It was also held in the earlier case that the payments made to the non-residents towards the purchase of software products were not chargeable to tax in India under the provisions of the Act and under the applicable tax treaties. Further, the Hon’bleIncome Tax Appellate Tribunal in the assessee’s own case held that the payments cannot be treated as Royalty even under the provisions of the Act. Following this decision of Co-ordinate on the issue of purchase of software is not in the nature of Royalty and no disallowance u/s.40(a)(i) of the Act is warranted, the Tribunal set aside the order of ld. Commissioner of Income Tax (Appeals) concurred with the Assessing Officer in passing order u/s.201(1) and 201(1A) of the Act and allow the ground of the assessee.
Read the full text of the order below.
